ap macro unit 5?

Fiscal Policy

Fiscal Policy

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

Monetary Policy

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

Short-Run Phillips Curve

Negative short-run relationship between unemployment rate and inflation rate

Long-Run Phillips Curve

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

Quantity Theory of Money

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

Velocity of Money

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

Budget Surplus

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

Budget Deficit

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

Government Debt

Accumulation of past budget deficits, minus past budget surpluses

Debt to GDP ratio

Government's debt as a percentage of GDP

Crowding Out

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

Labor Productivity

Overall output per worker

Physical Capital

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

Human Capital

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

Technology

Technical means for the production of goods and services

Aggregate Production Function

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

Diminishing Returns to Physical Capital

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

Depreciation

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

Infrastructure

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

Supply-Side Fiscal Policies

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

Incentive

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