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Opportunity Cost
The value of the next best alternative to any decision you make.
Production Possibilities Curve (PPC)
A graphical model that represents all combinations of two goods that can be produced, capturing scarcity of resources and opportunity costs.
Surplus
When the quantity supplied of a good, service, or resource is greater than the quantity demanded.
Shortage
When the quantity demanded of a good, service, or resource is greater than the quantity supplied.
Demand
An economic principle referring to a consumer's desire to purchase goods and services and their willingness to pay a price.
Supply
The total amount of a specific good or service available to consumers.
Equilibrium
Occurs when price has adjusted until quantity supplied is equal to quantity demanded.
Disequilibrium
Occurs when quantity supplied is not equal to quantity demanded, leading to a shortage or surplus.
GDP
Measures the value of the output of all goods and services produced within a country in a year.
Nominal GDP
The market value of the final production of goods and services in a given period using current prices.
Real GDP
Nominal GDP adjusted for changes in the price level, using prices from a base year.
GDP Deflator
A price index used to adjust nominal GDP to find real GDP, measuring average prices of all finished goods.
Unemployment Rate
The percentage of the labor force that is unemployed but actively seeking work.
Labor Force Participation Rate (LFPR)
The percentage of the eligible population that is in the labor force.
Consumer Price Index (CPI)
An index that calculates the cost of a market basket of goods purchased by a typical urban family to track cost of living changes.
Inflation Rate
The pace at which the overall price level is increasing; percentage increase in price level from one period to the next.
Circular Flow Model
A diagram representing GDP as a flow of income and expenditures between households and businesses.
AD-AS Model
Illustrates national income determination and changes in the price level, showing phases of the business cycle.
Fiscal Policy
The use of taxes, government spending, and transfers to stabilize an economy.
Nominal Interest Rate
The interest rate you earn or pay on a loan, as advertised.
Real Interest Rate
The nominal interest rate adjusted for inflation; the effective interest rate.
Money Multiplier
The ratio of money supply to the monetary base, indicating how many additional dollars are created with an increase in reserves.
Opportunity Cost Calculation
Always expressed in terms of the good that is given up.
Mutually Beneficial Terms of Trade
Determined by looking at the two opportunity costs plotted on a PPC and choosing a number between them.
Nominal GDP Calculation
Calculate using the market value of final goods and services at current prices.
Real GDP Calculation
Nominal GDP adjusted for changes in the price level.
CPI Calculation
Tracks changes in the cost of a market basket of goods over time.
GDP per Capita
GDP divided by population to measure economic output per person.
Effects of Fiscal Policy
Can be shown using the AD-AS model to illustrate changes in output and price level.
Maximum Increase in Loans
Calculated as (Deposit - reserves) x money multiplier.
Excess Reserves Calculation
Excess reserves = Deposits - (Deposits x reserve requirement).
Short-run Economic Impacts
Calculated based on changes in spending and taxes affecting real GDP.
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