AP Macro Review Flashcards
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| 9681547795 | Aggregate Spending (GDP) | The sum of all spending from four sectors of the economy. GDP = C+I+G+Xn | 0 | |
| 9681547796 | Aggregate Income (AI) | The sum of all income earned by suppliers of resources in the economy. AI=GDP | 1 | |
| 9681547797 | Nominal GDP | the value of current production at the current prices | 2 | |
| 9681547798 | Real GDP | the value of current production, but using prices from a fixed point in time | 3 | |
| 9681547799 | Base year | the year that serves as a reference point for constructing a price index and comparing real values over time. | 4 | |
| 9681547800 | Price index | a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year. | 5 | |
| 9681547801 | Market Basket | a collection of goods and services used to represent what is consumed in the economy | 6 | |
| 9681547802 | GDP price deflator | the price index that measures the average price level of the goods and services that make up GDP | 7 | |
| 9681547803 | Real rate of interest | the percentage increase in purchasing power that a borrower pays a lender. | 8 | |
| 9681547804 | Expected (anticipated) inflation | the inflation expected in a future time period. This expected inflation is added to the real interest rate to compensate for lost purchasing power. | 9 | |
| 9681547805 | Nominal rate of interest | the percentage increase in money that the borrower pays the lender and is equal to the real rate plus the expected inflation | 10 | |
| 9681547806 | Business cycle | the periodic rise and fall (in four phases) of economic activity | 11 | |
| 9681547807 | Expansion | a period where real GDP is growing. | 12 | |
| 9681547808 | Peak | the top of a business cycle where an expansion has ended. | 13 | |
| 9681547809 | Contraction | the period where real GDP is falling | 14 | |
| 9681547810 | Recession | two consecutive quarters of falling real GDP. | 15 | |
| 9681547811 | Trough | the bottom of the business cycle where a contraction has stopped. | 16 | |
| 9681547812 | Depression | a prolonged, deep contraction in the business cycle | 17 | |
| 9681547813 | Consumer Price Index (CPI | the price index that measures the average price level of the items in the base year market basket. This is the main measure of consumer inflation. | 18 | |
| 9681547814 | Inflation | the percentage change in the CPI from one period to the next. | 19 | |
| 9681547815 | Wealth effect/Real Balance Effect | as the avg. PL rises, the purchasing power of wealth and savings begins to fall. High prices therefore tend to reduce the quantity of domestic output purchased. | 20 | |
| 9681547816 | Determinate of AD: | Ad is a function of the four components of domestic spending (C+I+G+Xn) If any of these components increases or decreases, holding the others constant, AD shifts right or left. | 21 | |
| 9681547817 | Aggregate Supply AS: | the positive relationship between the level of domestic output produced and the avg. price level of that output. | 22 | |
| 9681547818 | Macroeconomic short run: | a period of time during which the prices of goods and services are changing their respective markets, but the input prices have not yet adjusted to those changes in the product markets. During the SR, the AS curve has three stages - horizontal, upward sloping and vertical. | 23 | |
| 9681547819 | Macroeconomic long run: | a period of time long enough for input prices to have fully adjusted to market forces. In this period, all product and input markets are in a state of equilibrium and the economy is operating at FE. Once all markets in the economy have adjusted and there exists this long-run equilibrium, the AS curve is vertical at GDPr. | 24 | |
| 9681547820 | Determinates of AS: | (RAP) Resource Prices, Actions of Government, Productivity If these factors make it easier, or less costly, for a nation to produce, AS shifts to the right. If these factors make it more difficult, or more costly, for a nation to produce, then AS shifts to the left. | 25 | |
| 9681547821 | Macroeconomic Equilibrium: | occurs when the Q of real output demanded is equal to the Q of real output supplied. Graphically this is at the intersection of AD and AS. | 26 | |
| 9681547822 | Recessionary Gap: | The amount by which full-employment GDP exceeds equilibrium GDP | 27 | |
| 9681547823 | Inflationary Gap: | the amount by which equilibrium GDP exceeds full-employment GDP. | 28 | |
| 9681547824 | Demand-pull inflation: | this inflation is the result of stronger C from all sectors of AD as it continues to increase in the upward sloping range of AS. The PL begins to rise and inflation is felt in the economy. | 29 | |
| 9681547825 | Deflation: | a sustained falling PL, usually due to weakened AD and a constant AS. | 30 | |
| 9681547826 | Recession: | in the AD and AS model, this is described as falling AD with a constant AS curve. GDPr falls far below FE levels and the U% rises. | 31 | |
| 9681547827 | Circular Flow of Economic Activity: | a model that shows how households and firms circulate resources, goods and incomes though the economy. This basic model is expanded to include the G and Foreign sector. | 32 | |
