Unit 3 Fiscal Policy - AP Macroeconomics Flashcards
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Last updated 8:49 PM on 3/11/25
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39 Terms
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Aggregate Demand (AD)
Total spending on goods and services in an economy.
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Aggregate Supply (AS)
Total production of goods and services in an economy.
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Short-Run Aggregate Supply (SRAS)
AS when prices and wages are sticky.
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Long-Run Aggregate Supply (LRAS)
AS when all prices and wages are flexible.
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Potential Output (Full Employment Output)
The maximum sustainable output at full employment.
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Recessionary Gap
When actual output is below potential output.
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Inflationary Gap
When actual output is above potential output, causing inflation.
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Short-Run Equilibrium
When AD and SRAS intersect, determining price and output.
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Long-Run Equilibrium
When AD, SRAS, and LRAS intersect, meaning no output gap.
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Phillips Curve
A graph showing the trade-off between inflation and unemployment.
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Fiscal Policy
Government spending and taxation policies to influence the economy.
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Monetary Policy
Central bank actions controlling money supply and interest rates.
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Multiplier Effect
When one person’s paycheck is another person’s income.
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Marginal Propensity to Consume (MPC)
The fraction of extra income spent.
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Marginal Propensity to Save (MPS)
The fraction of extra income saved.
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AD-AS Model
A framework showing how AD and AS determine economic conditions.
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Supply-Side Economics (Say’s Law)
The idea that supply creates its own demand.
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Keynesian Economics
The theory that government intervention can stabilize the economy.
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Inflation
A general increase in prices over time.
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Deflation
A general decrease in prices over time.
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Stagflation
A period of slow growth, high unemployment, and high inflation.
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LRAS Curve
A vertical line representing full employment output.
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Shifts in Aggregate Demand (AD)
Caused by changes in C, I, G, or NX.
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Shifts in Aggregate Supply (AS)
Caused by changes in resources, productivity, or costs.
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Investment (I)
Business spending on capital goods.
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Consumption (C)
Household spending on goods and services.
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Government Spending (G)
Total government expenditures on goods and services.
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Net Exports (NX)
Exports minus imports in an economy.
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Equilibrium Price Level
The price level where AD equals AS.
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Equilibrium Output
The GDP level where AD equals AS.
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Real GDP
GDP adjusted for inflation, showing true economic output.
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Nominal GDP
GDP measured in current prices, not adjusted for inflation.
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Short-Run Macroeconomic Equilibrium
When AD and SRAS determine output and prices.
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Long-Run Macroeconomic Equilibrium
When AD, SRAS, and LRAS align, closing output gaps.
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Full Employment
When all available resources are being used efficiently.
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Natural Rate of Unemployment
The unemployment rate when the economy is at full employment.
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Automatic Stabilizers
Government & Economic policies that adjust without government action, helping to moderate the business cycle.
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Discretionary Fiscal Policy
Government action to change spending or taxes to influence the economy.
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Business Cycle
The natural rise and fall of economic growth over time.
