AP Macroeconomics Unit 5 Vocabulary

Phillips curve

Used to indicate the current level of unemployment and inflation

Mandatory spending

Government must (by law) pay out benefits to all eligible recipients

Discretionary spending

Spending that goes through an annual appropriations process each year

Budget deficit

The amount by which government spending exceeds government revenues in a single year

National debt

The total amount of money the federal government owes to pay for accumulated deficits

Balanced budget

A federal budget in which spending/expenses and revenues/income are equal

Budget surplus

A federal budget in which revenue, receipts, and income exceed expenses or outlays

Crowding out effect

The government harms private investment when it enacts expansionary fiscal policy

Quantity theory of money

the amount of money in circulation is equal to the value of good/services sold

Monetary neutrality

changes in money supply don't affect real variables in the long run

Velocity of money

Speed at which money travels from person to person

Monetarists

believe that shifts in the money supply rather than changes in investment or consumption can correct recessionary or inflationary gaps in the short-run

Supply-side economists

focus on aggregate supply, rather than aggregate demand

Laffer curve

reveals the theoretical relationship between tax rates and maximum tax revenue

Real GDP per capita

real GDP divided by the total population

Economic growth

sustained increases in an economy's real GDP

Labor productivity

refers to the average output per worker

Aggregate production function

an equation relating output to technology, T, physical capital, K, and labor, L

Convergence hypothesis

differences in real GDP per capita among countries tends to narrow over time because countries with lower real GDP per capita tend to have higher growth rates