Unit 3 Fiscal Policy - AP Macroeconomics Flashcards

Aggregate Demand (AD) – Total spending on goods and services in an economy.

Aggregate Supply (AS) – Total production of goods and services in an economy.

Short-Run Aggregate Supply (SRAS) – AS when prices and wages are sticky.

Long-Run Aggregate Supply (LRAS) – AS when all prices and wages are flexible.

Potential Output (Full Employment Output) – The maximum sustainable output at full employment.

Recessionary Gap – When actual output is below potential output.

Inflationary Gap – When actual output is above potential output, causing inflation.

Short-Run Equilibrium – When AD and SRAS intersect, determining price and output.

Long-Run Equilibrium – When AD, SRAS, and LRAS intersect, meaning no output gap.

Phillips Curve – A graph showing the trade-off between inflation and unemployment.

Fiscal Policy – Government spending and taxation policies to influence the economy.

Monetary Policy – Central bank actions controlling money supply and interest rates.

Multiplier Effect – When one person’s paycheck is another person’s income.

Marginal Propensity to Consume (MPC) – The fraction of extra income spent.

Marginal Propensity to Save (MPS) – The fraction of extra income saved.

AD-AS Model – A framework showing how AD and AS determine economic conditions.

Supply-Side Economics (Say’s Law) – The idea that supply creates its own demand.

Keynesian Economics – The theory that government intervention can stabilize the economy.

Inflation – A general increase in prices over time.

Deflation – A general decrease in prices over time.

Stagflation – A period of slow growth, high unemployment, and high inflation.

LRAS Curve – A vertical line representing full employment output.

Shifts in Aggregate Demand (AD) – Caused by changes in C, I, G, or NX.

Shifts in Aggregate Supply (AS) – Caused by changes in resources, productivity, or costs.

Investment (I) – Business spending on capital goods.

Consumption (C) – Household spending on goods and services.

Government Spending (G) – Total government expenditures on goods and services.

Net Exports (NX) – Exports minus imports in an economy.

Equilibrium Price Level – The price level where AD equals AS.

Equilibrium Output – The GDP level where AD equals AS.

Real GDP – GDP adjusted for inflation, showing true economic output.

Nominal GDP – GDP measured in current prices, not adjusted for inflation.

Short-Run Macroeconomic Equilibrium – When AD and SRAS determine output and prices.

Long-Run Macroeconomic Equilibrium – When AD, SRAS, and LRAS align, closing output gaps.

Full Employment – When all available resources are being used efficiently.

Natural Rate of Unemployment – The unemployment rate when the economy is at full employment.

Automatic Stabilizers – Government & Economic policies that adjust without government action, helping to moderate the business cycle.

Discretionary Fiscal Policy – Government action to change spending or taxes to influence the economy.

Business Cycle – The natural rise and fall of economic growth over time.