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AP MacroEconomics > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

Aggregate price level

A

Measure of the overall level of prices in an economy

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2
Q

Price basket

A

A hypothetical set of consumer purchases of goods and services

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3
Q

Price index

A

The cost of purchasing a given Market Basket in a given year

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4
Q

Formula for price index of a market basket

A

Price of MB in given year/ price of MB in base year

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5
Q

Inflation rate

A

Price index 2- price index 1/price index 1

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6
Q

Consumer price index (CPI)

A

Measures the cost of the Market Basket on a typical Urban family

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7
Q

Why inflation isn’t too accurate

A

When you pay more over time you get more.

People change what they buy based on tastes

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8
Q

Producer price index

A

Measures the price of goods and services purchased by producers

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9
Q

GDP deflator

A

100x nominal GDP /real GDP

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10
Q

Causes of inflation

A

Demand pull, cost push, gov printing money

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11
Q

Aggregate demand curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households

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12
Q

Shifters of aggregate demand

A

C (consumer spending)
I (investment spending)
G (gov spending)
X (net exports)

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13
Q

The wealth effect

A

The change in consumer spending caused by the altering purchasing power of consumer assets

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14
Q

Interest rate effect

A

A change in investment and consumer spending caused by altered interest rates that result from changes in the demand

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15
Q

Changes in expectation

A

Firm space investment spending on what they will make

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16
Q

Changes in wealth

A

When the real value of housing rises so does purchasing power

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17
Q

Fiscal policy

A

Do use of government intervention to stabilize the economy

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18
Q

Low tax means high

A

Disposable income

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19
Q

High tax means Low

A

disposable income

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20
Q

Monetary policy

A

Central banks way of changing the quantity of money or the interest rate to stabilize the economy

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21
Q

Wealth effect modern definition

A

When people have a higher purchasing power they spend more that’s shifting aggregate demand to the right

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22
Q

Foreign trade effect

A

When price level rises foreign buyers by fever goods

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23
Q

Aggregate supply curve

A

Shows the relationship between the aggregate price level and the quantity of aggregate output supplied

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24
Q

Nominal wage

A

Dollar amount of a wage paid

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25
Q

Sticky wages

A

Nominal wages are slow to fall in the face of high unemployment and slow to rise in the face of labor shortages

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26
Q

Shifters of agregate supply

A

P (productivity)
E (expectations)
A (actions of the government)
R (Resources)

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27
Q

Demand shock

A

An event which shifts the demand curve

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28
Q

Changes in commodity prices

A

When a resource costs more aggregate supply decreases

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29
Q

Changes in nominal wages

A

If wages increase aggregate supply decreases, because it is an input for the supplier

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30
Q

Changes in productivity

A

The worker can make something more efficiently this shifts the supply curve to the right

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31
Q

Expectations of inflation

A

Inflation if it is expected supply more now and vice a versa

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32
Q

Long run agregate supply curve

A

Just the relationship between the aggregate price level and the quantity of output supplied that would exist if all prices including nominal wages were fully flexible

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33
Q

Potential output

A

The level of real GDP a country would produce if all prices were fully flexible

34
Q

Why will LRAS increase over time

A
  1. Increase quantity of resources
  2. Better quality resources
  3. Tech progress
35
Q

Supply shock

A

Something that shifts the supply

36
Q

Stagflation

A

Combination of inflation and falling demand

37
Q

Recessionary gap

A

Producing less than the potential output

38
Q

Inflationary gap

A

Producing more than potential output.

39
Q

Output gap

A

Percent difference between actual aggregate output and potential output

40
Q

Formula for output gap.

A

Actual -potential/potential

41
Q

Self correcting

A

Shocks to aggregate demand affect aggregate output in the short run but not the long run

42
Q

Classical macroeconomics

A

The belief that the economy will fix itself

43
Q

Keynesian macroeconomics

A

The government needs to step in and fix the economy

44
Q

The Phillips curve

A

Shows the ratio between unemployment and inflation in the economy .

