Macro: Unit 5 Test Review

Budget Deficit

When a government spends more money than it receives in revenue, resulting in a financial shortfall.

Budget Surplus

When a government receives more money than it spends, resulting in a financial excess.

National Debt

The total amount of money a government owes,accumulated over time through budget deficits.

Crowding Out

When government borrowing increases interest rates, making it more expensive for private businesses and individual to borrow money.

Loanable Funds Market

A market where savers lend money toborrowers, determining interest rates based on supply anddemand.

Long-Run Effects of Deficit Spending

The potentialconsequences of prolonged government deficit spending, suchas increased national debt andhigher interest rates.

Public Investment

Government spending on infrastructure,education, and research that can benefit the economy in thelongrun.

Money Neutrality

The idea that changes in the money supply don’t affect the overall economy in the long run, only inflation.

Long-Run Effects of Changing the Money Supply

The potential long-term consequences of increasing or decreasing the , such as inflation or deflation.

Classical View of Monetary Policy

The theory that the economy self-corrects and that monetary policy (interest rates and money supply) has limited impact on the economy.

Keynesian View of Monetary Policy

The theory that government intervention (fiscal and monetary policy) can stabilize theeconomy during timesof economic downturn.

Price Level vs. Real GDP in the Long Run

In the long run,changes in the price level (inflation) don't affect real GDP (the actual output of goods and service ).

Wage & Price Flexibility

The ability of wages and prices to adjust to changes in the economy, helping to reach equilibrium.

Physical Capital

Tangible assets used in production, such as buildings, machines, and equipment.

Human Capital

The skills, education, and experience of workers that contribute to productivity.

Technology

The application of new methods, skills, andknowledge to improve productivity and efficiency.

Productivity

The output of goods and services per unit of input(labor, capital, etc.).

Diminishing Returns to Capital

As more capital is added to production, the additional output decreases.

Policies that Promote Growth

Government policies that encourage economic growth, such as investing in education and infrastructure.

Savings & Investments

Savings are used to fund investments, which can lead to economic growth.

Long-Run Aggregate Supply (LRAS) Shift

A change in the economy’s production capacity, shifting the long-run aggregate supply curve.

Production Possibilities Curve (PPC) Growth

An increase in the economy’s ability to produce goods and services, represented by an outward shift of thePPC.

Short-Run Phillips Curve (SRPC)

A curve showing the trade-off between inflation and unemployment in the short run.

Long-Run Phillips Curve (LRPC)

A vertical curve showing that there’s no long-term trade-off between inflation and unemployment.

Natural Rate of Unemployment (NRU) / NAIRU

The rate ofunemployment that exists when the economy is at full capacity,also known as the non-accelerating inflation rate ofunemployment.

Expected Inflation

The rate of inflation that people expect tooccur in the future, influencing their economic decisions.

Stagflation

A situation where there's both high inflation and stagnant economic growth.

Supply Shock (+ & - )

An unexpected event that affects the economy's production capacity, either positively(increasing supply) or negatively (decreasing supply).

SRPC Shifters vs. Movements Along the Curve

The shifters are changes in the economy that affect the tire curve while movements along the curve our changes between trade-off between inflation and unemployment