AP Macroeconomics Flashcards

Vocabulary flashcards based on lecture notes for AP Macroeconomics review.

Phillips Curve

Shows the relationship between inflation and unemployment. In the short-run (SRPC), there is an inverse relationship. In the long-run (LRPC), unemployment is unaffected by inflation and exists at the NRU.

FOREX

The market in which currencies are traded. Demand is from foreigners, supply is from citizens. Higher interest rates, lower inflation, popular stuff, and foreign economic growth will increase demand for a currency.

Comparative Advantage

Produce at a lower opportunity cost.

Absolute Advantage

Produce more with the same resources (or the same amount with less resources).

Balance of Payments (BOP)

An accounting of a country's international transactions, which cause either a credit (money in) or a debit (money out).

Current Account (CA)

Includes trade of goods and services, income earned abroad, and foreign aid.

Financial Account (FA)

Includes direct foreign investment, financial assets, and official reserves.

Aggregate Demand (AD)

Total buying in an economy. Any change to a spending component (consumption, investment, government spending, or net exports) will shift AD. AD = C + Ig + G + Xn

Spending Multiplier

1/MPS. Used to measure the overall change to GDP from a change in spending.

Aggregate Supply (AS)

Total selling in an economy.

Short-Run Aggregate Supply (SRAS)

In the short-run many inputs are fixed. Any change in resource prices and availability, inflation expectations, technology productivity, or government actions toward businesses will shift SRAS.

Long-Run Aggregate Supply (LRAS)

Is vertical at an economy's full-employment level of GDP. A rightward shift illustrates long-run economic growth. LRAS is like the PPC.

Fiscal Policy

Government policy, also known as 'Keynesian Policy'.

Monetary Policy

Federal Reserve (FED or central bank) policy.

Production Possibilities Curve (PPC)

A graph that shows the different combinations of goods and services that can be produced with a given amount of resources.

GDP

Total output, aggregate income, Y. Counts household purchases (C), businesses buying capital goods and inventory (Ig), government expenditures on goods and services (G), and exports (-imports) (Xn).

Nominal GDP

Price x Quantity

Real GDP

Adjusted for inflation.

Money Multiplier

1 / reserve ratio.

Frictional Unemployment

Looking for the best job, recent grads, just moved.

Structural Unemployment

Lack of skills, technology replaced job.

Cyclical Unemployment

Recessionary, downturn in economy, 'laid off'.

Natural Rate of Unemployment (NRU)

Unemployment % when there is NO Cyclical unemployment.

Inflation

Increased price level.

Demand-Pull Inflation

Caused by increased buying in the economy.

Cost-Push Inflation

Caused by supply shocks in the economy.