AP Macroeconomics Unit 3 Vocab

aggregate demand

a schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels

automatic stabilizers (discretionary)

are a type of fiscal policy that happen automatically and tend to offset fluctuations in economic activity without direct intervention from policymakers

contractionary fiscal policy (tight)

a decrease in government purchases of goods and services, an increase in net taxes, or some combination of the two, for the purpose of decreasing aggregate demand and thus controlling inflation

cost-push inflation

increases in the price level (inflation) resulting from an increase in resource costs (for example: raw material prices) and hence in per-unit production costs; inflation caused by reductions in aggregate supply

crowding-out effect

a rise in interest rates and a resulting decrease in planned investment caused by the Federal Government's increased borrowing to finance budget deficits and refinance debt

demand-pull inflation

increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand

equilibrium price level

the price level at which the aggregate demand curve intersects the aggregate supply curve

equilibrium real output

the gross domestic product at which the total quantity of final goods and services purchased (aggregate expenditures) is equal to the total quantity of final goods and services produced (real domestic output); the real domestic output at which the aggregate demand curve intersects the aggregate supply curve

expansionary fiscal policy (easy)

an increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

fiscal policy

changes in government spending and tax collections designed to achieve a full-employment and noninflationary domestic output; also called discretionary fiscal policy

foreign purchase effect

the inverse relationship between the net exports of an economy and its price level relative to foreign price levels

inflationary gap

the amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full-employment noninflationary level

injection

an addition of spending to the income-expenditure stream: investment, government purchases, and net exports

interest rate effect

the tendency for increases in the price level to increase the demand for money, wise interest rates, and, as a result, reduce total spending and real output in the economy (and the reverse for price-level decreases)

investment

in economics, spending for the production and accumulation of capital and additions to inventories

investment schedule

a curve or schedule that shows the amounts firms plan to invest at various possible values of real gross domestic product

leakage

(1)a withdrawal of potential spending from the income-expenditures stream via, saving, tax payments, or imports; (2) a withdrawal that reduces the lending potential of the banking system

long-run aggregate supply

the aggregate supply curve associated with a time period in which input prices (especially nominal wages) are fully responsive to changes in the price level

macroeconomic equilibrium

is an economic state in an economy where the quantity of aggregate demand equals the quantity of aggregate supply

marginal propensity to consume

(MPC) the fraction of any change in disposable income spent on consumer goods; equal to the change in consumption divided by the change in disposable income

marginal propensity to save

(MPS) the fraction of any change in disposable income that households save; equal to the change in saving divided my the change in disposable income

monetary policy

a central bank's changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth

multiplier

the ratio of a change in equilibrium GDP to the change in investment or in any other component of aggregate expenditures or aggregate demand; the number by which a change in any such component must be multiplied to find the resulting change in equilibrium GDP

net export effect

A change in aggregate expenditures on real production, especially net exports through the foreign sector, that results because a change in the price level alters the relative prices of exports and imports.

non-discretionary fiscal policy

Automatically activated by certain built-in features of the federal tax and spending programs (automatic stabilizers)

Phillips Curve

a curve showing the relationship between the unemployment rate (horizontal axis) and the annual rate of increase in the price level (vertical axis)

real-balances effect

the tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, conversely for decreases in the price level

recessionary gap

the amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level

short-run aggregate supply

an aggregate supply curve relevant to a time period in which input prices (particularly nominal wages) do not change in response to changes in the price level

stagflation

inflation accompanied by stagnation in the rate of growth of output and an increase in unemployment in the economy; simultaneous increases in the inflation rate and the unemployment rate

sticky prices

product prices that remain in place (at least for a while) even though supply and demand has changed

supply shock

sudden, unexpected changes in aggregate supply

wealth effect

the tendency for people to increase their consumption spending when the value of their financial and real assets rises and to decrease their consumption spending when the value of those assets falls