Unit 5+6 AP Macroeconomics

Phillips Curve

Shows the tradeoff between inflation and unemployment

Short Run Phillips Curve

Overheating economy means low unemployment and high inflation, recession means high unemployment and low inflation

Long Run Phillips Curve

No tradeoff between inflation and unemployment, represents Natural Rate of Unemployment

Velocity of money

Average times a dollar is spent and respent in a year

Budget deficit

When annual government spending and transfer payments are greater than tax revenue

Budget surplus

When annual government spending and transfer payments are less than tax revenue

Entitlements

Federal program that requires payments to eligible people or units of governments like Social Security

Crowding out

Adverse effect of government borrowing on interest-sensitive private sector spending

Growth rate

Change in real GDP per capita over time

Supply side fiscal policy

Government policies designed to increase production by reducing business taxes and/or regulations

Trade surplus

 Exporting more than is imported

Trade deficit

Exporting less than is imported

Balance of payments (BOP)

Summary of a country's international trade prepared in domestic currency

Current Account (CA)

Made up of net exports, investment income, and net transfers

Investment income

Income from the factors of production including payments to foreign investors

Net transfers

Money flows from the private and public sectors

Capital and Financial Account (CFA)

Measures the purchase and sales of financial assets abroad and purchases of things that continue to earn money

Foreign Direct Investment

Foreign company buys businesses in a different country

Net Capital Outflow

Difference between the purchase of foreign assets and domestic assets purchased by foreigners

Exchange rate

Price of one currency relative to another currency

Depreciation

Loss of value of a country's currency compared to a foreign currency

Appreciation

Increase of value of a country's currency compared to a foreign currency

Fixed exchange rate

Government actively manages the country's currency

Floating exchange rate

Market determines the value of the country's currency

Quantity Theory of Money =

Money supply x Velocity = Price level x Y

Y = Quantity of output

P x Y = Nominal GDP

Balance of payments =

Current Account + Capital and Financial Account = 0