Ap Macroeconomics- Vocabulary From Mr. Clifford’s Acdc Econ Packet Answers – Flashcards
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scarcity
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a situation in which unlimited wants exceed the limited resources available to fulfill those wants
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consumer goods
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goods (such as food or clothing) intended for direct use or consumption
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capital goods
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buildings, machines, technology, and tools needed to produce goods and services
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trade-offs
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alternatives that must be given up when one is chosen rather than another
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opportunity cost
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cost of the next best alternative use of money, time, or resources when one choice is made rather than another
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centrally-planned economies
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an economic system whereby government planners make economic decisions and there is little scope for individuals to influence economic outcome
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free-market economies
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economic systems in which the market largely determines what goods and services get produced, who gets them, and how the economy grows
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mixed economies
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economies in which the government controls certain economic activities it considers key or appropriate to the public trust while leaving others in the hands of the private sector
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investment (as a component of GDP)
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business spending on capital (tools and machinery) that makes businesses more productive
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capital stock
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the amount of capital businesses have more capital stock=more output possible
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3 shifters of the Production Possibilities Curve
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-change in resource quantity or quality -change in technology -change in trade (doesn't change the amount they can produce, but it does change the amount they can consume)
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product market
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the market in which households purchase the goods and services that firms produce
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factor (resource) market
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market in which firms purchase the factors of production from households
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factor payments
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the income people receive for supplying factors of production, such as land, labor, or capital
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transfer payment
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-cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments -they include Social Security benefits, veterans' benefits, and welfare payments
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the Law of Demand
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There is an INVERSE relationship between price and quantity demanded.
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the Law of Supply
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There is a DIRECT relationship between price and quantity supplied.
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5 shifters of DEMAND
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-tastes and preferences -number of consumers -price of related goods (substitutes and complements) -income -future expectations
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5 shifters of SUPPLY
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-prices/availability of inputs (resources) -number of producers -technology -government action: taxes & subsidies -expectations of future profit
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price ceiling
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-a legal maximum on the price at which a good can be sold -set below equilibrium -creates a shortage
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price floor
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-a legal minimum on the price at which a good can be sold -set above equilibrium -creates a surplus
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subsidy
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a government payment that supports a business or market
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GDP
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the total market value of all final goods and services produced annually in an economy
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National Income
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-wages -rent -interest -profit
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nominal GDP
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-GDP measured in current dollars -does NOT account for inflation
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real GDP
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GDP adjusted for inflation and expressed in constant, or unchanging, dollars
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3 things NOT included in GDP
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-intermediate goods -non-production transactions (stocks, real estate, social security, other transfer payments..etc) -non-market activities (illegal production or labor)
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frictional unemployment
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unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills
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structural unemployment
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unemployment that occurs when workers' skills do not match the jobs that are available
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cyclical unemployment
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-unemployment that rises during economic downturns and falls when the economy improves -Getting laid off due to a recession is the classic case of this.
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natural rate of unemployment (NRU)
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-the "normal" unemployment rate due to frictional and structural conditions in labor markets -it is the unemployment rate that occurs when the economy is operating at a sustainable rate of output -no cyclical unemployment
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consumer price index (CPI)
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an index number that shows how prices change over time for a fixed basket of goods price of market basket/price of market basket in base year x 100
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GDP Deflator
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an index number that measures all prices and is used to convert nominal GDP into real GDP nominal GDP/real GDP x 100
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deflation
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a general decrease in prices and rise in the purchasing value of money
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inflation
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a general increase in prices and fall in the purchasing value of money
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disinflation
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-a reduction in the rate of inflation -there is still a positive rate of inflation
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velocity of money
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the average number of times each dollar in the money supply is used to purchase goods and services included in GDP
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4 shifters of aggregate demand
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-consumer spending -investment spending -government spending -net exports (exports minus imports)
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3 shifters of aggregate supply
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-resource prices -actions of the government (taxes, regulations, subsidies...etc) -productivity/efficiency
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negative supply shock
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-occurs when key input rapidly becomes more scarce and/or expensive or when producers are pessimistic about future profits -SRAS "jumps" left.
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positive supply shock
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-occurs when key input rapidly becomes more available and/or inexpensive or when producers are optimistic about future profits -SRAS "jumps" right.
