Monster Vocabulary AP Macroeconomics [All Units] (ABNER)

Change in Demand

Shift in Qd at each price

Change in Supply

Shift in Qs at each price

Demand Schedule

Table showing Qd at each price

Factors of Production

Inputs used to produce goods and services land, labor, management, and capital

Land

Natural resources used in production

Labor

Human effort used in production

Capital

Equipment used to produce goods and services

Management / Entrepreneurship

Organizing the production of resources

Comparative Advantage

Ability to produce at a lower opportunity cost

Capital Goods

Assets used to produce goods and services

Substitute Goods

Goods that can replace each other

Change in Quantity Demanded

Movement along the demand curve because of price change

Opportunity Cost

The cost you pay for a choice you make

Production Possibilities Curve

Graph showing max output combinations given a certain amount of factors of production

Determinants of Demand

Factors that can shift the demand curve Change in income, consumer attitude, population, substitute goods price, and complementary goods price

Law of Demand

As price goes up Qd goes down and as price goes down Qd goes up

Consumer Goods

Goods purchased for personal consumption

Complementary Goods

Goods used together

Equilibrium Price

Price where Qd equals Qs

Equilibrium Quantity

where Qs and Qd are equal at a given price

Surplus

Where Qs is greater than Qd at a given price

Shortage

Where Qd is greater than Qs at a given price

Price Ceiling

Government-set maximum price

Price Floor

Government set minimum price

Law of Supply

As price goes up, Q(s) goes up. As price goes down, Q(s) goes down

Determinants of Supply

Factors that can shift the supply curve Change in: price of resources, # of producers, technology, government intervention, and future expectations

Change in Quantity Supplied

Movement along the supply curve because of price change

Terms of Trade

Agreed to exchange of goods at a given ratio that benefits everybody

Absolute Advantage

Ability to produce more than others

Capital Accumulation

Increase in capital stock over time which makes PPC shift outwards

Rent

Income for property ownership

Wages

Income for labor

Interest

Income for borrowing capital

Profit

Income for management

Firm

Company

Inputs

Factors of Production

GDP

Total value of all goods and services produced by a country in one year

Expenditure Approach to Measuring GDP*

Measures GDP by totaling spending on final goods and services GDP=C+I+G+(X-M)

Income Approach to Measuring GDP

Measures gdp by adding up all income earned in production: rent, wages, interest, profit

Consumption

Household spending on goods and services

Population

Total number of people in a country

Working Age Population

number of people ages 16+

Civilian Labor Force

Number of people classified as either employed or unemployed (military/institutionalized excluded)

Employed

People who have worked at least one hour in the last two weeks (includes part time and full time employment)

Unemployed

People not classified as employed but available for work and have submitted a job application in the last 4 weeks

Marginally Attached Worker

People available for work within the last 12 months not classified as employed or unemployed

Discouraged Worker

People previously classified as unemployed who exited the civilian labor force without finding employment

Labor Force Participation Rate*

(Civilian Labor Force/Working Age Population)*100

Actual Unemployment Rate*

(number of people classified as unemployed/Civilian Labor Force)*100

Frictional Unemployment

Voluntary job search and entry into the civilian labor force

Structural Unemployment

Either a skill or geographic mismatch between individuals and available jobs

Cyclical Unemployment

Joblessness caused by economic recession=Actual Unemployment Rate-Natural Rate of Unemployment

Natural Rate of Unemployment

Frictional rate of unemployment+Structural rate of unemployment. NRU occurs at full employment output

Investment

Spending by firms on new physical capital and inventories+spending by households on new construction of homes

Government Spending

Spending by all levels of government on new capital goods, services, and infrastructure excluding transfer payments or interest payments on debt

Consumer Price Index (CPI)*

A market basket approach to measuring inflation. It estimates inflation for the average urban consumer.

