AP Macroeconomics Review Packet

This flashcard set covers essential vocabulary terms and definitions needed for the AP Macroeconomics exam, summarizing key concepts from the provided lecture notes.

Scarcity

The limitation of resources compared to unlimited human wants, leading to choices about allocation.

Opportunity Cost

The value of the next best alternative foregone when making a decision.

Production Possibilities Frontier (PPF)

A graphical representation of the trade-offs between two goods that an economy can produce with available resources and technology.

Mixed Economy

An economic system that incorporates elements of both capitalism and government intervention.

Absolute Advantage

The ability of a country to produce more of a good with the same inputs compared to another country.

Comparative Advantage

The ability of a country to produce a good at a lower opportunity cost than another country.

Demand Shifters

Factors that can lead to changes in demand, encapsulated in the acronym MERIT.

Supply Shifters

Factors that can affect supply, summarized by the acronym TRICEG.

CPI (Consumer Price Index)

A measure that examines the average change over time in the prices paid by consumers for a market basket of goods and services.

Real GDP

Gross Domestic Product that has been adjusted for inflation, reflecting the true value of goods and services produced.

Nominal Interest Rate

The interest rate before adjustments for inflation.

Fiscal Policy

Government adjustments in spending levels and tax rates to influence the economy.

Monetary Policy

Central bank actions that manage the money supply and interest rates to influence economic activity.

Crowding Out

A situation where increased government spending leads to a reduction in private sector spending.

Natural Rate of Unemployment

The level of unemployment consistent with a stable rate of inflation; includes frictional and structural unemployment.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Exchange Rate

The value of one currency in terms of another, determined by the foreign exchange market.

Net Capital Outflow

The net flow of capital out of a country; excess savings invested abroad minus foreign investments in the country.

Crowding Out

A phenomenon where increased public sector spending leads to a decrease in private sector investment.

Balance of Payments

A comprehensive record of a country's economic transactions with the rest of the world, including trade balance and capital flows.

Liquidity Preference Theory

A theory that expresses the relationship between interest rates and the demand for money.

Multiplier Effect

The proportional amount of increase in final income that results from an injection of spending.

Real vs. Nominal

Real values are adjusted for inflation while nominal values represent current dollar amounts without adjustment.

Loanable Funds Market

A market that determines the interest rate based on the supply and demand for funds.

Time Value of Money

The concept that money available now is worth more than the same amount in the future due to its potential earning capacity.

Economic Growth

An increase in the production of goods and services in an economy over time.

Stagflation

A situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.

Fisher Effect

The relationship between nominal interest rates, real interest rates, and the rate of inflation.

Automatic Stabilizers

Economic policies and programs that automatically help stabilize an economy in downturns.