45
Q

How is a shift in agregate demand shown on a PC

A

Like a mirror.
Increase in demand is a leftward shift along the curve.
Decrease in demand is a rightward shift along the curve

46
Q

How is Agregate supply shown on a Phillips curve

A

Like a mirror.
AS shifts right the SRPC shifts left.
AS shifts left, SRPC shifts right

47
Q

Debt deflation

A

The reduction of aggregate demand from an increase in real burden of outstanding debt caused by inflation

48
Q

Zero bound

A

Nominal interest rate cannot go below zero

49
Q

Liquidity trap

A

A situation in which conventional monetary policy is ineffective because nominal interest rates are up against a zero bound

50
Q

MPC

A

The ratio of money spent bs money saved

Consumer spending over disposable income

51
Q

MPS

A

The amount of money that is saved by a person

1-MPC

52
Q

Autonomous spending

A

Spending on stuff that is necessary to live. Won’t change

What a household would spend with no disposable income

53
Q

Agregate consumption function

A

Consumption = agregate spending + mpc(disposable income)

C=A+YD

54
Q

Spending multiplier

A

1/MPS

55
Q

Wealth

A

What your history gives you

Ie. Debt, extra money, investments, etc.

56
Q

Interest rates and investment spending

A

If interest rates increase investment spending will go down

57
Q

Expected future GDP and investment spending

A

If GDP is expected to increase then more will be invested

58
Q

Inventory investment

A

The value of a change of total inventories held In the economy

59
Q

Calculate total interest rate

A

I = unplanned investment + planned investment

60
Q

Consumer spending

A

What consumers will spend.

it is equal to the autonomous spending plus the disposable income

61
Q

Two Types of government spending

A
  1. Purchases of goods and services

2. Transfers

62
Q

Types of government transfers

A
  1. social security (guaranteed income to people who have none)
  2. Medicare (for people over 65)
  3. Medicade (for low income families)
63
Q

Social insurance

A

Government programs intended to protect families from economic hardship

64
Q

Expansionary fiscal policy

A

Increases aggregate demand by,

  • increase in government purchases
  • cutting taxes
  • or increase in government transfers
65
Q

Contractionary fiscal policy

A

Increases aggregate demand by

  • reducing government purchases
  • increasing taxes
  • or reducing transfers.
66
Q

Multiplier effect

A

The money government spends causes chain reactions so the value is more than what they actually spent

67
Q

Tax multiplier

A

MPC /MPS

68
Q

Why is government spending worth more than an equal tax cut.

A

With the government spending there is the multiplier effect, but with the tax cut people will save a portion and spend a portion

69
Q

Nondiscretionary fiscal policy

A

The economy stabilizing itself because of the automatic stabilizers set in place by the government, does not require direct government intervention

70
Q

Discretionary fiscal policy

A

When the government directly works and makes the decision to try to fix the economy

71
Q

Government budget equation

A

Governments revenue minus government purchases and transfers

72
Q

Gov debt

A

The aCumulation of passed a budget deficits minus past budget surpluses

73
Q

Budget deficit

A

Government revenue is less than spending in a given year

74
Q

Fiscal year

A

Runs from October 1 to September 30 and is labeled from the calendar year from which it ends

75
Q

Public debt

A

Government that held by individuals and institutions outside the government

76
Q

Why is rising debt bad?

A
  1. Increases interest rates

2. Today’s debt hurts the futures growth

77
Q

Crowding out

A

I’m at impacts have a unintended effects to weaken the impact of the policy

78
Q

Problems with fiscal policy

A

Deficit spending, timing, politically motivated policies, crowding out, net export affect

79
Q

How to grow the economy

A

Increase physical capital (growth rates of investments)
Increase human capital (educate)
Tech progress

80
Q

Infostructure

A

Roads powerline sports information or some under pioneer foundations

high infrastructure is equal to a good economy

AP MacroEconomics (5 decks)

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