(current year market basket / base year market basket) * 100

Price Level

The average price of goods and services in the economy=CPI/100

Inflation

An increase in price level or a decrease in the purchasing power of money

Inflation Rate*

The rate at which the price level is increasing = (New CPI-Old CPI)/Old CPI)*100

Disinflation

A decrease in the inflation rate

Deflation

A decrease in the price level or an increase in the purchasing power of money

Exports

Spending by the foreign sector on current year final domestic goods and services

Imports

Current year spending by households, firms, and government on foreign produced goods (Both final and intermediate) and services

Real Variables

Economic measures adjusted for inflation

Nominal GDP

GDP measured at current market prices

Real GDP*

Current year output at base year prices (Nominal GDP/GDP Deflator) * 100

GDP Deflator*

An all inclusive price index used to deflate Nominal GDP to find Real GDP; GDP Deflator = (Nominal GDP/Real GDP)*100

Aggregate Demand (AD)

Total demand for all goods and services in an economy at a given price level

Short-run Aggregate Supply (SRAS)

Total goods and services firms produce in the short run (prices/wages are "sticky" and don't adjust quickly)

Long-run Aggregate Supply (LRAS)

Economy's maximum sustainable output when all resources are fully employed (vertical line at "potential GDP")

AD = C + I + G + (X-M)

AD=Consumer spending+Business investment+Government spending+(Exports-imports)

Demand-Pull Inflation

Prices rise because AD exceeds SRAS (too much spending chasing too few goods)

Cost-Push Inflation

Prices rise because higher production costs shifting SRAS left

National Income

Total earnings from all resources (wages, rent, interest, profit) in an economy

Scenario A

A situation where the economy is in a recession; there is an output "recessionary" gap (below full employment)

Scenario B

A situation where the SRAS, LRAS, and AD intersect; there is full employment

Scenario C

A situation where there is too much AD and the economy is overheating; there is an inflationary gap (above full employment)

Full-Employment Equilibrium

Economy produces at LRAS (no cyclical unemployment)

Output Gap

Where actual GDP is less than potential GDP

Inflationary Gap

Actual GDP>Potential GDP (overheating economy)

Recessionary Gap

Actual GDP<Potential GDP

Long-Run Equilibrium

Where the economy will recover from scenario A via a decrease in wage expectations, which would increase SRAS and lead to more GDP and decrease in PL

U > NRU

Unemployment exceeds the natural rate (cyclical unemployment exists)

U = NRU

Economy at full employment (only frictional/structural unemployment)

U < NRU

Unemployment below natural rate (risk of inflation/overheating)

Tax Multiplier

MPC/(1-MPC) effect of tax changes on GDP

Spending Multiplier

1/(1-MPC) effect of spending on GDP

Balanced Budget Multiplier

The effect on GDP when government spending and taxes change by the same amount

Multiplier Effect

Initial spending trades hands with many people, subtracting how much is saved every time, leads to larger total GDP change

Marginal Propensity to Save (MPS)

Fraction saved (MPS=1-MPC)

Marginal Propensity to Consume (MPC)

Fraction of extra income spent

Fiscal Policy

Government uses spending and taxes to influence AD

Neoclassical Economic Theory

Laissez-faire focus on long run supply side growth (e.g., technology, education)

Keynesian Economic Theory

Focuses on short run demand side fixes (e.g., stimulus during recessions)

Long-Run "self-adjustment"

Economy returns to LRAS over time without government intervention because of lower wage expectations (prices/wages are "flexible" in the long run)

Automatic Stabilizers

Policies that counter recessions/inflation without new laws (e.g., unemployment benefits, progressive taxes)

SRAS "Shifters"

Input costs, supply shocks, government regulations

AD "Shifters"

Changes in C, I, G, (X-M) (e.g., consumer confidence, interest rates, government spending)

Output (Y)

The amount of goods and services produced in the economy

Actual Output (Y) versus Potential Output (Yf)

Y=Real GDP produced now

Yf=Max GDP at full employment (LRAS)