AP macroeconomics Flashcards

13885257930	absolute advantage	the ability to produce something more efficiently	0
13885257931	capital	productive equipment or machinery	1
13885257932	comparative advantage	the ability to produce something with a lower opportunity cost	2
13885257933	economics	a social science that studies how resources are used and is often concerned with how resources can be used to their fullest potential	3
13885257934	efficiency	using resources to their maximum potential	4
13885257935	labor	all human activity that is productive	5
13885257936	land	all natural resources	6
13885257937	law of Increasing costs	law that states that when more of a product is initially being produced, the higher the opportunity cost will be to produce still more	7
13885257938	macroeconomics	economic problems encountered by the nation as a whole	8
13885257939	microeconomics	economic problems faced by individual units within the overall company	9
13885257940	opportunity cost	the amount of one good that must be sacrificed to obtain an alternative good	10
13885257941	positive economics	economic analysis that draws conclusions based on logical deduction or induction (value judgements are avoided)	11
13885257942	production possibilities frontier	the combinations of two goods that can be produced if the economy uses all of its resources fully and efficiently	12
13885257943	normative economies	economies involving value judgement	13
13885257944	resource	anything that can be used to produce a good or service	14
13885257945	allocative efficiency	term for resources being deployed to produce just the right amount of each product to satisfy society's wants	15
13885257946	capitalism	an economic system where supply and demand determine prices	16
13885257947	circular flow diagram	diagram that shows how households and firms are related by the exchange of resources and products	17
13885257948	command economy	economy in which the central government dictates what will or will not be produced and who gets what	18
13885257949	the law of demand	law that states that when the price of a product increases, the quantity demanded decreases, ceteris paribus	19
13885257950	law of supply	law that states that when the price of a product increases, the quantity supplied increases, ceterus paribus	20
13885257951	mixed economy	a blend of government commands and capitalism	21
13885257952	consumption expenditures	all the goods and services sold to households	22
13885257953	disposable personal income (DPI)	the income of households after taxes have been paid	23
13885257954	government expenditures	goods and services sold to governments	24
13885257955	gross domestic product (GDP)	dollar value of production within a nation's borders	25
13885257956	gross national product (GNP)	dollar value of production by a country's citizens	26
13885257957	intermediate sales	sales to firms that will incorporate the item into their final product	27
13885257958	investment sales	sales to firms that will incorporate the item into their final product	28
13885257959	investment expenditures	expenditures by businesses on plants and equipment plus the change in business inventories	29
13885257960	national income (NI)	the income earned by households and profits earned by firms after subtracting depreciation and indirect business taxes	30
13885257961	national income and product accounts (NIPA)	a comprehensive group of statistics that measures various aspects of the economy's performance	31
13885257962	net exports	exports minus imports	32
13885257963	personal income (PI)	income received by households	33
13885257964	real GDP	GDP adjusted for the price changes	34
13885257965	underground economy	all the illegal production of goods and services and legal production that does not pass through markets	35
13885257966	GDP	C+I+G+X	36
13885257967	GDP per capita	GDP/population	37
13885257968	consumer price index (CPI)	measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services	38
13885257969	cyclical unemployment	loss of jobs by individuals during a recession and the corresponding slowdown in production	39
13885257970	fisher's hypothesis	Nominal Interest Rate= Real Interest Rate + Expected Inflation	40
13885257971	frictional unemployment	state of being out of work because the person is in between jobs	41
13885257972	GDP deflator	measure of the level of prices in the economy	42
13885257973	hidden unemployment	describing those who are able to work but who are not actively seeking employment because they are discouraged about their prospects for finding employment	43
13885257974	inflation	a sustained rise in most prices in the economy	44
13885257975	menu cost	the misallocation of resources because of inflation	45
13885257976	nonaccelerating inflation rate of unemployment	the full employment rate of unemployment; when employment falls below this rate, inflation accelerates	46
13885257977	seasonal unemployment	state of being out of work because of the time of year	47
