AP Econ (4?)

Annually Balanced Budget

A budget plan where government revenue equals expenditures every year.

Budget Deficit

When government spends more than it earns, leading to borrowing.

Budget Surplus

When government revenue exceeds spending, allowing for debt reduction or saving.

Classical Model/View

Economic theory suggesting that free markets self-regulate, emphasizing long-term growth and minimal government intervention.

Cost-Push Inflation

Inflation caused by higher production costs pushing up prices.

Crowding Out Effect

When government borrowing increases interest rates, reducing private investment.

Cyclically Balanced Budget

Budgeting approach aiming to balance over the economic cycle rather than annually.

Debt Deflation

When falling prices increase the real value of debt, leading to reduced spending.

Demand-Pull Inflation

Inflation from increased overall demand in the economy.

Discretionary Monetary Policy

Central bank actions to adjust the money supply and interest rates to stabilize the economy.

Functional Finance

Theory that government should prioritize economic stability and full employment.

Inflation Tax

Decrease in purchasing power as inflation erodes the real value of money.

Infrastructure

Large-scale public works like highways and bridges that support economic activity.

Keynesian Economics

Economic theory advocating for government spending and intervention during downturns.

Laffer Curve

Graph suggesting there’s an optimal tax rate to maximize revenue.

Liquidity Trap

Situation where low interest rates fail to encourage spending.

Long-Run Phillips Curve

Shows that there’s no trade-off between inflation and unemployment in the long run.

Macroeconomic Policy Activism

Active use of fiscal and monetary policy to manage economic fluctuations.

Monetarism

Theory that changes in the money supply are the primary driver of inflation.

Monetary Neutrality

Belief that changes in the money supply only affect prices, not real GDP.

Monetary Policy Rule

A set guideline for central banks to manage interest rates.

Natural Rate Hypothesis

Theory that there’s a certain level of unemployment unaffected by inflationary pressures.

NAIRU

Unemployment rate where inflation remains stable.

Political Business Cycle

When politicians influence economic cycles around elections to boost popularity.

Public Debt

Total amount of government debt from borrowing to cover deficits.

Quantity Theory of Money

Theory connecting the money supply and price level.

Rational Expectations

Theory that people use all available information when making economic decisions.

Real Business Cycle Theory

Theory attributing economic cycles to real factors like technological changes.

Short-Run Phillips Curve

Shows an inverse relationship between inflation and unemployment.

Supply-Side Economics

Theory that economic growth can be stimulated by reducing taxes and regulation.

Velocity of Money

The speed at which money circulates in the economy.

Zero Bound

The concept that interest rates cannot go below zero.

Aggregate Production Function

Relationship showing how total output depends on inputs like labor and capital.

Convergence Hypothesis

Suggests that poorer countries will grow faster and eventually catch up to richer ones.

Depreciation

The wearing down or loss of value in physical capital over time.

Diminishing Returns to Physical Capital

Adding more capital eventually yields less additional output.

Economic Growth

Increase in an economy’s output, typically measured as growth in GDP.

Growth Accounting

Technique used to estimate contributions of factors like capital, labor, and technology to economic growth.

Human Capital

Skills and education of workers, contributing to productivity.

Labor Productivity

Output per worker or per hour worked.

Physical Capital

Tools, machinery, and buildings used in production.

Research and Development (R&D)

Investment in innovation and new products.

Rule of 70

Quick formula to estimate how long it will take for a variable to double.

Sustainable

Growth that can be maintained without depleting resources.

Technology

Innovations that improve production efficiency.

Total Factor Productivity

Measure of efficiency improvements in production not attributed to labor or capital.

Phillips Curve

Graph showing the relationship between inflation and unemployment.