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AP Economics Vocab- 33, 34, 35 Flashcards

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359778049RecessionA period of mildly falling incomes and rising unemployment
359778050DepressionA period of unusually severe falling incomes and rising unemployment
359778051The Business CycleShort-run economic fluctuations
359778052Model of Aggregate Demand and Aggregate SupplyThe model most economists use to explain short-run fluctuations in the economy around its long-run trend
359778053Aggregate-Demand CurveA curve that shows the quantity of goods and services that households, firms, the government, and costumers abroad are willing to buy at each price level
359778054Aggregate-Supply CurveA curve that shows the quantity of goods and services that firms are willing to produce at each price level
359778055Natural Rate of OutputThe production of goods and services that an economy achieves in the long run when unemployment is at its natural or normal rate
359778056Menu CostsCosts associated with changing prices
359778057StagflationA period of falling output and rising prices
359778058Accommodative PolicyA policy of increasing aggregate demand in response to a decrease in aggregate supply
359778059Theory of Liquidity PreferenceKeynes's theory that the interest rate is determined by the supply and demand for money in the short run
359778060LiquidityThe ease with which an asset is converted into a medium of exchange
359778061Federal Funds RateThe interest rate banks charge on another for short-term loans
359778062Fiscal PolicyThe setting of the level of government spending and taxation by government policymakers
359778063Multiplier EffectThe amplification of the shift in aggregate demand from expansionary fiscal policy, which raises incomes and further increases consumption expenditures
359778064Investment AcceleratorThe amplification of the shift in aggregate demand from expansionary fiscal policy, which raises investment expenditures
359778065Marginal Propensity to Consume (MPC)The fraction of extra income that a household spends on consumption
359778066Crowding-Out EffectThe dampening of the shift in aggregate demand from expansionary fiscal policy, which raises the interest rate and reduces investment spending
359778067Stabilization PolicyThe use of fiscal and monetary policies to reduce fluctuations in the economy
359778068Automatic StabilizersChanges in fiscal policy that do not require deliberate action on the part of policymakers
359778069Misery IndexThe sum of inflation and unemployment
359778070Phillips CurveThe short-run trade-off between inflation and unemployment
359778071Natural Rate of UnemploymentThe normal rate of unemployment toward which the economy gravitates
359778072Natural-Rate HypothesisThe theory that unemployment returns to its natural rate, regardless of inflation
359778073DisinflationA reduction in the rate of inflation
359778074Supply ShockAn event that directly alters firms' costs and prices, shifting the economy's aggregate-supply curve and, thus, the Phillips Curve
359778075Sacrifice RatioThe number of percentage points of annual output that is lost in order to reduce inflation one percentage point
359778076Rational ExceptionsThe theory that suggests that people optimally use all available information, including about government policies, when forecasting the future

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