13885257978	structural unemployment	state of being out of work because the economy is structured, or set up, to a person's disadvantage	48
13885257979	unemployment rate	the number of unemployed persons divided by the labor force	49
13885257980	CPI	(Total Cost this Period/Total Cost Base Period) x 100	50
13885257981	Inflation rate	[(this period CPI-previous period CPI)/previous period CPI] x 100	51
13885257982	GDP deflator	(GDP/Real GPD) x 100	52
13885257983	Real GDP	(GDP/GDP deflator) x 100	53
13885257984	Nominal Interest Rate	Real Interest Rate + Expected Inflation	54
13885257985	Unemployment Rate	Number of unemployed/civilian labor force	55
13885257986	aggregate demand	the demand for all goods and services by all households, business, governments, and foreigners	56
13885257987	aggregate supply	the supply of all goods and services by all producers in the economy	57
13885257988	break-even point	point where the consumption function crosses the 45 degree line and income equals spending so that saving is zero	58
13885257989	business cycle	a wave of economic activity comprised of an expansion and a recession	59
13885257990	classical economic theory	the predominant paradigm in economic analysis from about 1800 until 1930, based on Say's Law	60
13885257991	consumption theory	the relationship between consumer spending and income	61
13885257992	equilibrium price level	the price level that equates aggregate supply and aggregate demand, the average level of prices in the economy	62
13885257993	equilibrium quantity	the amount of output that results in no shortage or surplus, the amount of goods and service bought and sold in the economy	63
13885257994	expansion	a sustained improvement in economic activity	64
13885257995	Keynesian theory	theory that opposes Classical theory by emphasizing the short run and focusing on economies that are operating below full capacity	65
13885257996	marginal propensity to consume (MPC)	idea that given an extra dollar, how much is spent?	66
13885257997	multiplier	an initial change in spending in the economy that will have a magnified, or multiplied, effect on income	67
13885257998	recession	a sustained decline in economic activity	68
13885257999	Say's Law	theory that supply creates its own demand	69
13885258000	MPC	change in spending / change in income	70
13885258001	Multiplier	1/(1-MPC)	71
13885258002	total change in income	Initial Change in Spending x Multiplier	72
13885258003	automatic stabilizers	government policies already in place that promote deficit spending during recessions and surplus budgets during expansions	73
13885258004	crowding out	the increase in interest rates and subsequent decline in spending that occurs when the government borrows money to finance a deficit	74
13885258005	deficit	situation that exists when government spending exceeds tax revenues	75
13885258006	fiscal policy	changes in government spending and taxes to fight recessions or inflations	76
13885258007	inflationary gap	what occurs when the equilibrium quantity of output is above potential output	77
13885258008	Phillips tradeoff	the inverse relationship between inflation and unemployment	78
13885258009	rational expectations	the idea that households and businesses will use all the information available to them when making economic decision	79
13885258010	recessionary gap	what occurs when the equilibrium quantity of output is below potential output	80
13885258011	stagflation	term used to describe the situation when the economy experiences inflation and a recession simultaneously	81
13885258012	surplus	spending by the government that is less than tax revenues	82
13885258013	change in real GDP	Initial Change in Spending x Multiplier	83
13885258014	certificate of deposit	debt instrument that is similar to a savings account except the interest rate is slightly greater and the deposit cannot be drawn on without penalty	84
13885258015	currency	coins and paper money	85
13885258016	discount rate	the rate of interest the FED charges when it makes loans to depository institutions	86
13885258017	excess reserves	the amount of any deposit that does not have to be held aside and may be used to make loans and buy investments	87
13885258018	federal reserves	the central bank of the United The United States	88
13885258019	fiat money	money that is not backed by any precious commodity	89
13885258020	government securities	IOUs that the government issues when it borrows money	90
13885258021	liquidity	the ability to turn an asset into cash rapidly and without loss	91
13885258022	M1	currency, transaction accounts, and travelers' checks	92
13885258023	M2	M1 plus savings accounts, certificates of deposit, and other liquid assets	93
13885258024	money	anything that society generally accepts in payment for a good or service	94
13885258025	money multiplier	1/reserve requirement, the multiple by which the money supply will change because of a change in bank reserves	95
13885258026	open market operations	activities in which the FED buys and sells government securities in the secondary market	96