| 9681547828 | Aggregate | AMOUNTING TO A WHOLE; TOTAL, V. TO COLLECT INTO A MASS, N. COLLECTIVE MASS OR SUM | 33 | |
| 9681547829 | Gross Domestic Product: | the market value of the final goods and services produced within a nation in a given year. | 34 | |
| 9681547830 | Final goods: | goods that are ready for their final use by consumers and firms. | 35 | |
| 9681547831 | Intermediate goods: | goods that require further modification before they are ready for final use. | 36 | |
| 9681547832 | Second hand sales: | final goods and services that are resold. Even if they are resold many times, final goods and services are only counted once, in the year in which they were produced. | 37 | |
| 9681547833 | Non-market transactions: | household work or do-it-yourself jobs are missed by GDP accounting. The same is true of G transfer payments and purely financial transactions. | 38 | |
| 9681547834 | Underground economy: | these include unreported illegal activity, bartering, or informal exchange of cash. | 39 | |
| 9681547835 | Balance sheet | a tabular way to show the assets and liabilities of a bank | 40 | |
| 9681547836 | Asset of a bank | anything the bank owans | 41 | |
| 9681547837 | liability of a bank | anything owned by depositors or lenders (things the bank owes) | 42 | |
| 9681547838 | money multiplier | this measures the maximum amount of new checking deposits that can be created by a single dollar of excess reserves. 1/required reserve | 43 | |
| 9681547839 | expansionary monetary policy | designed to fix a recession and increase AD, lower the U%, and increase GDPr | 44 | |
| 9681547840 | contractionary monetary policy | designed to avoid inflation by decreasing AD, which lowers the PL and GDPr | 45 | |
| 9681547841 | open market operrations | a tool of monetary policy, it involves the Fed'S buying or selling of securities/bonds to or from commercial banks | 46 | |
| 9681547842 | Federal funds rate: | the interest rate paid on short terms loans made from one bank to another. | 47 | |
| 9681547843 | Discount rate | the interest rate commercial banks pay on short term loans from the Fed | 48 | |
| 9681547844 | Quantity Theory of money | a theory that asserts that the Q of money determines the PL and that the growth rate of money determines the rate of inflation. (explains why inflation is caused by printing money) | 49 | |
| 9681547845 | Velocity of money | the average number of times that a dollar is spent in a year. V is defined as PQ/M. | 50 | |
| 9681547846 | Stock | a certificate that represents a claim to, or share of, the ownership of a firm | 51 | |
| 9681547847 | Fiscal Policy | Deliberate changes in government spending and net tax collection to affect economic output, unemployment, and the price level. Fiscal policy is typically designed to manipulate AD to "fix' the economy. | 52 | |
| 9681547848 | Expansionary Fiscal Policy | Increases in government spending or lower net taxes meant to shift the aggregate expenditure function upward and shift AD to the right. | 53 | |
| 9681547849 | Contractionary fiscal policy | Decreases in government spending or higher net taxes meant to shift the aggregate expenditure function downward and shift AD to the left. | 54 | |
| 9681547850 | Sticky prices | If price levels do not change, especially downward, with changes in AD, then prices are thought of as sticky or inflexible. Keynesians believe the price level does not usually fall with Contractionary policy. | 55 | |
| 9681547851 | Budget deficit | Exists when government spending exceeds the revenue collected from taxes. | 56 | |
| 9681547852 | Budget surplus | Exists when government spending is less than revenue collected from taxes. | 57 | |
| 9681547853 | Automatic stabilizers | Mechanisms built into the tax system that automatically regulate, or stabilize, the macroeconomy as it moves through the business cycle by changing net taxes collected by the government. These stabilizers increase a deficit during a recessionary period and increase a budget surplus during an inflationary period, without any discretionary change on the part of the government. | 58 | |
| 9681547854 | Crowding out effect | When the government borrows funds to cover a deficit, the interest rate increases and causes Investment to decrease, causing AD to decrease | 59 | |
| 9681547855 | Net export effect | A rising interest rate increases foreign demand for U.S. dollars. The dollar then appreciates in value, causing net exports from the U.S. to fall. Falling net exports decreases AD, which lessens the impact of the expansionary fiscal policy. | 60 | |
| 9681547856 | Productivity | The quantity of output that can be produced per worker in a given amount of time. | 61 | |
| 9681547857 | Human capital | The amount of knowledge and skills that labor can apply to the work they do and the general level of health that the labor force enjoys. | 62 | |
| 9681547858 | Technology | A nation's knowledge of how to produce goods in the best possible way. | 63 | |
