ap macro unit 5?

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21 Terms

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Fiscal Policy

Use of government purchases, transfers, or tax policy to stabilize the economy

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Monetary Policy

Central bank actions to stabilize the economy by influencing aggregate demand through changing interest rates

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Short-Run Phillips Curve

Negative short-run relationship between unemployment rate and inflation rate

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Long-Run Phillips Curve

Shows relationship between unemployment and inflation after expectations of inflation have adjusted to experience

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Quantity Theory of Money

Emphasizes positive relationship between price level and money supply, relying on the equation (M x V = P x Y)

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Velocity of Money

Ratio of nominal GDP to money supply, measuring the number of times the average dollar bill is spent per year

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Budget Surplus

Exists when tax revenues exceed government spending on goods, services, and transfer payments

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Budget Deficit

Exists when government spending on goods, services, and transfer payments exceeds tax revenue

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Government Debt

Accumulation of past budget deficits, minus past budget surpluses

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Debt to GDP ratio

Government's debt as a percentage of GDP

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Crowding Out

Occurs when a government deficit drives up the interest rate and leads to reduced investment spending

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Labor Productivity

Overall output per worker

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Physical Capital

Consists of human-made goods such as buildings and machines used to produce other goods and services

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Human Capital

Improvement in labor created by the education and knowledge of workforce members

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Technology

Technical means for the production of goods and services

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Aggregate Production Function

Shows how aggregate output depends on stock of physical capital, quantity and quality of labor resources, and state of technology

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Diminishing Returns to Physical Capital

Exists when each successive increase in physical capital leads to a smaller increase in productivity

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Depreciation

Reduction in value of a physical asset due to wear, age, or obsolescence

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Infrastructure

Underpinnings for economic activity such as roads, power lines, ports, and information networks

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Supply-Side Fiscal Policies

Government policies affecting short-run and long-run aggregate supply to promote economic growth

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Incentive

Reward or punishment motivating particular choices, such as work, save, and invest in supply-side policy