13885258027	required reserves	the amount of any deposit that must be held aside and not used to make loans or buy investment	97
13885258028	reserve requirement	the percentage of any deposit that must be held aside and not used to amke loans or buy investments	98
13885258029	savings account	an account at a depository institution that earns interest while the funds are readily available but cannot be withdrawn with checks	99
13885258030	secondary market	place where government securities that have already been issued may be bought or sold	100
13885258031	transaction account	a checking account at a bank or a similar account at some other depository institution	101
13885258032	money multiplier	1/ Reserve Requirement	102
13885258033	change in money supply	Money Multiplier x Change in Bank Reserves	103
13885258034	board of governors	executive board of the FED that makes major monetary policy decisions	104
13885258035	demand management policy	monetary and fiscal policy	105
13885258036	equation of exchange	M x V = P x Q; the money supply times its velocity equals the price level times output	106
13885258037	federal open market committee (FOMC)	a committee within the FED that designs and executes the particular of monetary policy	107
13885258038	monetarist	one who believes that changes in the money supply have a profound effect on the economy	108
13885258039	monetary neutrality	policy in which a change in the money supply would result in a proportional change in prices while real variables, such as the unemployment rate, would be unaffected	109
13885258040	monetary policy	changes in the money supply to fight recessions or inflations	110
13885258041	money demand	the amount that households and firms want to hold in currency and deposits	111
13885258042	velocity of money	describing the number of times the typical dollar of M1 or M2 is used to make purchases during a year	112
13885258043	equation of exchange	M x V = P x Q	113
13885258044	capital productivity	the amount of output per unit of plant and equipment	114
13885258045	economic growth	growth of output usually measured by the percentage change in real GDP or real GDP per capita	115
13885258046	human capital	the skill and knowledge embodied in the labor force	116
13885258047	labor productivity	the amount of output per unit of labor	117
13885258048	potential GDP	the amount that can be produced using resources fully and efficiently	118
13885258049	productivity	output per unit of input	119
13885258050	total productivity	the amount of all inputs	120
13885258051	Rule of 70	years it takes a variable to double =70/the annual growth rate of the variable	121
13885258052	appreciation	the increase of the value of a currency in terms of another currency	122
13885258053	balance of payments	an accounting of the funds that flow in and out of a country comprised of the capital account and the current account	123
13885258054	balance of trade	a nation's exports minus its imports	124
13885258055	capital account	a portion of the balance of payments comprised of foreign purchases of US assets minus US purchases of foreign assets, plus the change in official reserves	125
13885258056	closed economy	a hypothetical economy with no foreign trade	126
13885258057	current account	a portion of the balance of payments comprised of the trade balance, net investment income, and net transfers	127
13885258058	depreciation	the decrease of the value of a currency in terms of another currency	128
13885258059	dumping	the practice or foreign producers selling a product in the domestic market for less than it cost to produce it	129
13885258060	exchange rate	the value of one country's currency in terms of another's	130
13885258061	gold standard	a unit of one currency that is equivalent to a stated amount of gold	131
13885258062	import quota	a limit on the amount of a product that can be imported	132
13885258063	import tariff	a tax on a specified import product	133
13885258064	infant industries	those industries that are just getting started, perhaps requiring trade restrictions	134
13885258065	intervention	situation in which a nation or group of nations uses their official reserves to supply or demand a currency in order to alter the exchange rate	135
13885258066	managed float	an exchange rate regime where supply and demand determine exchange rates with occasional intervention when warranted	136
13885258067	net investment income	amount US citizens earned as interest and dividends from abroad minus how much was paid to foreigners in interest and dividends	137
13885258068	net transfers	money our government and citizens send as gifts or aid to foreigners minus how much foreigners send to us in gifts and aid	138
13885258069	official reserves	government's holdings of foreign currencies	139
13885258070	open economy	an economy with foreign trade	140
13885258071	trade deficit	excess of a nation's imports over its exports	141
13885258072	trade surplus	excess of a nation's exports of over its imports	142
13885258073	balance of payments	current account +capital account	143