AP Econ unit 3 (mods 19-21)

AD-AS model

AD-AS model

the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations

short-run macroeconomic equilibrium

when the quantity of aggregate output supplied is equal to the quantity demanded

short-run equilibrium aggregate price level

the aggregate price level in the short-run macroeconomic equilibrium.

short-run equilibrium aggregate output

is the quantity of aggregate output produced in the short-run macroeconomic equilibrium.

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 (or falling) aggregate output

long-run macroeconomic equilibrium

when the point of short run macroeconomic equilibrium is on the long run aggregate supply curve

recessionary gap

when aggregate output is below potential output

inflationary gap

when aggregate output is above potential output

output gap

the percentage difference between actual output and potential output

self-correcting

when stocks to aggregate demand affect aggregate output in the short run, but not the long run

stabilization policy

the use of government policy to reduce the severity of recessions and rein in excessively strong expansions

social insurance

government programs intended to protect families against economic hardship

expansionary fiscal policy

increases aggregate demand

contractionary fiscal policy

reduces aggregate demand

tax multiplier

the factor by which a change in tax collections change real GDP

balanced budget multiplier

the factor by which a change in both spending and taxes changes real GDP

lump-sum taxes

taxes that don’t depend on the taxpayer’s income

automatic stabilizers

are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands

discretionary fiscal policy

is fiscal policy that is the result of deliberate actions by policy makers rather than rules