AP Macro unit 3 vocab quiz

AD-AS model

A macroeconomic framework that explains the relationship between aggregate demand (total demand for goods and services) and aggregate supply (total supply of goods and services) in an economy.

Aggregate demand (AD)

The total demand for final goods and services in an economy at a given time.

Disposable income (YD)

The amount of money an individual or household has to spend or save after taxes are deducted.

Marginal propensity to consume (MPC)

The proportion of an increase in income that a consumer spends on goods and services rather than saving.

Marginal propensity to save (MPS)

The proportion of an increase in income that a consumer saves rather than spends on goods and services.

Expenditure multiplier

A ratio that measures the total change in real GDP compared to the size of an initial change in aggregate spending.

Tax multiplier

The factor by which a change in taxes will alter GDP.

Short-run aggregate supply (SRAS)

The total amount of goods and services that firms are willing and able to produce at different price levels in the short run.

Long-run aggregate supply (LRAS)

The total amount of goods and services an economy can produce when all resources are fully utilized and prices have adjusted to their long-run equilibrium levels.

Full-employment level of output

The maximum sustainable output an economy can produce when all factors of production are used efficiently.

Short-run equilibrium price level

The price level at which the quantity of goods and services demanded equals the quantity supplied in the short run.

Short-run equilibrium output level

The level of output where aggregate demand equals aggregate supply in the short run.

Long-run macroeconomic equilibrium

The state where aggregate demand equals aggregate supply in the long run, with full employment and stable prices.

Recessionary gap

The difference between actual output and potential output when an economy is producing below its full-employment level.

Inflationary gap

The difference between actual output and potential output when an economy is producing above its full-employment level.

Demand-pull inflation

Inflation caused by an increase in aggregate demand.

Cost-push inflation

Inflation caused by an increase in the cost of production.

Fiscal policy

Government policies regarding taxation and spending to influence the economy.

Expansionary fiscal policy

Policies aimed at increasing aggregate demand through increased government spending or tax cuts.

Contractionary fiscal policy

Policies aimed at decreasing aggregate demand through reduced government spending or tax increases.