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AP Macroeconomics: Key Concepts
Terms in this set (79)
Calculating Real GDP
(nominal/deflator) X 100
The advantage conferred by the ability to produce more of a good or service with a given amount of time and resources; not the same thing as comparative advantage.
Other things being equal or constant.
Manufactured goods used to make other goods & services or human made goods & services
The reduction in the value of an asset with the passage of time.
The price of one currency in terms of another
Any asset that can easily be used to purchase goods & services.
The real cost of an item; what you must give up in order to get it.
The amount by which the value of a country's exports exceeds the cost of its imports.
The effectiveness of productive effort; output per unit of input.
When our wants are greater than our limited resources; both limited & desired.
Increase in the total spending in an economy as a result from an initial injection of new spending.
"Additional": making decisions based on the additional benefit vs. the additional cost.
A rise in the overall level of prices in the economy over time.
Changes in government spending & tax collection implemented by government with the goal of either decreasing or increasing aggregate demand.
The use of goods and services by households.
An increase in the max amount of goods and services a country can produce.
Loan in the form of an IOU that pays interest.
Real Interest Rate Equation
Nominal interest rate - inflation rate
A bank's reserves over and above the reserves required by law or regulation.
GDP = C+I+G+Xn
The short-run alternation between economic downturns (recessions) and economic upturns (expansions).
The increase in monetary value over time.
The improvement in labor created by the education and knowledge embodied in the workforce.
The unemployment due to time workers spend in job search; the workers have skills, but there are no jobs.
Monetary value of all the finished goods and services produce within a countries borders in a specific time period.
The trade in short-term loans between banks and other financial institutions.
Period of economic downturn when output and unemployment are failing; aka contraction.
Unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate; the skill set is not needed in the current market.
The value of accumulated savings.
Unemployment Rate equation
(# of unemployed / labor force) X 100
Aggregate Demand (AD)
A schedule or curve that shows the total quantity demanded for all goods & services of a nation at various price levels at a given period of time.
Aggregate Supply (AS)
The total amount of goods & services that all the firms and all the industries in a country will produce at various price levels in a given period of time.
Consumer Price Index (CPI)
An index that measures the price of a fixed market basket of consumer goods bought by a typical consumer used to calculate a nation's inflation.
When an individual firm, or nation is able to produce a product at a lower opportunity cost than others.
When an economy is producing at a level of output at which almost all nation's resources are employed.
Inflation and unemployment increase
An economic theory holding that variations in unemployment and the rate of inflation are usually caused by changes in the supply of money
Law of Increasing Opportunity Cost
As more of a particular product is produced the opportunity cost to produce another product increases.
Goods & services produced in a country bought by another country.
GDP Growth Rate Equation
(current year's GDP- last years GDP/ last years GDP) X 100
quantity Theory of Money Equation
When a government spends more than it collects in tax revenues in a given year.
Circular Flow Diagram
A model of the macroeconomy that shows the interconnections of businesses, households, government, banks and the foreign sectors.
Classical Economic Theory
The view that an economy will self-correct from periods of economic shock if left alone.
When a government intervenes in the market for its own currency to weaken it relative to another currency.
Unemployment due by a fall in aggregate demand in a nation.
Difference between a nation's equilibrium level of output and its full employment level of output when a nation is overheating.
Loanable Funds Market
Market in which the demand for private investment and the supply of household savings intersect to determine equilibrium real interest rate.
Natural Rate of Unemployment
Level of unemployment that prevails in an economy that is producing at its full employment level of output.
Balance of Payments
Measures all the monetary exchanges between one nation and all other nations.
measures the flow of funds for investment in real assets (such as factories or office buildings) or financial assets (such as stocks & bonds) between a nation and the rest of the world.
Inflation resulting from a decrease in aggregate supply (from higher wage rates & raw material prices, ex. oil) and accompanied by a decrease in real output and unemployment.
Land, labor, capital, & entrepreneurial ability that are used in the production of goods and services. They are economic resources because they are scarce.
A decrease in the level of output in a nation over time.
The price index for all final goods and services used to adjust the nominal GDP into real GDP
Rapid increase in average price level resulting form demand-pull inflation leading to higher wages, causing cost-push inflation.
Market Economic System
A system of resource allocation in which buyers and sellers meet in markets to determine the price and quantity of goods and services and productive resources.
The level of output at which a nation is producing at any particular period of time. May be below its full employment level (recession) or beyond if full employment level economy is overheating.
The idea that an economy producing an equilibrium level of output that is below or above its full employment level is left to its own device. Requires flexible wages and prices and is associated with classical economic views.
Contractionary Fiscal Policy
A demand-side policy where by government increases taxes or decreases its expenditures in order to reduce aggregate demand.
Crowding Out Effect
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.
Inflation resulting from an increase in aggregate demand with out an increase in aggregate supply.
Federal Funds Rate
The interest rate banks charge on another on overnight loans made out of their excess reserves.
The opportunity cost of money. Either cost of borrowing or spending money. Price a lender is paid for allowing someone else to use money for a time.
Period over time which the wage rate and price level of inputs in a nation are flexible.
Long Run Aggregate Supply
Level of output to which an economy will always return in the long run.
A component of the money supply including currency and checkable deposits.
The difference between an economy equilibrium level of output and its full employment level of output when an economy is in a recession.
Sticky Wage and Price Model
The short-run aggregate supply curve is sometimes referred to as the sticky wages and price model because workers wage demands take time to adjust to changes in overall price level and therefore in the short run may produce well below its full employment level of output.
Production Possibilities Curve
Open Market Operations
Managed of Fixed Exchange Rate System
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