AP Macro Midterm Vocab

economics

the study of scarcity and choice

trade-off

when you give up something in order to get something else (what you are gaining)

resource/factor of production

anything that can be used to produce something else

land

all the resources that come from nature, such as timber, wind, and petroleum

labor

the effort of workers

capital

manufactured goods used to make other goods and services

entrepreneurship

the efforts of entrepreneurs in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes

scarcity

when unlimited wants exceed limited resources

opportunity cost

the value of the next best alternative (choice) that you have given up in order to get an item

macroeconomics

concerned with the overall ups and downs of the economy (large scale)

household

a person or group of people that share their income

firm

any organization that produces goods or services for sale

PPC

illustrates the necessary trade-offs in an economy that produces only two goods

ceteris paribus

“other things equal” means that all other relevant factors remain unchanged

efficient

there are no missed opportunities - there is no way to make some people better of without making other people worse off

economic growth

an increase in the maximum amount of goods and services an economy can produce

trade

providing goods and services to others and recieve goods and services in return

specialization

when each person focuses on the task they are good at performing

comparative advantage

having the lowest opportunity cost among the people or countries that can produce that good or service

absolute advantage

being able to produce more of a good or service with the given amount of time and resources

terms of trade

the rate at which one good can be exchanged for another and have both parties benefit

quantity demanded

the amount of a good or service consumers are willing and able to buy at some specific price. it is shown as a single point in a demand schedule or along a demand curve

demand curve

a graphical representation of the demand schedule. it shows the relationship between quantity demanded and price

law of demand

states that a higher price for a good or service, all other things being equal, leads people to a smaller quantity demanded of that good or service

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good’s price

substitutes

goods that are meant to be used in one place of another. a rise in the price of the goods leads to an increase in demand for the other good

complements

goods that are bought together to be used together. a rise in the price of one of the goods leads to a decrease in demand for the other good

normal good

when a rise in consumer income increases the demand for the good and vice versa

inferior good

when a rise in consumer income decreases the demand for the good and vice versa

quantity supplied

the actual amount of a good or service people are willing to sell at some specific prices

supply curve

the relationship between the quantity supplied and the price

law of supply

states that all other things being equal, the price and quantity supplied of a good are positively or directly related

change in supply

a shift of the supply curve, which indicates a change in the quantity supplied at any given price

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good’s price

input

a good or service that is used in the production of another good or service

tax

treated as an input cost, these are fees producers must pay to the federal government

subsidy

treated as an input cost, these are payments from the government to producers to assist in the production of certain goods or services that are deemed beneficial to society

substitutes in production

goods that producers can use the same inputs to make either one good or the other

complements in production

goods are treated as these if increased production of either good creates more of the other good

Qs

quantity supplied

Qd

quantity demanded

equilibrium

the point where QS = QD. this is the intersection point between the supply and demand curve

surplus

also known as the excess supply and caused by a price floor, this exists at a price above equilibrium where Qs > Qd

shortage

also known as excess demand and caused by a price ceiling, this exists at a price below equilibrium where Qd > Qs

Product Market

markets where goods and services are bought and sold

Consumer Spending

household spending on goods and services

Factor Market

markets where resources, especially capital and labor, are bought and sold

Government Spending

total expenditures on goods and services by federal, state, and local governments

Tax Revenue

the total amount of funds the government receives from taxes

Disposable Income

equal to income - taxes, this is the total amount of household income available to spend on consumption

Government Transfers

payments that the government makes to individuals without expecting a good or services in return

Private Savings

equal to the disposable income - consumer spending, this is a household’s disposable income that is not spend on consumption

Financial Markets

channel private savings into investment spending and government borrowing

Government Borrowing

the amount of funds borrowed by the government in the financial markets

Investment Spending

spending by firms on new productive physical capital, such as machinery and structures, and changes in inventories

Inventories

stocks of goods and raw materials held to facilitate business operations

Exports

goods and services sold to other countries

Imports

goods and services purchased from other countries

Gross Domestic Product (GDP)

the total value of all final goods and services produced in the economy during the given year

Intermediate Goods

goods and services bought from one firm by another firm to be used as inputs into the production of goods and services

Final Goods

goods and services sold to the final, or end, user

Employed

people currently holding a job in the economy, either part-time or full-time

Unemployed

people who are actively looking for work but aren’t currently employed

Labor Force

equal to the sum of the employed and the unemployed

Discouraged Workers

nonworking people who are capable of working but have given up looking for a job due to the state of the job market

Natural Rate of Unemployment

the unemployment rate that arises from the effects of frictional plus structural unemployment

Inflation

a rising overall price level

Deflation

a falling overall price level

Disinflation

the process of bringing the inflation rate down

Real Wage

the wage rate divided by the price level to adjust for the effects of inflation or deflation

Real Income

income divided by the price level to adjust for the effects of inflation or deflation

Price Level

the measure of overall prices in the economy

Consumer Price Index

measures the cost of the market basket of the typical urban American family

Normal Interest Rate

the interest rate actually paid for a loan

Real Interest Rate

the normal interest rate minus the rate of inflation

GDP Deflator

measuring and adjusting the nominal GDP for changes in the price level over time

GDP Per Capita

GDP divided by the total population; it is equivalent to the average GDP per person

Economic Growth

an increase in the maximum amount of goods and services that an economy can produce

Full-Employment Output

the level of real GDP the economy can produce when all resources are fully employed

Potential Output

what an economy can produce when operating at maximum sustainable employment (that is, the natural rate of unemployment)

Output Gap

the difference between the actual output and potential output

Wealth

the value of a household’s accumulated savings

Aggregate Demand Curve

shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world

Real Wealth Effect

the change in consumer spending caused by the altered purchasing power of consumer's’ assets

Interest Rate Effect

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

Exchange Rate Effect

the change in net exports caused by a change in the value of the domestic currency, which leads to a change in the relative price of domestic and foreign goods and services

Marginal Propensity to Consume (MPC)

the increase in consumer spending when disposable income rises by $1

Marginal Propensity to Save (MPS)

the increase in household savings when disposable income rises by $1

Expenditure Multiplier

the ratio of total change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change. This indicated the total rise in real GDP that results from each $1 of an initial rise in spending

Tax Multiplier

the factor by which a change in tax collections changes real GDP

Aggregate Supply Curve

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

Nominal Wage

the dollar amount of the wage paid

Sticky Wages

nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages

Short0Run Aggregate Supply Curve

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

The short run

the time period in which many production costs, including nominal wages, are not fully flexible

The long run

the time period in which all prices, including wages, are fully flexible

Long-Run Aggregate Supply Curve

shows the relationship between the aggregate price level and the quantity of aggregate output supplied that would exist if all prices, including nominal wages, were fully flexible

Full-Employment Output

the level of real GDP the economy can produce if all resources are fully employed

Short-Run Macroeconomic Equilibrium

occurs when the quantity of aggregate output supplied is equal to the quantity of aggregate output demanded- that is, where the AD and SRAS curves intersect