Key Macroeconomic Concepts and Fiscal Policy

These flashcards cover key vocabulary and concepts from chapters 5 to 9 on fiscal policy, macroeconomic terms, GDP, unemployment, inflation, and aggregate expenditure.

Fiscal Policy

Government decisions about taxation and spending to influence the economy.

Expansionary Fiscal Policy

Increasing government spending or decreasing taxes to stimulate economic growth.

Contractionary Fiscal Policy

Decreasing government spending or increasing taxes to slow down an overheating economy.

Budget Deficit

When government spending exceeds its tax revenues.

Budget Surplus

When tax revenues exceed government spending.

Automatic Stabilizers

Government programs that automatically change to stabilize the economy without new legislation.

Aggregate Demand

The total demand for goods and services in an economy at various price levels.

Aggregate Supply

The total output of goods and services firms are willing and able to produce at different price levels.

Price Level

An average measure of current prices across the entire economy.

Short-Run Aggregate Supply

The relationship between price level and quantity supplied when some input prices are fixed.

Long-Run Aggregate Supply

The relationship between price level and output when input prices have fully adjusted.

Gross Domestic Product (GDP)

The total value of all final goods and services produced within a country's borders in a specific time period.

Real GDP

GDP adjusted for changes in prices or inflation.

Nominal GDP

GDP measured using current prices, without adjustment for inflation.

Intermediate Goods

Products used as inputs in the production of final goods; not counted separately in GDP.

Final Goods and Services

Products purchased by the final user and included in GDP calculations.

Expenditure Approach

A method of calculating GDP by adding up consumption, investment, government spending, and net exports.

Income Approach

Calculating GDP by adding all incomes earned by the factors of production.

Net Exports

The value of exports minus imports, representing trade balance.

Depreciation

The decrease in value of physical capital over time due to wear and tear.

Unemployment Rate

The percentage of the labor force that is jobless and actively looking for work.

Labor Force

The sum of employed and unemployed people actively participating in the job market.

Frictional Unemployment

Short-term unemployment that occurs as people change jobs or enter the labor force.

Structural Unemployment

Long-term unemployment caused by shifts in the economy that change the demand for certain skills.

Natural Rate of Unemployment

The normal level of unemployment around which the unemployment rate fluctuates.

Cyclical Unemployment

Unemployment resulting from economic recessions or downturns.

Inflation

A general increase in prices across the economy over time.

Consumer Price Index (CPI)

A measurement that examines the weighted average prices of a basket of consumer goods and services.

Real Wage

Wages adjusted for inflation, showing the actual purchasing power of income.

Aggregate Expenditure (AE)

The total spending on goods and services in an economy at a certain level of income.

Consumption

Spending by households on goods and services.

Investment

Spending by businesses on capital goods and by households on new homes.

Government Purchases

Spending by government on goods and services excluding transfer payments.

Equilibrium GDP

The level of GDP where aggregate expenditure equals total output, meaning no tendency to change output.

Multiplier Effect

The process by which an initial change in spending leads to a larger overall change in GDP.