AP Macroeconomics Unit 5

output gap

difference between actual output and potential output

open-market operations

used to control $ supply

securities

used to increases/decrease $ supply (ex. US Treasury Bills)

expansionary policy

stimulate economic growth

contractionary policy

slow economic growth

Phillips curve

inverse relationship of wages/prices & unemployment

monetarist

economists that think $ supply is primary factor affecting demand in short-run

short-run Phillips curve (SRPC)

economy is always on it, change in ADAS = change here

long-run Phillips curve (LRPC)

vertical line @ natural rate of unemployment

quantity theory of money

direct relationship between quantity of money in an economy and price level of goods/serivces

equation of exchange

M x V = P x T, money supply, velocity of money, avg. PL, transactions (real output)

velocity

ratio of nominal GDP to either M1 or M2, rate of turnover in money supply

balanced budget

tax revenues adequate to cover government expenditures

budget surplus

positive difference between revenue and public spending

budget deficit

spending exceed revenue (negative difference)

national debt

amount of money a government owes to creditors

crowding out

adverse effect of public sector borrowing on private sector

economic growth

increase in aggregate production of goods/services

productivity

output per unit of input

real GDP

nominal GDP adjusted for inflation

real GDP per capita

real GDP/population

aggregate production function

measure of how an economy’s aggregate output (real GDP) depends on determinants of economic growth

property right

ownership and control of specific good/resource

supply-side fiscal policies

government attempt to create better climate for business through tax cuts & deregulation (goal to increase productivity and shift