AP Macroeconomics Unit 3 Vocab Review

Wealth

The value of a household's accumulated savings.

Aggregate Demand Curve

Shows the relationship between the aggregate price level and the quantity of aggregate output demanded.

Real Wealth Effect

The change in consumer spending caused by the altered purchasing power of consumers' assets.

Interest Rate Effect

The change in investment and consumer spending caused by altered interest rates due to changes in the demand for money.

Exchange Rate Effect

The change in net exports caused by a change in the value of the domestic currency.

Marginal Propensity to Consume (MPC)

The increase in consumer spending when disposable income rises by $1.

Marginal Propensity to Save (MPS)

The increase in household savings when disposable income rises by $1.

Expenditure Multiplier

The ratio of total change in real GDP caused by an autonomous change in aggregate spending.

Tax Multiplier

The factor by which a change in tax collections changes real GDP.

Aggregate Supply Curve

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy.

Nominal Wage

The dollar amount of the wage paid.

Sticky Wages

Nominal wages that are slow to fall even in high unemployment.

Short-Run Aggregate Supply Curve

Shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied in the short-run.

Short Run

The time period in which many production costs are not fully flexible.

Long Run

The time period in which all prices, including wages, are fully flexible.

Long-Run Aggregate Supply Curve

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied if all prices were fully flexible.

Full-Employment Output

The level of real GDP the economy can produce if all resources are fully employed.

Short-Run Macroeconomic Equilibrium

Occurs where the quantity of aggregate output supplied equals the quantity demanded.

Long-Run Macroeconomic Equilibrium

Occurs when short-run macroeconomic equilibrium is at the full employment level of output.

Output Gap

The difference between actual output and full employment output.

Demand Shock

An event that shifts the aggregate demand curve.

Supply Shock

An event that shifts the short-run aggregate supply curve.

Stagflation

The combination of inflation and stagnating aggregate output.

Long-Run Self Adjustment

The process that brings the economy back to equilibrium after a shock without government intervention.

Fiscal Policy

The use of government purchases, transfers, or tax policy to stabilize the economy.

Expansionary Fiscal Policy

Increases aggregate demand to close a recessionary gap.

Contractionary Fiscal Policy

Decreases aggregate demand to close an inflationary gap.

Discretionary Fiscal Policy

Fiscal policy resulting from deliberate actions by policy makers.

Automatic Stabilizers

Government rules that automatically adjust spending and taxation during economic changes.