Unit 1+2+3 AP Macroeconomics Vocab

Aggregate

Added all together

Aggregate demand AD

All the goods and services that buyers ware willing and able to purchase at different price levels, real GDP

Wealth effect/Real balance effect

Higher price levels reduce the purchasing power of money and decreases quantity of expenditures and vice versa

Interest rate effect

For price level increases, lenders need to charge higher interest rate to get a real return on loans, high interest rates discourage consumers and investing

Foreign trade effect

 When your price level rises, exports falls and imports rise causing real GDP

Multiplier effect

Initial change in spending will set off a magnified, spending chain

Marginal Propensity to Consume MPC

How much people consumer rather than save when there is a change in disposable income, expressed as a fraction/decimal

Marginal Propensity to Save MPS

How much people save rather than consume when there is a change in disposable income, expressed as a fraction/decimal

Aggregate Supply AS

Amount of goods and services (real GDP) that firms will produce in an economy at different price levels

Short-run aggregate supply SRAS

Wages & resources prices are sticky & won't change as price level changes

Long-run aggregate supply LRAS

Wages & resource prices are flexible & will change as price level changes

Stagflation

Stagnant economy + inflation causes a recessionary gap

Demand-pull inflation

Demand pulls up prices and causes aggregate demand to increase

Cost-push inflation

Higher production costs increase prices causing SRAS to decrease

Autonomous consumption

Amount consumers will spend regardless of income to pay for necessities

Disposable income

Income after taxes

Dissaving

Negative savings

Fiscal policy

Actions by Congress to stabilize the economy

Monetary policy

Actions by the Federal Reserve Bank to stabilize the economy

Discretionary fiscal policy

New bill to change AD through government spending or taxation but lags

Non-discretionary fiscal policy/automatic stabilizers

Permanent spending or taxation laws to work counter cyclically to stabilize the economy

Contractionary fiscal policy

Laws that reduce inflation and decrease GDP by decreasing government spending and increases taxes to close an inflationary gap

Expansionary fiscal policy

Laws that reduce unemployment and increase GDP by increasing government spending and decreasing taxes to close a recessionary gap

Inflationary gap/positive output

Above or beyond full employment

Recessionary gap/negative output gap

Below or less than full employment

Shifter of Aggregate Demand =

AD = GDP = C + | + G + Xn =

change in Consumer spending + change in Investment spending + change in Government spending + change in Net Exports (X-m)

Marginal Propensity to Consume MPC =

Change in Consumption/Change in disposable income

Marginal Propensity to Save MPS =

Change in Savings/Change in disposable income

MPS =

1 - MPC

Spending Multiplier =

1/MPS or 1/(1-MPC)

Total Change in GDP =

Spending Multiplier x Initial change in Spending

Simple Tax Multiplier =

MPC x (1/MPS) or MPC/MPS

Total Change in GDP =

Tax Multiplier x Initial change in Taxes

 Shifters of Aggregate Supply = AS = R+ A + P

change in Resource prices + change in Actions of the government + change in Productivity

Private sector

Part of the economy run by individuals and businesses

Public sector

Part of the economy that is controlled by the government

Factor payments

Payment for the factors of production like rent, wages, interest, and profit

Transfer payments

When the government redistributes income like welfare or social welfare

Subsidies

Government payments to businesses to increase supply

Gross domestic product (GDP)

Dollar value of all final new goods and services produced within a country in one year

GDP per capita

GDP divided by population/per person

Intermediate goods

Goods inside final goods that don't count towards GDP

Durable goods

Goods that don't wear out quickly and last over a long period of time

Nondurable goods

Goods that have a short life cycle

Unemployment

Workers that are actively looking for a job but aren't working

Frictional unemployment

Unemployment that is temporary or being between jobs and the person has transferable skills

Seasonal unemployment

Unemployment based on time of year or nature of the job

Structural unemployment

Changes in the labor force that make some skills obsolete

Technological unemployment

Unemployment where automation and machinery replace workers

Cyclical unemployment

Unemployment caused by recession

Natural rate of unemployment (NRU)

Amount of unemployment that exists when the economy is healthy and growing, focuses on output and not having too much unemployment

Non-Accelerating Inflation Rate of Unemployment (NAIRU)

Focuses on inflation and not having too little unemployment

Discouraged workers

Some people are no longer looking for a job because they have given up

Underemployed workers

Someone who wants more hours and can't get them but are still considered employed

Inflation

Rising general level of prices and reduces purchasing power of money

Deflation

Decrease in general prices and causes people to hoard money

Disinflation

Prices increasing at slower rates

Nominal wage

 Wage measured by dollars rather than purchasing power

Real wage

Wage adjusted for inflation

Nominal GDP

 GDP measured in current prices and doesn't account for inflation from year to year

Real GDP

GDP expressed in constant or unchanging dollars and adjusts for inflation

Inflation =

New # - Old #/ Old # X 100

% Change in GDP =

Year 2 - Year 1/ Year 1 X 100

GDP Deflator =

Nominal GDP/ Real GDP X 100

GDP (Y) =

C + I + G + (X-M)

GDP (Y) =

Consumer spending + investment spending + Government spending + (Exports-Imports)

Nominal GDP =

(Deflator)x(Real GDP) / 100

Unemployment rate =

# of unemployed/ # of people in the labor force X 100

Consumer Price Index(CPI) =

Price of market basket/ Price of market basket in base year X 100

Scarcity

Unlimited wants but limited resources.

Macroeconomics

Study of the economy as a whole or economic aggregates.

Microeconomics

Study of small economic units such as individuals, firms, or markets.

Positive Statements

Based on facts, avoids value judgments (what is).

Normative Statements

Includes value judgments (what ought to be).

Marginal Analysis

Making decisions based on increments.

Trade-Off

All the alternatives that we give up when we make a choice.

Opportunity Cost

Most desirable alternative given up when you make a choice.

Utility

Satisfaction.

Marginal

Additional.

Allocate

Distribute.

Consumer Goods

Created for direct consumption.

Capital Goods

Goods used to make consumed goods.

Physical Capital

Human-made resource used to create other goods and services.

Human Capital

Skills or knowledge gained by a worker through education and experience.

Productivity

Measure of efficiency that shows the number of outputs per unit of input.

Constant Opportunity Cost

Resources easily adaptable for producing either goods, straight line PPC.

Law of Increasing Opportunity Cost

Producing more of one good increases the resource cost of the other good, bowed PPC.

Absolute Advantage

Producer that can produce the most output or requires the least amount of inputs.

Comparative Advantage

Producer with the lowest opportunity cost.

Terms of Trade

Agreed-upon conditions that would benefit both countries.

Demand

Different quantities of goods that consumers are willing and able to buy at different prices.

Law of Demand

Inverse relationship between price and quantity demanded.

Substitution Effect

If price goes up for a product, that product will be bought less and more of a similar product will be bought.

Income Effect

If the price goes down for a product, the purchasing power increases for consumers, allowing them to purchase more.

Law of Diminishing Marginal Utility

The more you consume anything, the additional satisfaction you receive will start to decrease.

Ceteris Paribus

All other things held constant.

Substitutes

Goods used in place of another one.

Complements

Two goods that are bought and used together.

Normal Goods

As income increases, demand increases, or as income falls, demand falls.

Inferior Goods

As income increases, demand falls, or as income falls, demand increases.