AP Econ Unit 5 and 6: Long Run Consequences of Stabalization Policies & International Trade and Fianance

greater than tax revenue

A budget deficit is when government spending is

less than tax revenue

a budget surplus is when government spending is

borrowing, expansionary fiscal, public

Crowding out effect is when government _______ (typically due to _______ ______ policies) causes interest rates to rise (due to an increase in loan demand). Since interest rates rise, it makes is harder for the ______ to borrow and spend.

inverse, inflation, unemployment

The Phillip’s Curve implies that there is an _____ relationship between _______ and _______

AD, opposite, SRAS, right, left, expected inflation rate, meet

Three ways to change/affect SRPC

• change in __: the point will move in the ______ direction of the shift

• change in ____: shifts the whole SRPC. decrease in SRAS leads to a ___ shift in SRPC, increase leads to a ___ shift on SRPC graph

• change in ______ ______ ____(a complicated supply shifter): shift the SRPC to meet new rate

NAIRU, no relationship, inflation rate, unemployment

The LRPC is drawn at the ____. The non acceleated rate of unemployment and it implies that there is __ ______ between _______ ___ and _________

decrease in, negative, falling

Disinflation vs Deflation

• Disinflation: _______ __inflation

• Deflation: ________inflation (prices are ______)

price level, money in circulation, inflation rate, MV=PY

The Quanitity Theory of Money state that the general ____ _____ is ______ proportional to the amount of _____ __ _______. Changing the money supply changes ______ ___ not economic growth.

• The equation of exchange is ______

inputs, capital, labor, tech, outputs, economic growth, diminishing returns

The aggregate prodution function shows the relationship between and economy’s _____ (_____, ____, _____) and _______.

• it shows that with increased input, there is more ______ ____ but with ________ _______

RGDP per Capita, outward, right, aggregate production function

Economic growth is a permanent increase in ____ ___ ______. Shown on graphs by an ______ shift on the PPC graph, a ___ shift in LRAS on the AD/AS graph, or moving a point along the ______ _____ _______

right LRAS, capital stock (human, physical, and tech), sustained investment,

Causes of Economic Growth (___ ____ shift which is caused by better _____ _____, _____, ______, ___ ____ as well as _______ ________):

• government can give grants to people, schools, researchers, manufacturers, military, tech stuff, improve infrastructure, encourage school

price, currency, another, ccurrency

The Exchange rate is the ____ of one _____ in terms of ______ _____

net exports, net transfers, positive, negative, net foreign incomes, passive, foreign assets

The Current Account is the total __ ______ (the goods and services), __ _______ (_____ is money going into economy, _____ is money leaving economy), __ ______ _____ (_____ money earned on _____ _______)

purchase, sale, assets, active, financial assets, stocks, bonds, physical assets. real

A capital/financial account is the _____ and ___ of _____. it is _____

• ______ ______ which is ____ and _____

• ______ _____ which is ___ assets like buildings and stores

exports are greater than imports, selling more, buying

A trade surplus occurs when ______ ___ ______ ____ _______. economy is _____ ____ than _____

Imports are greater than exports, buying more, selling

a trade deficit occurs when ______ __ ____ ____ ______. Economy is _____ ___ goods than _______

limited as little as possible

Free trade is the INTL theory of trade where trade between countries should be _____ __ ______ __ _______

limited to protect your country

Protectionism is the INTL trade theory where trade btwn countries should be _______ __ ______ ____ _______

increases, increase, decrease, decrease, more, more expensive

Appreciation of currency occurs when the value of one currency (relative to another country) ______.

• Imports:

• exports:

• net exports:

• because you can buy ___ and your stuff is ___ ______

decreases, decrease, increase, increase, less, cheaper

Depreciation of currency occurs when the value of one currency (relative to another country) ______.

• Imports:

• exports:

• net exports:

• because you can buy ___ and your stuff is ______

exports-imports

Net Export is _____ _ _____. How much your economy can sell overall.

movement, financial capital, money, inflow, outflow, supply of loans

Capital Flow is the _______ of ______ _____ (_____) btwn countries

• Capital ______ is money flowing into an economy

• Capital ______ is money flowing out from an economy

• affects the ____ __ _____ on the loanable funds market

protect jobs, protect consumers, national security, infant industries, retaliation

5 reasons for limiting trade:

deficit

Between current account and financial/capital account, if one is in surplus the other is in ____

real income, interest rates, more, increase, decreases, increase

Outside influences that can change the current account are ___ _____ and ______ _____.

• if your country’s real income increases, you can buy ___ so your imports ______ and your current account ______

• if your country’s interest rates increases, Demand for your country’s income will ______