AP Macroeconomics Unit 5 Monster Vocab

Quantity Theory of Money

MV = PY → long-run ↑ money supply = ↑ inflation

Short-Run Phillips Curve (SRPC)

Short-term inverse relationship between unemployment and inflation → lower unemployment ↑ inflation, and vice versa

Monetarism

Central banks should grow money supply steadily → avoid inflation/recession

Short-Run Phillips Curve "Shifters"

Supply shocks or inflation expectation changes

Government Debt

Total unpaid deficits owed to lenders

Contractionary Policy

Gov/Central Bank actions (↑ taxes, ↓ spending, ↑ interest rates) → ↓ inflation, but ↑ unemployment

Long-Run Phillips Curve (LRPC)

Vertical line at NRU → long-run inflation changes don't affect unemployment (economy returns to NRU)

Government Budget Deficit

Gov spends > revenue → borrows

Government Revenue

Gov income (taxes, fees, tariffs) → funds spending

Causes of Capital Accumulation

Investment in physical/human capital → savings, low taxes, stable property rights

Government Budget Surplus

Gov revenue > spending → pays down debt

Expansionary Policy

Gov/Central Bank actions (↓ taxes, ↑ spending, ↓ interest rates) → ↑ growth, ↓ unemployment, but ↑ inflation

Solow Growth Model

Long-run growth depends on capital, labor, and tech progress

"Crowding Out"

Now an outdated term, Gov borrowing ↑ interest rates → ↓ private investment