Fiscal and Monetary Policy Overview

Flashcards focused on key terms and definitions related to fiscal and monetary policy, the Phillips Curve, and economic concepts.

Price Level (PL)

The average level of prices in the economy.

Real GDP

The total value of all goods and services produced in an economy, adjusted for inflation.

Long-Run Aggregate Supply (LRAS)

The vertical line that reflects the economy's maximum sustainable output.

Short-Run Aggregate Supply (SRAS)

The upward sloping line that indicates the quantity of goods and services that firms will produce in the short run.

Aggregate Demand (AD)

The total demand for goods and services across all levels of the economy.

Expansionary Fiscal Policy

Government policy that seeks to increase economic activity, usually through increased spending or tax cuts.

Contractionary Fiscal Policy

Government policy aimed at decreasing economic activity, typically through spending cuts or tax increases.

Natural Rate of Unemployment (NRU)

The level of unemployment that exists when the economy is at full employment.

Phillips Curve

A curve that shows the trade-off between inflation and unemployment.

Inflation Rate

The percentage increase in the price level over a period.

Marginal Propensity to Consume (MPC)

The proportion of any additional income that a consumer will spend on consumption.

Equilibrium Interest Rate

The interest rate at which the supply of loanable funds equals the demand for loanable funds.

Fiscal Policy

Government measures regarding spending and taxation to influence the economy.

Monetary Policy

Central bank actions that determine the size and rate of growth of the money supply.

Short-Run Phillips Curve (SRPC)

An inverse relationship between inflation and unemployment that exists in the short run.

Long-Run Phillips Curve (LRPC)

Vertical line at the natural rate of unemployment, indicating no trade-off between inflation and unemployment in the long run.