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AP Macroeconomics Key Terms

GDP, inflation, unemployment, money, fiscal and monetary policy, and trade.

92 cardsGrades 9–12, College#ap#economics#macro

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  • ScarcityTerm
    Limited resources against unlimited wants
  • Opportunity costTerm
    The value of the next best alternative given up
  • Production possibilities curveTerm
    Graph of the maximum combos of two goods an economy can produce
  • Comparative advantageTerm
    Producing a good at a lower opportunity cost
  • Absolute advantageTerm
    Producing more of a good with the same resources
  • Gross domestic productTerm
    Market value of final goods and services produced within a country in a year
  • Nominal GDPTerm
    GDP measured at current prices
  • Real GDPTerm
    GDP adjusted for price changes
  • GDP formulaTerm
    C + I + G + (X - M)
  • ConsumptionTerm
    Household spending on goods and services
  • InvestmentTerm
    Spending on capital goods, construction and inventories
  • Net exportsTerm
    Exports minus imports
  • Business cycleTerm
    Alternating expansions and contractions in economic activity
  • RecessionTerm
    A significant decline in economic activity
  • Unemployment rateTerm
    Percent of the labor force that is jobless and looking for work
  • Labor forceTerm
    People employed plus those actively seeking work
  • Frictional unemploymentTerm
    Short-term joblessness while changing jobs
  • Structural unemploymentTerm
    Joblessness due to a mismatch of skills and available jobs
  • Cyclical unemploymentTerm
    Joblessness caused by downturns
  • Natural rate of unemploymentTerm
    Sum of frictional and structural unemployment
  • InflationTerm
    A sustained rise in the general price level
  • Consumer price indexTerm
    Measures the cost of a typical basket of goods over time
  • DeflationTerm
    A sustained fall in the general price level
  • DisinflationTerm
    A slowdown in the rate of inflation
  • Real interest rateTerm
    Nominal rate minus the inflation rate
  • Aggregate demandTerm
    Total spending on domestic output at each price level
  • Aggregate supplyTerm
    Total output firms will produce at each price level
  • Short-run aggregate supplyTerm
    Upward-sloping because some prices and wages are sticky
  • Long-run aggregate supplyTerm
    Vertical at full-employment output
  • Wealth effectTerm
    Spending changes as the value of assets changes
  • MultiplierTerm
    The factor by which an initial spending change affects GDP
  • Marginal propensity to consumeTerm
    Share of extra income spent
  • Spending multiplier formulaTerm
    1 / (1 - MPC)
  • Fiscal policyTerm
    Government spending and tax changes
  • Expansionary fiscal policyTerm
    More spending or lower taxes to boost output
  • Contractionary fiscal policyTerm
    Less spending or higher taxes to cool the economy
  • Automatic stabilizerTerm
    Taxes and benefits that adjust with the economy without new laws
  • Budget deficitTerm
    Spending exceeds revenue in a year
  • National debtTerm
    Total accumulated borrowing
  • Crowding outTerm
    Government borrowing raising interest rates and reducing private investment
  • MoneyTerm
    Anything accepted as a medium of exchange
  • Functions of moneyTerm
    Medium of exchange, unit of account and store of value
  • M1Term
    Currency, checkable deposits and similar liquid money
  • Fractional reserve bankingTerm
    Banks keep a part of deposits and lend the rest
  • Required reserve ratioTerm
    Fraction of deposits banks must hold in reserve
  • Money multiplierTerm
    1 / required reserve ratio
  • Excess reservesTerm
    Reserves beyond what is required
  • Federal ReserveTerm
    The US central bank
  • Federal funds rateTerm
    Rate banks charge each other for overnight loans
  • Open market operationsTerm
    Fed buying or selling government securities to change reserves
  • Discount rateTerm
    Rate the Fed charges banks for loans
  • Reserve requirementTerm
    Fed rule on how much banks must hold in reserve
  • Expansionary monetary policyTerm
    Lower interest rates and a larger money supply
  • Contractionary monetary policyTerm
    Higher interest rates and a smaller money supply
  • Quantitative easingTerm
    Large-scale asset purchases to lower long-term rates
  • Money marketTerm
    Graph of money demand and money supply determining the nominal interest rate
  • Loanable funds marketTerm
    Where savers supply funds and borrowers demand them, setting the real rate
  • Phillips curveTerm
    Shows a short-run tradeoff between inflation and unemployment
  • StagflationTerm
    High inflation with high unemployment
  • Supply shockTerm
    A sudden change in production costs that shifts aggregate supply
  • Economic growthTerm
    Increase in real output over time
  • ProductivityTerm
    Output per unit of input
  • Human capitalTerm
    Skills and knowledge of workers
  • Physical capitalTerm
    Machines, buildings and tools
  • Rule of 70Term
    Years to double = 70 divided by the growth rate percent
  • Exchange rateTerm
    The price of one currency in terms of another
  • AppreciationTerm
    A currency gaining value
  • DepreciationTerm
    A currency losing value
  • Balance of paymentsTerm
    Record of a country's transactions with the world
  • Current accountTerm
    Trade in goods and services plus income flows
  • Capital accountTerm
    Flows of financial assets and investment
  • TariffTerm
    A tax on imports
  • QuotaTerm
    A limit on the quantity of imports
  • Trade deficitTerm
    Imports exceed exports
  • Foreign exchange marketTerm
    Where currencies are traded
  • Laffer curveTerm
    Idea that very high tax rates can reduce revenue
  • Recessionary gapTerm
    Real GDP below full-employment output
  • Inflationary gapTerm
    Real GDP above full-employment output
  • Self-correctionTerm
    Wages and prices adjusting over time to return to full employment
  • Supply-side economicsTerm
    Policies aimed at boosting production, such as tax cuts
  • Keynesian economicsTerm
    View that government spending can stabilize demand
  • MonetarismTerm
    View stressing the money supply as key to inflation
  • Neutrality of moneyTerm
    Money supply changes affect only prices in the long run
  • Velocity of moneyTerm
    How often a unit of money changes hands in a year
  • Equation of exchangeTerm
    MV = PQ
  • Fisher effectTerm
    Nominal interest rate rises one-for-one with expected inflation
  • LiquidityTerm
    How easily an asset becomes cash
  • Transfer paymentTerm
    A payment with no good or service in return
  • Progressive taxTerm
    Higher earners pay a larger share of income
  • Regressive taxTerm
    Lower earners pay a larger share of income
  • Taylor ruleTerm
    A guide linking interest rates to inflation and output
  • LeakageTerm
    Money leaving the circular flow: saving, taxes, imports

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