AP Economics (Macro) Unit 4 – Extended AD/AS and Economic Growth Test Review

A collection of key terms and definitions related to Extended AD/AS and Economic Growth from AP Economics.

Stagflation

A situation characterized by the combination of stagnant economic growth, high unemployment, and high inflation.

Aggregate Demand (AD)

The total quantity of goods and services demanded across all levels of the economy at a given price level.

Nominal Interest Rates

The interest rates before taking inflation into account, often affecting the cost of borrowing and returns on savings.

Bond Prices

The amount of money investors are willing to pay for a bond, which inversely relates to interest rates.

Short Run Phillips Curve

Demonstrates the inverse relationship between inflation and unemployment in the short run.

Long Run Phillips Curve

Indicates that in the long run, there is no trade-off between inflation and unemployment, representing a natural rate of unemployment.

Fiscal Policy

Government actions regarding taxation and spending, used to influence the economy.

Monetary Policy

The process by which the central bank manages the money supply to achieve specific goals, such as controlling inflation.

Production Possibilities Curve (PPC)

A graph that shows the maximum feasible amounts of two goods that a country can produce, given available resources.

Economic Growth

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

Infrastructure

Physical structures and facilities (e.g., roads, bridges, airports) that are essential for economic activity and growth.

Human Capital

The skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value in an economy.

Labor Productivity

The amount of goods and services produced per hour of labor.

Capital Stock

The total physical, tangible assets owned by a business that are used in production.

Demand-Pull Inflation

Inflation caused by an increase in aggregated demand, leading to higher prices.

Allocative Efficiency

An economic state where resources are allocated in a way that maximizes the total benefit to society.

Productive Efficiency

A situation in which an economy produces goods and services at the lowest possible cost.