AP Macro - Unit 3

32 Terms of AP Macro from Unit 3

Aggregate Income

Total income from all production factors in an economy, including wages, profits, rents, and taxes, minus subsidies.

Aggregate Demand

The total quantity of goods and services demanded across all levels of the economy at a specific price level and time.

Ceteris Paribus

A Latin phrase meaning 'all other variables held constant,' used in economics to analyze the effect of one variable at a time.

Real Wealth Effect

The phenomenon where rising prices diminish the purchasing power of money, leading to reduced consumer spending.

Interest Rate Effect

Price level changes influence interest rates, impacting the demand for goods and services—higher prices can raise interest rates, reducing investment.

Exchange Rate Effect

Changes in net exports and economic activity due to currency value fluctuations, impacting import and export prices.

Wealth

The abundance of valuable resources or possessions, including financial assets and real assets, that can confer economic advantage.

Financial Assets

Economic resources that can be owned, traded, or utilized to generate future income or benefits.

Real Assets

Physical assets like property, machinery, and natural resources that have intrinsic value and can generate income or appreciate in value.

Fiscal Policy

Government strategies involving taxation and spending designed to influence the economy's overall performance.

Monetary Policy

The actions of a central bank to regulate money supply and interest rates to steer economic growth and stability.

Autonomous

Actions or decisions taken independently, without external influence or control.

Expenditure

The total spending by households, businesses, and governments on goods and services within a given time frame, crucial for economic activity.

Tax Multiplier

A metric that measures the impact of changes in tax policy on overall economic output and aggregate demand.

Transfer Multiplier

The effect on total economic spending resulting from government transfers that enhance the disposable income of recipients.

Aggregate Supply

The total amount of goods and services that producers in an economy intend to sell at various price points during a specific time frame.

Short Run Aggregate Supply (SRAS)

The production of goods and services in the economy at different price levels in the short term, where some input prices remain constant.

Commodity

A basic good interchangeable with others of the same type, often serving as inputs in the production process.

Subsidies

Financial support from the government to specific industries or sectors aimed at promoting production and lowering costs.

Short Run (Economic)

A period in which at least one input or production factor is fixed, limiting firms' ability to respond quickly to demand changes.

Long Run (Economic)

A timeframe where all production factors are variable, allowing firms to fully adjust processes and capacities.

Long Run Aggregate Supply (LRAS)

The total supply of goods and services produced when all factors of production are optimally utilized, often represented as a vertical line in economic models.

Recessionary Gap

When actual economic output is below potential output, leading to higher unemployment and underutilized resources.

Inflationary Gap

A scenario where actual output surpasses potential output, leading to upward pressure on prices and inflation.

Positive Shock

An unexpected surge in aggregate demand or supply that boosts output and employment, contributing to economic growth.

Negative Shock

An unexpected event that negatively impacts economic performance, like natural disasters or rising production costs, resulting in reduced output.

Demand-pull inflation

Inflation that arises when the demand for goods and services exceeds their supply, typically driven by increased consumer spending or investment.

Cost-push inflation

A form of inflation driven by rising production costs, which reduce supply and elevate consumer prices.

Classical Theory

An economic framework asserting that free markets are self-regulating and that government intervention is usually unnecessary.

Automatic Stabilizer

Economic mechanisms like unemployment benefits and progressive tax rates that reduce economic fluctuations automatically, without government intervention.

Contractionary Fiscal Policy

A policy aimed at reducing aggregate demand by decreasing government spending or increasing taxes to control inflation.

Expansionary Fiscal Policy

A strategy to boost aggregate demand via increased government spending and tax cuts.