Economics: Supply, Demand, GDP, and Fiscal Policies Overview

What determines equilibrium price?

Intersection of supply and demand.

What does a price ceiling cause?

Shortage.

What shifts demand?

Income, tastes, number of buyers, expectations, prices of substitutes/complements.

What shifts supply?

Technology, input costs, productivity, taxes, number of sellers.

What is opportunity cost?

The next best alternative you give up.

What does the PPC show?

Tradeoffs, efficiency, opportunity cost.

What does a point inside the PPC mean?

Inefficient.

What goods count in GDP?

Final goods produced within the country in a given period.

What does Real GDP measure?

Output adjusted for inflation.

What is GDP per capita?

Standard of living.

What increases economic growth in the long-run?

Technology, human capital, capital, productivity.

What is comparative advantage?

Lower opportunity cost in producing a good.

What does appreciation of currency mean?

Currency gets stronger; exports decrease, imports increase.

What does depreciation of currency mean?

Currency gets weaker; exports increase, imports decrease.

What is a trade deficit?

Imports greater than exports.

What is a budget deficit?

Government spending greater than revenue.

What is national debt?

Total accumulation of deficits.

What does the Federal Reserve do?

Controls money supply and interest rates.

What is expansionary monetary policy?

Money supply increases, interest rates decrease, aggregate demand increases.

What is contractionary monetary policy?

Money supply decreases, interest rates increase, aggregate demand decreases.

What is fiscal policy?

Government spending and taxes.

What is expansionary fiscal policy?

Increase in government spending or decrease in taxes.

What is contractionary fiscal policy?

Decrease in government spending or increase in taxes.

What shifts aggregate demand?

Consumption, investment, government spending, net exports.

What shifts short-run aggregate supply?

Input costs, productivity, supply shocks.

What is a recessionary gap?

Actual GDP is less than potential GDP; unemployment increases.

What is an inflationary gap?

Actual GDP is greater than potential GDP; inflation increases.

What does stagflation mean?

Short-run aggregate supply shifts left; high unemployment and high inflation.

What are sticky wages?

Wages that are slow to adjust, leading to upward sloping short-run aggregate supply.

What is the equation of exchange?

MV = PY.