ap macro unit 5

fiscal policy

fiscal policy

typically designed to manipulate AD and "fix" the economy

sticky prices

prices that move to their equilibrium values very slowly

net export effect

the process of how expansionary fiscal policy decreases net exports due to rising interest rates

human capital

the skills and knowledge gained by a worker through education and experience

technology

a nation's knowledge of how to produce goods in the best possible way

investment tax credit

a reduction in taxes for firms that invest in new capital like a factory or piece of equipment

loanable funds market

model of the way money from savers makes its way into the hands of borrowers

open economy

one that interacts freely with other economies around the world

Shifters of Loanable Funds Demand

change in borrowing by government, businesses, or consumers

Shifters of Loanable Funds Supply

change in private savings, public savings, or foreign investment

national saving

all of a nation's private and public saving

closed economy

one that does not interact with other economies

equilibrium interest rate

where the supply and demand for loanable funds are equal

federal budget deficit

when government spending exceeds tax revenue

crowding out

if government borrowing causes a decrease in private borrowing

federal budget surplus

when government expenditures are less than tax revenues

output gap

the difference between actual output and potential output

the Phillips curve

a model that shows the inverse relationship of wages or prices and unemployment

monetarists

economists who believe that the money supply is the primary factor affecting demand in the short run

Short-Run Phillips Curve (SRPC)

the inverse short-run relationship between the unemployment rate and the inflation rate

Long-Run Phillips Curve (LRPC)

a curve illustrating that there is no relationship between the unemployment rate and inflation in the long-run; vertical at the NRU

quantity theory of money (QTM)

there is a direct relationship between the quantity of money in an economy and the price level of goods and services

equation of exchange

M x V = P x Y

velocity of money

ratio of nominal GDP to the money supply

balanced budget

achieved when tax revenues are adequate to cover government expenditures

economic growth

an increase in the aggregate production of goods and services in an economy from one period of time to another

productivity

output per unit of input

real GDP per capita

real GDP divided by the total population

aggregate production function

a measure that shows how an economy's aggregate output depends on the determinants of economic growth

public policy

a collective term for the plans and actions at any level of government that affect that government's constituents

property rights

the ownership and control of a specific good or resource

private property

property owned and managed by an individual or a legal group of owners

public property

property owned by the government

collective property

controlled or owned by a group or combination of individuals or entities that jointly control access to and use of the property

free trade

allows countries to concentrate on producing the goods in which they have a comparative advantage and makes trade mutually beneficial

tariffs

duties that governments impose on imported or exported goods

quotas

limits on the amounts of goods that can be imported

supply-side fiscal policy

provides incentives to producers to increase aggregate supply