Macro 3

Supply

When prices are higher, producers are willing to make and sell more; when prices are lower, they cut back.

Demand

When prices are lower, consumers want more; when prices are higher, they want less.

Supply

When prices are higher, producers are willing to make and sell more; when prices are lower, they cut back.

Demand

When prices are lower, consumers want more; when prices are higher, they want less.

Equilibrium

The 'magic spot' where the amount supplied equals the amount demanded.

Equilibrium Point

Where the supply and demand curves intersect; at this price, the amount producers are willing to sell matches what consumers want to buy.

Income Changes (as a cause of demand shifts)

When people's incomes rise, they often demand more of certain goods; when incomes fall, demand for cheaper alternatives often increases.

Substitutes

If a competitor lowers prices, the demand for the other product decreases.

Complements

A drop in the price of one good can increase the demand for a related good.

Input Costs (as a cause of supply shifts)

If production costs rise, supply decreases since it’s less profitable for producers.

Government policies (Taxes)

Higher taxes can shrink supply.

Production Possibility Curve (PPC)

Teaches about scarcity and the need to make choices, reminding us that economic growth depends on improving resources, technology, and efficiency.

Principle of Comparative Advantage

Explains how individuals or countries benefit from specializing in producing goods they can produce more efficiently.

Depreciation

Occurs when the value of a country's currency decreases relative to other currencies.

National Deficit

Occurs when a government spends more money than it collects in revenue during a specific period.

National Debt

The cumulative amount of money the government owes from running annual deficits over time.

Federal Reserve

Consists of seven members appointed by the President and confirmed by the Senate, serving staggered 14-year terms; oversees monetary policy.

Monetary Policy

Used to stimulate the economy during slow growth or recession, involving tools like lowering interest rates and increasing the money supply.

M1 (Money Supply)

The most liquid form of money, including bills, coins, and checking accounts.

M2 (Money Supply)

Includes everything in M1 plus less liquid assets like savings accounts and time deposits.

Fiscal Policy

How governments manage their spending and taxation to influence the economy, implemented by elected officials. raises aggregate demand, higher price levels, and GDP goes up

Inflation

Occurs when the overall price levels of goods and services rise in an economy.

Recession

A period of declining economic activity, typically marked by two consecutive quarters of negative GDP growth.

Keynesianism

The economic theory that governments should actively manage economic cycles, particularly during recessions.

Monetarism

The economic theory that controlling the money supply is the most effective way to manage the economy.