Fiscal monetary policy

Fiscal Policy

Government actions to influence economic activity through spending and taxation.

Monetary Policy

Actions by the Federal Reserve to manage the money supply and interest rates to achieve economic goals.

Recessionary Gap

A situation where the actual output of an economy is less than its potential output.

Inflationary Gap

A situation where the actual output of an economy exceeds its potential output, leading to inflation.

Aggregate Demand (AD)

The total demand for goods and services within a particular market.

Aggregate Supply (AS)

The total supply of goods and services that firms in an economy plan on selling during a specific time period.

Short-run adjustments

Changes in the economy that occur due to fluctuations in factors like demand and supply, affecting output and prices.

Long-run adjustments

Changes in the economy that occur over a longer period, where output returns to its natural level.

Quantity Theory of Money

An economic theory that links the money supply to price levels and output.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage.

Loanable Funds Market

A market where savers supply funds for loans to borrowers.

Natural correction

The process by which the economy adjusts back to equilibrium without policy intervention.

Real GDP

The inflation-adjusted value of all goods and services produced in an economy.

Government Spending (G)

Expenditure by the government to influence economic conditions.

Taxation

The process by which governments collect money from individuals and businesses to fund public services.

Investment (I)

Expenditures by businesses on capital goods that will be used for future production.

Money Supply (M)

The total amount of money in circulation or in existence in an economy.

Velocity (V)

The rate at which money is exchanged in an economy.

Price Level (P)

The average level of prices in the economy at a given time.

Long run full employment

The state of the economy where all resources are utilized efficiently and unemployment is at the natural rate.