Economics Key Concepts: Inflation, Phillips Curve, Fiscal & Monetary Policy

Inflation

The rate at which the general level of prices for goods and services is rising.

Phillips Curve

Shows a trade-off between inflation and unemployment.

Fiscal Policy

Government spending and tax policies used to influence economic conditions.

Supply-Side

Focuses on increasing productivity and work incentives.

Growth

Increase in the economy's capacity to produce goods and services.

Deficits

When government spending exceeds tax revenue.

Debt

Total amount owed from all past deficits.

Velocity of Money

How many times a dollar is reused in the economy per year.

Exchange Equation

MV = PQ, where M is money supply, V is velocity, P is price level, and Q is real output.

Crowding Out

Government borrowing raises interest rates, reducing private investment.

Short-Run Phillips Curve (SRPC)

Downward sloping curve showing the inverse relationship between inflation and unemployment in the short run.

Long-Run Phillips Curve (LRPC)

Vertical at the natural rate of unemployment (NRU), indicating no trade-off in the long run.

Aggregate Demand (AD)

Total demand for goods and services within an economy.

Budget Surplus

Taxes minus government spending, resulting in excess revenue.

Real GDP per Capita

Real GDP divided by population, measuring economic output per person.

Crowding-In

Lower interest rates increase private investment.

Cost-Push Inflation

Inflation caused by rising costs of production.

Long-Run Economic Growth

Promoted by better technology, more capital, more education, and higher productivity.

Negative Supply Shock

An unexpected event that decreases supply, leading to higher prices.

Positive Supply Shock

An unexpected event that increases supply, leading to lower prices.

Expansionary Fiscal Policy

Government policy that increases spending or decreases taxes to stimulate the economy.

Expansionary Monetary Policy

Central bank policy that lowers interest rates to increase money supply.