AP Macroeconomics Key Terms
1. Economics Study of resource allocation
2. Macroeconomics Study of the whole economy
3. Microeconomics Study of individuals and firms
4. GDP Total value of goods and services in a country
5. Personal income Total earnings of individuals
6. Disposable income Income after taxes
7. Aggregate Approach Analysis using total output and employment
8. Expenditure approach GDP calculation by total spending
9. Depreciation Loss of asset value over time
10. Net Exports Exports minus imports
11. Foreign income effect Impact of foreign economies on domestic conditions
12. Domestic product Goods and services made within a country
13. Aggregate Expenditures Total spending in the economy
14. Labor force People employed or seeking employment
15. Labor force participation rate Percentage of working age people in the labor force
16. Unemployment rate Percentage of unemployed in the labor force
17. Frictional unemployment Unemployment during job search
18. Structural unemployment Unemployment from industrial changes
19. Cyclical Unemployment Unemployment from due to economic downturns
20. Underemployed worker Worker in a job below their skill level
21. Discouraged Worker Person who stopped job hunting
22. Natural rate of Unemployment Unemployment when economy is at full employment
23. Okun’s law Link between unemployment and GDP
24. Phillips curve Inverse relationship between inflation and unemployment
25. Inflation General price increase
26. Deflation General price decrease
27. Nominal salary Salary in current dollars
28. Real salary Salary adjusted for inflation
29. Money Illusion Confusing nominal and real changes in purchasing power
30. Menu cost Costs for firms to change prices
31. CPI Measure of average consumer goods prices
32. PPI Measure of producer goods prices
33. GDP Deflator Price level ratio of nominal to real GDP
34. Business cycle Fluctuations in economic activity
35. Recession Economic decline
36. Expansion Period of economic growth
37. Peak highest point in the business cycle
38. Trough Lowest point in the business cycle
39. Potential Output Maximum sustainable output
40. Output gap Difference between actual and potential output
41. Classical belief in market self-correction
42. Keynesian analysis Advocacy for government spending to boost demand
43. Aggregate demand Total demand in the economy
44. Aggregate Price Effect Change in overall price from demand shifts
45. Interest Rate effect Change in investment/consumption due to interest rates
46. Wealth effect Impact of wealth changes on spending
47. Aggregate supply Total supply of goods/services
48. SRAS curve Relationship between price level and output
49. AS curve Short term relationship between price and output
50. LRAS curve Long term relationship at potential output
50. Cost push inflation Inflation from rising production costs
51. Stagflation Inflation with stagnant growth
52. Demand pull inflation Inflation from rising demand
53. Galloping inflation rapid price increase
53. Creeping Inflation Slow price increase
54. Hyperinflation extremely high inflation
55. Recessionary gap output below potential
56. Inflationary gap output above potential
57. Spending multiplier ratio of GDP change to spending change
58. Expenditure multiplier Impact of government spending on demand
59. MPC Fraction of extra income spent
60. MPS Fraction of extra income saved
61. Fiscal policy Government tax/spending policies
62. Expansionary fiscal policy Policy to boost demand via spending/tax cuts
63. Contractionary fiscal policy Policy to reduce demand via spending cuts/tax hikes
64. Gov’t Spending multiplier Impact of government spendinng on output
65. Tax multiplier Impact of tax changes on output
66. Balanced budget multiplier Equal tax and spending change effect
67. Supply side economics Growth through lower taxes and less regulation
68. Monetary inflation Inflation due to increased money supply
69. Phillips curve Inverse relationship between inflation and unemployment
70. Structural shocks Long term changes in economy structure
71. Inflationary expectations Expected future inflation
72. Money growth and inflation Relationship between money supply growth and inflation
73. Rational expectations People making decisions based on full information
74. Budget deficit When spending exceed revenue
75. National debt Total government debt
76. Ricardian Equivalence Theory that borrowing doesn’t affect demand
77. Crowding out Private investment reduced by government spending
78. Partial Crowding out Smaller reduction in private investment
79. Economic growth Increase in production over time
80. Arithmetic Rate Growth by constant amount
81. Geometric Rate Growth by constant percentage
82. Balance of payments Summary of a country’s global transactions
83. Merchandise trade balance Difference between exports nad imports of goods
84. Current account balance Difference between savings and investment
85. Financial account balance Financial transactions with foreign entities
86. Currency market Market for currency exchange
87. Exchange rate Price of one currency in terms of another
88. Currency depreciation Decrease in currency value
89. Currency appreciation Increase in currency value
90. Arbitrage Profit from price differences in markets
91. Fixed exchange rate Currency pegged to another currency
92. Flexible exchange rate Market determined exchange rate
93. Managed exchange rate Hybrid of market forces and central bank control
94. Open Economy Economy that trades internationally
95. Closed economy Economy with not international trade
96. Loanable funds market Market for borrowing and lending
97. Liquidity trap Market for short term debt instruments
98. Money market Situation where monetary policy is ineffective
99. Equation of exchange Relationship between money supply, velocity, price level, output
100. Velocity of money How quickly money changes hands
101. Real interest rate Nominal rate adjusted for inflation
102. Nominal interest rate Interest rate not adjusted for inflation
103. Natural rate of interest Rate consistent with full employment
104. Fisher effect Real interest = nominal rate - inflation
