AP Econ Unit 5

What is the formula for the Quantity Theory of Money?

MV=PY

Define Velocity of Money

the speed at which the typical dollar bill travels around the economy from wallet to wallet

What is the Fisher Equation

r=i-π

What is the Crowding Out Effect?

U.S. debt crowds out and the government sells bonds to cover deficit spending

Define economic growth

sustained increase in Real GDP over time and sustained increase in Real GDP per Capita over time

What are some causes of Economic Growth?

increase in natural resources, human resources, improvements in technology, and increase in capital goods

Draw a Phillips Curve with a point that is in Long Run Equilibrium, a Recessionary Gap, and an Inflationary Gap

one graph photo

What is the Long-Run Relationship between Inflation and Unemployment?

there is no trade off or relationship between inflation and unemployment

What does a shift in the SRAS curve do the the Phillips Curve

causes a shift in the opposite direction

Define Credit

done by foreign companies, individuals (direct investment in the United States, purchase of domestic financial asset)

Define debit

done by Americans (direct investment in a foreign country, purchase of foreign financial assets)

What does a shift is the SRAD curve do to the Phillips Curve

causes a movement in the opposite direction

Define Current Account

trade balance, net foreign income, foreign aid

Define Capital/Financial Account

the balance of capital ownership, buying foreign assets

Define Federal Reserves

Fed buying or selling foreign currency

What is Net Exports

the difference between a country’s total exports and total imports (exports - imports)

Define the Foreign Exchange Market

marketplace where currencies are traded (FOREX)

What does it mean for currency to appreciate

less units of dollars are needed to buy a single unit of the other currency (stronger)

What does it mean for a currency to depreciate

more units of dollars are needed to buy a single unit of the other currency (weaker)

Draw two FOREX supply and demand curves

two graph photo

What shifts the curve of the FOREX model

change in tastes, relative incomes, relative price level (more imports), or relative interest rates