AP econ terms

  1. Market Economy = an economic system where supply and demand determine production, prices, and distribution, with minimal government intervention.

  2. Command Economy = an economic system where the government centrally controls production, distribution, and pricing of goods and services.

  3. Factors of production = any input that can be used to produce goods or services that satisfy human wants, typically classified into categories such as land, labor, capital, and entrepreneurship.

  4. Land = all naturally occurring resources with a fixed supply, including geographic land, minerals, forests, water, and airspace, considered a fundamental factor of production.

  5. Labor = human effort—both physical and mental—applied to the production of goods and services, considered a fundamental factor of production.

  6. Physical Capital = tangible, human-made assets used in the production of goods and services.

  7. Business Cycle = recurring pattern of expansion and contraction in an economy's output, measured primarily by GDP, reflecting periods of growth and recession.

  8. Expansion = phase of the business cycle marked by rising production, employment, and income, leading to increased consumer and business spending.

  9. Recession = significant decline in economic activity across the economy, lasting more than a few months and affecting production, employment, income, and spending.

  10. Depression = severe and prolonged downturn in economic activity, far more intense than a typical recession.

  11. Economic Growth = sustained increase in a country's production of goods and services, reflecting rising wealth, income, and living standards.

  12. Labor Force = total number of people in a population who are either employed or actively seeking employment, excluding those not participating in the workforce.

  13. Unemployment Rate = the percentage of the labor force that is currently without a job but actively seeking employment.

  14. Inflation = sustained increase in the general price level of goods and services, reducing the purchasing power of money over time.

  15. Deflation = sustained decrease in the general price level of goods and services, increasing the real value of money but potentially harming economic growth.

  16. Production Possibilities Curve = graphical tool that shows the maximum combinations of two goods or services an economy can produce in a given time period, assuming all resources are fully and efficiently used.

  17. Opportunity Cost = the value of the next-best alternative that is forgone when a choice is made.

  18. Absolute Advantage = the ability of a party—an individual, firm, or country—to produce a good or service more efficiently than others, using fewer resources or less time.

  19. Comparative Advantage = the ability of a country, firm, or individual to produce a good at a lower opportunity cost than others, enabling gains from trade.

  20. Law of Demand = as the price of a good or service increases, the quantity demanded decreases, and vice versa, reflecting an inverse relationship between price and demand.

  21. Law of Supply = an increase in the price of a good or service leads to an increase in the quantity supplied, while a decrease in price leads to a decrease in quantity supplied.

  22. Shift in Supply/Demand = factors other than price change, causing the entire supply or demand curve to move, altering market equilibrium prices and quantities.

  23. Movements along Supply/Demand Curves = changes in the quantity of a good or service bought or sold due to a change in its own price, while all other factors remain constant.

  24. Surplus = the quantity of a good, service, or resource exceeds the quantity demanded, creating an excess that can benefit consumers, producers, or both.

  25. Shortage = the quantity demanded of a good or service is greater than the quantity supplied at the current market price.

  26. Circular Flow = illustrates how money, goods, and services move continuously between households, firms, and other sectors, forming the foundation of economic activity and national income.

  27. Gross Domestic Product (GDP) = total monetary value of all final goods and services produced within a country during a specific period, serving as a key measure of economic activity.

  28. Nominal GDP = total market value of all final goods and services produced in a country, measured at current market prices without adjusting for inflation.

  29. Real GDP = total value of all goods and services produced in an economy, adjusted for inflation, to reflect true economic growth.

  30. Labor Force Participation Rate = percentage of the working-age population that is either employed or actively seeking employment.

  31. Frictional Unemployment = short-term unemployment that occurs when workers are transitioning between jobs or entering the workforce for the first time.

  32. Structural Unemployment = when there is a mismatch between workers' skills and the skills demanded by available jobs, often caused by technological changes, industry decline, or geographic factors.

  33. Cyclical Unemployment = the rise in unemployment that occurs during economic downturns or recessions, caused by reduced demand for goods and services.

  34. Nominal Wages = the amount of money an employee earns for their work, expressed in current currency units without adjusting for inflation.

  35. Real Wages = wages adjusted for inflation, reflecting the true purchasing power of income and the amount of goods and services a worker can afford.

  36. Consumer Price Index = measures the average change in prices of a fixed basket of goods and services purchased by households.

  37. Marginal Propensity to Consume = an economic measure that shows the proportion of an additional dollar of income that a household or individual is likely to spend on goods and services rather than save.

  38. Marginal Propensity to Save = an economic measure of the proportion of each additional unit of income that households save rather than spend.

  39. Aggregate Demand = total demand for all goods and services in an economy at a given time and price level, encompassing consumption, investment, government spending, and net exports.

  40. Short-Run Aggregate Supply = total goods and services that firms in an economy are willing and able to produce at different price levels in the short term.

  41. Long-Run Aggregate Supply = total output an economy can produce when all resources are fully employed at their natural rates, independent of price levels.

  42. Fiscal Policy = the use of government spending, taxation, and borrowing to influence a nation's economic activity, growth, and stability.

  43. Monetary Policy = set of actions taken by a central bank or government to control the money supply and interest rates to achieve economic objectives.

  44. Stagflation = economic condition characterized by the simultaneous occurrence of high inflation, stagnant economic growth, and elevated unemployment.

  45. Automatic Stabilizers = built-in fiscal mechanisms in a government's budget that automatically adjust taxes and spending in response to economic conditions.

  46. Bank Reserves = cash and digital balances that financial institutions hold either in their vaults or in accounts at their central bank.

  47. Required Reserves = minimum fraction of a bank's deposits that must be held in cash or deposited with the central bank.

  48. Excess Reserves = funds that banks hold above the minimum required reserves set by a central bank.

  49. Federal Funds Rate = the interest rate at which U.S. banks lend their excess reserve balances to each other overnight.

  50. Discount Rate = interest rate used to determine the present value of future cash flows.

  51. Open Market Operations = the buying and selling of government securities by a central bank to regulate the money supply.

  52. Loanable Funds Market = a simplified economic model that shows how saving (supply) and investment (demand) interact to determine the real interest rate in an economy.

  53. Rate of Return = measures the profit or loss generated by an investment relative to its initial cost.

  54. Crowding Out = increased government spending reduces private sector investment.

  55. Fisher Effect = the relationship between nominal interest rates, real interest rates, and expected inflation.

  56. Phillips Curve = inverse relationship between unemployment and inflation.

  57. Keynesian Economics = a macroeconomic theory emphasizing that aggregate demand drives economic activity.

  58. Supply-Side Economics = a macroeconomic theory that emphasizes increasing the production of goods and services through lower taxes.

  59. Balance of Payments Accounts = the official records of all international monetary transactions.

  60. Tariffs = a tax imposed by a government on goods as they cross national borders.

  61. Quotas = a government-imposed limit on the quantity or value of a good that can be imported or exported.