AP Macroeconomics Unit 5

Economic Growth

When the economy makes more stuff over time (increased output).

Real GDP per Capita

The value of what a country produces per person, adjusted for inflation.

Productivity

How much stuff a worker makes in a set amount of time.

Capital Deepening

Giving workers better tools and machines to boost their work.

Human Capital

The skills and knowledge people have (like education or training).

Physical Capital

Machines, tools, and buildings used to make goods and services.

Technological Progress

New ideas or inventions that help make things faster or better.

Public Policy

Government decisions to help guide or fix the economy.

Investment in Infrastructure

Spending on things like roads, bridges, and internet that support economic activity.

Education and Training

Programs that help workers learn more and work better.

Research and Development (R&D)

Efforts to create new tech, products, or processes.

Crowding Out

When government borrowing uses up money that businesses could have borrowed.

Deficits and Debt

Deficit – When the government spends more than it earns in a year.

Debt – The total amount the government owes from borrowing.

Balanced Budget

When government spending equals its income (no deficit or surplus).

Supply-Side Policies

Plans to boost the economy by helping businesses produce more (like tax cuts or less regulation).

Loanable Funds Market

Where people save money (supply) and borrowers take loans (demand); affects interest rates.

Laffer Curve

A graph showing that cutting taxes may raise or lower government revenue depending on the situation.

Phillips Curve

Short-run – Lower unemployment often means higher inflation.

Long-run – No trade-off; inflation and unemployment are not connected.

Taylor Rule

A rule that suggests how the Fed should set interest rates based on inflation and GDP.

Fiscal and Monetary Policies

Fiscal – Government changes taxes or spending.

Monetary – The Fed changes interest rates or money supply.

Keynesian Theory

The idea that government should spend more or cut taxes during recessions to boost demand.