AP Macro unit 3 flashcards

aggregate income

total income generated by amount of income that is generated by all people businesses, government in given country

aggregate demand

relation between aggregate price level and aggregate output demanded by household’s businesses governments and the rest of the world

ceteris paribus

“all other things being equal”

interest rate effect

change in investment and consumer spending caused by altered interest rates that result in demand changes of money

Wealth

total value of assets minus wealth

Real wealth effect

change in consumers spending caused by altered purchasing powers of consumers assets

exchange rate effect

change in investment and consumer spending caused by altered purchasing power of consumer assets

financial assets

intangible assets that derive their value from a contractual claim

Real assets

physical assets that have value and can be used to create goods and services

fiscal policy

use of government purchases of goods and services government transfers or tax policy to stabilize economy

monetary policy

the central banks changes in the quantity of money or the interest rate to stabalize economy

autonomous

initial rise or fall

expenditure

the total amount of money that house holds plan to spend on goods and services

tax multiplier

the factor by which a change in tax collections happen when transfer payments increase

transfer multiplier

the factor in which aggregate demand increases

aggregate supply

shows relationship between the aggregate price level and the quantity of aggregate output in the economy

short run aggregate suply (SRAS)

shows the positive relationship between aggregate price level and the quantity of aggregate output that exists in the short run

commodity

physical assets that have intrinsic value

subsides

financial benefit given by the government to businesses and industries

short run

a period of time where prices and factors of production are fixed

long run

period of time where prices and factors of production are flexible

long run aggregate supply (LRAS)

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if outputs were fixed

recessionary gap

when aggregate output is below potential output

inflationary gap

when aggregate output is above potential output

aggregate demand shock

an event that shifts the aggregate demand curve

positive shock

a unexpected change causing an increase in aggregate supply of goods and services leading to higher output and lower prices

negative shock

unexpected decrease in the supply of goods and services in an economy leading to higher prices

demand pull inflation

inflation that occurs when aggregate demand is higher than aggregate supply

cost pull inflation

type of inflation where cost of production increases leading in price increasing resulting in aggregate supply decreasing

classical theory

assumption that economy is self-regulated and can correct itself

automatic stabilizer

government spending and taxation causing fiscal policy to be automatically expansionary when the economy contrasts and automatically contrasting when the economy expands

contractionary fiscal policy

reduced fiscal policy

expansionary fiscal policy

policy aimed at increasing aggregate demand through goverment spending and tax cuts