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stagflation
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a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation) a decline in real GDP combined with a rise in the price level
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autonomous consumption
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the level of consumption which does not depend on income (the argument is that even with zero income you still need to buy enough food to eat, through borrowing or running down savings)
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disposable income
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the income of consumers that is left over after the payment of income taxes
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classical economic theory
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the view that an economy will self-correct from periods of economic shock if let alone; "laissez-faire"
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Keynesian economic theory
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-the theory emphasizing that government spending and deficits can help the economy weather its normal ups and downs -proponents of this theory advocate using the power of government to stimulate the economy when it is lagging.
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discretionary fiscal policy
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Congress designs a new bill intended to change AD through government spending or taxation
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non-discretionary fiscal policy
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-permanent spending or taxation laws enacted to work counter-cyclically to stabilize the economy -automatic stabilizers
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automatic stabilizers
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government policies already in place that promote deficit spending during recessions and surplus budgets during expansions
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expansionary fiscal policy
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laws enacted to increase output -increase government spending -decrease taxes (which increases disposable income)
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contractionary fiscal policy
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laws enacted to reduce inflation -decrease government spending -increase taxes (which decreases disposable income)
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the multiplier effect
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This occurs when one person's spending is received as income by another person, who in turn uses some of that income in new spending. if this continues repeatedly, the total income will increase.
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marginal propensity to consume (MPC)
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the portion of additional income that is spent on consumption (Change in Spending / Change in Income)
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marginal propensity to save (MPS)
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the portion of additional income that is saved (Change in Saving / Change in Income)
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deficit spending
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when a government spends more than it takes in and goes into debt
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time lags
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periods between the time fiscal policy is enacted and the time it becomes effective
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crowding-out effect
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-the rise in interest rates and the resulting decrease in investment spending in the economy caused by increased government borrowing in the loanable funds market -seen as a disadvantageous side effect of expansionary fiscal policy.
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the financial sector
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the part of the economy made up of institutions (like banks) that focus on pairing lenders and borrowers
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assets
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-any item of economic value that can be converted into cash -something owned (car, house, bonds..etc)
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liabilities
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-a legal or financial obligation that must be paid back -something owed
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liquidity
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a measure of the ease with which an asset can be converted into money
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transaction demand for money
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-the amount of money people demand to make everyday purchases -NOT affected by the interest rate
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asset demand for money
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-the amount of money people want to hold as a store of value -this amount varies INVERSELY with the interest rate
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3 functions of money
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-medium of exchange -unit of account -store of value
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commodity money
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objects that have value in themselves and that are also used as money
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fiat money
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-money without intrinsic value that is used as money because of government decree -NOT based on any sort of gold or silver standard
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3 shifters of the money supply
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-the reserve ratio -the discount rate -open market operations (when the FED buys or sells government bonds)
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fractional reserve banking
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a banking system that keeps only a fraction of funds on hand and lends out the remainder
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federal funds rate
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the interest rate banks charge each other for overnight loans
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excess reserves
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the amount of any deposit that does NOT have to be held aside and may be used to make loans and buy investments
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required reserves
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the amount of any deposit that must be set aside and not used to make loans or buy investments
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demand deposits
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bank deposits that can be withdrawn at any time (example: checking accounts)
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owner's equity
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the amount of money owners have put into a company or bank It doesn't need to be held in reserve.
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exports
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the goods and services that a nation produces and then sells to other nations
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imports
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the goods and services that a nation buys from other nations
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net exports (Xn)
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exports minus imports
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trade deficit
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importing more than was exported
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trade surplus
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exporting more than what was imported
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Balance of Payments
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-the summary of all international transactions within a given year prepared in the domestic country's currency -it has two accounts, the current account and the financial account
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the Current Account
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measures the international trade in goods and services, investment income, and net transfer payments
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the Financial Account (the Capital Account)
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measures the international trade of financial assets like stocks, bonds, and real estate
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net capital flow
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the difference between capital inflows ( investment financed by savings from another country) and capital outflows (domestic savings invested abroad
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capital inflow
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foreign savings that finance investment spending domestically (Example: France invests in U.S. businesses)
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capital outflow
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domestic savings that finance investment spending in another country (Example: The U.S. invests in French businesses.)
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appreciation
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the increase of value of a country's currency relative to a foreign currency
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depreciation
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the decrease of value of a country's currency relative to a foreign currency
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FOREX (foreign exchange) shifters
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-change in tastes -change in relative incomes -change in price level -changes in relative interest rates
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floating exchange rates
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an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention
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fixed exchange rates
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system under which the price of one currency is fixed in terms of another so that the rate does not change
