AP Econ A & O

Unemployment

Refers to the state of being without a job, including various categories like employed, unemployed, marginally attached worker, and discouraged worker.

Labor Force Participation Rate

Calculated as (Civilian Labor Force/ Working Age Population) * 100, it measures the percentage of the working-age population that is in the labor force.

Natural Rate of Unemployment (NRU)

The sum of frictional and structural unemployment rates, representing the unemployment rate at full employment output.

Business Cycles

Describes the fluctuations in economic activity over time, including phases like expansion and recession, with turning points at peaks and troughs.

Multipliers

Factors that amplify the impact of autonomous expenditure changes on Aggregate Demand (AD), including the MPC, MPS, tax multiplier, and transfer multiplier.

Long Run Self-Adjustment

The automatic correction process in the economy to return to equilibrium, involving shifts in the SRAS curve driven by businesses and workers.

Loanable Funds Market

Represents the supply and demand for loans, influenced by factors like the return on investment, with determinants affecting the equilibrium interest rate.

Equilibrium in the AS/AD Model

Describes the balance between supply and demand in the economy, with surplus and shortage corrected by price level adjustments.

Fiscal Policy

Government interventions through spending and taxation to address inflationary or recessionary gaps and bring the economy back to equilibrium.

Monetary Policy

Central bank policies influencing interest rates and money supply to achieve price stability and full employment, with tools like reserve requirements and open-market operations.

Policy Rate

The overnight interbank lending rate set at the intersection of Sr (Supply of reserves) and Dr (Demand for reserves).

Open-Market Operations

Changes in these operations shift the supply of reserves, without affecting the NIR.

Interest on Reserves (IOR)

The interest rate commercial banks earn on funds in their reserve balance accounts with the central bank, affecting the lower bound on the reserve market model graph.

Discount Rate

The interest rate commercial banks must pay to borrow from the central bank, influencing the upper bound on the reserve market model graph.

Expansionary Policy

Decrease in administered rates (IOR and discount rate) leading to a decrease in the policy rate, encouraging interest-sensitive spending and increasing aggregate demand.

Limited Reserves Framework

Aims to affect the amount of excess reserves banks hold, influencing the lending capacity based on reserve requirements, discount rate, and open-market operations.

Ample Reserves Framework (ARF)

Aims to control bank lending through administrative rates, incentivizing banks to keep excess reserves in the central bank by adjusting interest rates.

Net Exports (Xn)

Changes in relative price of goods due to currency value fluctuations impacting exports and imports, leading to changes in aggregate demand.

Real Interest Rates and International Capital Flows

Differences in real interest rates across countries affecting financial capital flow, influencing the balance of the Capital and Financial Account.

Loanable Funds Graph Model

Capital inflows and outflows affecting the supply of loanable funds, influenced by factors like Monetary Policy, Demand for Money, Government Budget Balance, and Household saving behavior.