| 9681547859 | Aggregate Demand AD | The inverse relationship between all spending on domestic output and the average price level of that output. AD measures the sum of consumption spending by households, investment spending by firms, government purchases of goods and services, and the net exports bought by foreign customers. | 64 | |
| 9681547860 | Foreign sector substitution effect | When the avg. price of U.S. output increases, consumers naturally begin to look for similar items produced elsewhere. | 65 | |
| 9681547861 | Interest rate effect | If the avg. price level rises, consumers and firms might need to borrow more money for spending and capital investment, which increases the interest rate and delays current consumption. This postponement reduces current consumption of domestic production as the price level rises. | 66 | |
| 9681547862 | Demand curve | A graphical depiction of the D schedule. | 67 | |
| 9681547863 | Determinates of demand | The external factors that shift D to the left or right. | 68 | |
| 9681547864 | Normal goods | A good for which higher income increases D. | 69 | |
| 9681547865 | Inferior goods | A good for which high income decreases D. | 70 | |
| 9681547866 | Substitute goods | Two goods are consumer substitutes if they provide essentially the same utility to the consumer. | 71 | |
| 9681547867 | Opportunity Cost | The value of the sacrifice made to pursue a course of action. | 72 | |
| 9681547868 | Marginal | The next unit or increment of an action. | 73 | |
| 9681547869 | Marginal Benefit (MB) | The additional benefit received from the consumption of the next unit of a good or service | 74 | |
| 9681547870 | Marginal Cost (MC) | The additional cost incurred from the consumption of the next unit of a good or service. | 75 | |
| 9681547871 | Marginal Analysis | Making decisions based up weighing the marginal benefits and costs of that action. | 76 | |
| 9681547872 | Production Possibilities | Different quantities of goods that an economy can produce with a given amount of scarce resources. | 77 | |
| 9681547873 | Nominal Income | Today's income measured in today's dollars. These are dollars unadjusted by inflation. |  | 78 |
| 9681547874 | Real Income | Today's income measured in base year dollars. |  | 79 |
| 9681547875 | Marginal Propensity to Consume (MPC) | The change in consumption caused by a change in disposable income, or the slope of the consumption function. MPC = ▲C/▲DI. |  | 80 |
| 9681547876 | Marginal Propensity to Save (MPS) | The change in saving caused by a change in disposable income, or the slope of the saving function. MPS = ▲S/▲DI |  | 81 |
| 9681547877 | Real Rate of Interest | The cost of borrowing to fund an investment. This can be thought of as the marginal cost of an investment project. |  | 82 |
| 9681547878 | Investment Demand | The inverse relationship between the real interest rate and the cumulative dollars invested. Like any demand curve, this is drawn with a negative slope. |  | 83 |
| 9681547879 | Market for Loanable Funds | The market for dollars that are available to be borrowed for investment projects. Equilibrium in this market is determined at the real interest rate where the dollars saved (supply) is equal to the dollars borrowed (demand) |  | 84 |
| 9681547880 | Demand for Loanable Funds | The negative relationship between the real interest rate and the dollars invested by firms. |  | 85 |
| 9681547881 | Supply of Loanable Funds | The positive relationship between the dollars saved and the real interest rate. |  | 86 |
| 9681547882 | Law of increasing opportunity costs | the more of a good that is produced, the greater the opportunity cost of producing the next unit of that good. | 87 | |
| 9681547883 | Absolute Advantage | exists if a producer can produce more of a good than all other producers. | 88 | |
| 9681547884 | Comparative Advantage | a producer has comparative advantage if he can produce a good at lower opportunity cost than all other producers. | 89 | |
| 9681547885 | Specialization | when firms focus their resources on production of goods for which they have comparative advantage, they are said to be specializing. | 90 | |
| 9681547886 | Productive Efficiency | production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient. | 91 | |
| 9681547887 | Allocative Efficiency | production of the combination of goods and services that provides the most net benefit to society. | 92 | |
| 9681547888 | Economic Growth | occurs when an economy's production possibilities increase. | 93 | |
| 9681547889 | Market Economy (Capitalism) | an economic system based upon the fundamentals of private property, freedom, self-interest, and prices. | 94 | |
| 9681547890 | Stagflation | a situation in the macroeconomy when inflation and the unemployment rate are both increasing. | 95 | |
| 9681547891 | Supply shocks | a supply shock is an economy-wide phenomenon that affects the costs of firms, and the position of the AS curve, either positively or negatively. | 96 | |
| 9681547892 | Phillips curve | A graphical device that shows the relationship between inflation and the unemployment rate. | 97 |