AP Macroeconomics - Memorization Test

business cycle

Fluctuations in economic activity (expansion, peak, recession, trough)

frictional employment

job search unemployment

cyclical unemployment

business cycle unemployment

structural employment

number of jobs avaliable is insufficient

nautral rate of unemployment

normal rate 4-6%

discouraged workers

individuals who have given up looking for a job

inflation

increase in the price level for goods and services

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country in a year

transfer payments

Benefits given by the government directly to individuals (social security)

components of GDP

consumption, investment, government purchases, and net exports

nominal GDP

the production of goods and services valued at current prices (includes inflation)

real GDP

the production of goods and services valued at constant prices (adjust for inflation)

aggregate demand

the amount of goods and services in the economy that will be purchased at all possible price levels

short run aggregate supply (shape/shifters)

upward sloping as PL increases, output increases (wages, resources, productivity)

long run aggregate supply (shape/shifters)

vertical sloping as PL does not affect output in LR (tech, factors of production)

supply shock (negative/positive)

unexpected price change of a resource (negative - leftward shift, positive - rightward shift)

multiplier effect

additional shifts of AD due to expansionary fiscal policy + consumer spending

marginal propensity to consume

the amount one will save or spend from additional income

crowding out effect

decrease in AD due to increased IR and decrease investment from exp. fiscal policy

sticky wage theroy

SRAS is upward sloping because prices/wages are stuck in the SR

financial assets

stocks, bond, bank deposits

present value

the amount of money you would need to deposit now in order to have a desired amount in the future

future value

the amount of money in the future that an amount of money today will yield, given interest rates

money supply

the quantity of money available in the economy

money demand (shifters)

Q of money people desire to hold as cash

1. Changes in PL

2. Changes in Income

3. Changes in Tech

reserve requirement

min amount of reserves a bank must hold against deposits

fractional reserve banking system

a system where banks loan out a % of deposits

discount rate

IR on loans from the fed reserve

federal funds rate

IR on loans b/n banks

contractionary monetary policy

decrease in money supply

1. Sell Bonds

2. Increase DR

3. Increase RR

expansionary monetary policy

increase in money supply

1. Buy Bonds

2. decrease DR

3. decrease RR

ample reserves market

if there are enough reserves the FED uses other short term IRS by setting the fed Reserve administered rates

contractionary fiscal policy

decrease in AD

1. increase taxes

2. decrease government spending

expansionary fiscal policy

increase AD

1. decrease taxes

2. increase gov spending

loanable funds market

the market that matches borrowers and savers at theRIR

supply curve in the loanable funds market

supply curve is the savers in the economy as IR increase more people save

demand curve in the loanable funds market

demand curve is the borrowers in the economy as IR decrease more people borrow

government deficit

gov spending exceeds tax revenue

cost push inflation

increase in costs of production lead to inflation (SRAS left)

demand pull inflation

increase in demand for G & S lead to inflation (AD right)

determinants of economic growth

1. Technology

2. Factors of Production

trade balance

exports equal imports

FOREX (shifters)

market for trading currencies

1. Interest Rates

2. Income

3. PL

4. Tastes/Preferences

appreciation

An increase in the value of a currency over time

depreciation

A decrease or loss in value over time

net exports

exports minus imports

Circular Flow Diagram

model that shows the flow of money and goods & services in an economy

financial account

records the increase/decrease in a countries ownership of assets

current account

records the flow of g & s

CA + FA =0

nominal interest rates equation

Real Interest Rate + Expected Inflation

quantity theory of money equation

MV=PY

M = money supply

V = velocity

P = PL

Y = quantity/output

money multiplier equation

1/reserve requirement

rule of 70 equation

70/interest rate

government spending multiplier equation

1/MPS = 1/1-MPC

tax multiplier equation

MPC/1-MPC or MPC/MPS

unemployment rate equation

(number of unemployed/ labor force) x 100

CPI index equation

(cost of basket in current year/cost of basket in base year) x 100

GDP deflator equation

(nominal GDP/real GDP) x 100