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This is a compiled list of all the helpful terms that helped me prepare for regular macro tests as well as the AP exam
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Physical capital
Human- made equipment such as machinery, buildings, roads, vehicles, and computers.
Economic growth
The ability to produce a larger total output over time.
Opportunity cost
The value of the next-highest-valued alternative use of that resource.
Demand
The different quantities of goods and services that consumers are willing and able to purchase at various price levels.
Production Possibility Curve
A model used to show the tradeoffs associated with allocating resources between the production of two goods.
Macroeconomics
The part of economics concerned with large-scale economic endeavors.
Labor
Human effort and talent, physical and mental
Land or natural resources
Any resource created by nature
Market
Essentially, it is the place in the economy where buyers and sellers perform transactions
Productive efficiency
When the economy is producing the maximum output for a given level of technology and resources
Allocative efficiency
The economy is producing the optimal mix of goods and services
Market failure
When a market fails to produce the allocative efficient quantity
Law of demand
Holding all else equal, when the price of good rises, consumers decrease the quantity demanded of that good
GDP
Measures the economic growth of a country.
Market basket
A collection of goods and services used to represent what is consumed in the economy.
Recession
Unofficially defined as two consecutive quarters of falling real GDP.
Business cycles
The fluctuations in economic activity over time.
Consumers
The people who buy the goods /services in an economy.
GDP deflator
Includes all items that make up domestic products.
Circular flow of economic activity
A model that shows how households and firms circulate resources, goods, and incomes through the economy
Gross domestic product (GDP)
The market value of the final goods and services produced within a nation in a given period
GDP
C + I + G + XN
Investment spending (I)
Investment is defined as current spending to increase output or productivity later
Government spending (G)
Purchases made by the government for final goods and services and investments in infrastructure
Aggregate income (AI)
The sum of all income-Wages + Rent + Interest + Profit-earned by suppliers of resources in the economy
Unemployed
A person is unemployed if they are not currently working but are actively seeking work
Labor force
The sum of all individuals 16 years and older who are either currently employed (E) or unemployed (U)
People not considered to be in the labor force are…
A person is classified as out of the labor force if they have chosen to not seek employment
Unemployment rate
The percentage of the labor force that falls into the unemployed category
Discouraged workers
Citizens who have been without work for so long that they become tired of looking for work and drop out of the labor force
Frictional unemployment
A type of unemployment that occurs when someone new enters the labor market or switches jobs
Structural unemployment
A type of unemployment that is the result of fundamental, underlying changes in the economy such that some job skills are no longer in demand
Cyclical unemployment
A type of unemployment that rises and falls within the business cycle (recession)
Full employment
Exists when the economy is experiencing no cyclical unemployment
Natural rate of unemployment (NRU)
The unemployment rate associated with full employment, somewhere between 4 to 6 percent in the United States
Consumer price index (CPI)
The price index that measures the average price level of the items in the base year market basket
Deflation
the general decrease in prices
Inflation
the general increase in prices
Disinflation
a decrease in the rate of inflation
Inflation rate
the percentage change in aggregate price level across an entire economy in a year
Nominal GDP
The value of current production at the current prices
Real GDP
The value of current production but using prices from a fixed point in time
Base year
The year that serves as a reference point for constructing a price index and comparing real values over time
Price index
A measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year
Expansion
A period where real GDP is growing
Peak
The top of a business cycle where an expansion has ended
Contraction
A period where real GDP is falling
Recession
Unofficially defined as two consecutive quarters of falling real GDP
Depression
A prolonged, deep contraction in the business cycle
Trough
The bottom of the cycle where a contraction has stopped
Macroeconomic equilibrium
When the quantity of real output demanded is equal to the quantity of real output supplied.
Marginal propensity to Consume (MPC)
Shows how much people consume rather than save when there is a change in income.
Supply shocks
Affects the costs of firms and the position of the SRAS curve, either positively or negatively.
Multiplier effect
The idea that an initial change in spending will set off a spending chain that is magnified in the economy.
Recessionary gap
The amount by which full- employment GDP exceeds equilibrium GDP.
Fiscal policy
Deliberate changes in government spending and net tax collection affect economic output, unemployment, and the price level.
Contractionary fiscal policy
When the economy operates beyond full employement, inflation becomes a problem, so the government might need to contract the economy.
Expansionary fiscal policy
The increases in government spending or lower net taxes meant to shift AD to the right.
AD curve
When the AD increases, an inflationary gap happens to cause an increase in real GDP to GDPi (lower unemployment rate) and an increase in the aggregate price level to PL2.
Income taxes
An example of an automatic stabilizer during an economic boom or recession.
Inflationary gap
The amount by which equilibrium GDP exceeds full employment GDP.
Aggregate demand
The inverse relationship between all spending on domestic output and the aggregate price level of that output.
Marginal propensity to save (MPS)
Shows how much people save rather than consume when there is a change in income.
Fiscal policy
Designed to manipulate AD to "fix "the economy.
Monetary base
currency in circulation and bank reserves.
Stock
A certificate that represents a claim to, or share of the ownership of a firm
Fiat Money
The paper and coin money used today
Unit of account
Units of currency measure the relative worth of goods and services
Store of value
Money is a relatively good way to store value, when theres no inflation because it keeps its value
Money supply
The quantity of money in circulation as measured by the Federal Reserve (the Fed) as M1 and M2
Liquidity
A measure of how easily an asset can be converted to cash
Reserve Ratio
The fraction of a banks total deposits that are kept on reserve
Reserve requirement
Regulation set by the Fed that states the minimum reserve ratio for banks
Phillips Curve
A graphical device that shows the relationship between inflation and the unemployment rate.
Surplus
When the difference between tax revenues and government spending is positive.
Stagflation
A situation where inflation and the unemployment rate are both increasing.
Crowding out effect
It is the economic theory that public sector spending can lessen or eliminate private sector spending
FOREX Market
When the quantity supplied of the currency equals the quantity demanded of the currency at a specific exchange rate.
Capital (or financial) account
This account shows the flow of investment on real or financial assets between a nation and foreigners
Official reserves account
The Feds adjustment of a deficit or surplus in the current and capital account by the addition or subtraction of foreign currencies so that the balance of payments is zero
Balance of payments deficit
When the US has sent more dollars out than foreign currency has come in while adding the current and capital account
Balance of payment surplus
When more foreign currency was coming into the US than American dollars sent abroad
Exchange rate
The price of one currency in terms of a second currency