Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

AP MACROECONOMICS > Unit 3 > Flashcards

Unit 3 Flashcards

1
Q

Product Market

A

The “place” where goods and services produced by businesses are sold to households

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The factor market

A

The place where resources (land, labor, capital and entrepreneurship) are sold to businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Private Sector

A

Part of the economy that is run by individuals and businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Public Sector

A

Part of the economy that is controlled by the government

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Factor Payments

A

Payments for the factors of production (rent, wages, interest and profit)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Transfer Payments

A

When the govt redistributes income (welfare, social security)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Market

A

Location or mechanism that allows buyers and sellers to exchange a specific product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q 
Aggregate Demand
PL decreases (deflation)
A

The real GDP demanded increases and vice verca

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

AD is downward sloping because…

A

The wealth effect (wealthier when price drops)
Interest rate effect - when the PL increase lenders need to charge higher interest rates. -> less people borrow
Foreign trade effect - when US PL increases and foreign buyers buy less goods and Americans buy more foreign goods (Exports increase and Imports decrease) can work both ways

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

AD Shifters

A

1) Change in consumer spending (increased disposable income, expectations, household debt, taxes)
2) Changes in investment spending (real interest rates , taxes on return investment)
3) Changes in government spending ( decreased spending = decreased AD)
4) Changes in Net Exports - value of dollar changes aggravate demand. ( dollar increase = decreased AD)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Fiscal Policy

A

Increases or decrease in government spending. Controlled by Congress when they increase spending shifts curve right = GDP Increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Monetary Policy

A

Controlled by the federal reserve. When they increase the quantity of money and decrease interest rates in increases GDP (vice versa)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Short Run Aggregate Supply

A

Wages and resource $ as PL increase

STICKY WAGES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Long run Aggregate Supply

A

Wages and resource $ will increase as PL increase

FLEXIBLE WAGES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Shifters of Aggregate supply

A

1) Changes in nominal wages
2) changes in commodity prices (change in input prices)
3) Change in productivity/technology
4) change in expectations about inflation
5) government actions NOT SPENDING (taxes on producers, subsidies for domestic producers, government regulation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Change in nominal wages meaning

A

If producers expect an increase in $ in the future, workers will demand higher wages and costs will increase
DECREASE SRAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why is supply upward sloping?

A

If price rises workers want to make more.

18
Q

Recessionary gap (demand)

A

Inflation falls, unemployment rises

19
Q

Recessionary gap (supply)

A

STAGFLATION
inflation is rising
Unemployment is rising
VERY BAD

20
Q

Inflationary gap (demand)

A

Ex) 1920s
Inflation is rising
Unemployment falling

21
Q

Inflationary gap (supply)

A

Inflation is falling

Unemployment is falling

22
Q

How recessionary gap fixes itself on AD/AS model…

A

In the short run AD shifts 1st. Wages that stay the same means companies have to let workers go. Then SRAS moves as wages adjust (decrease). In the long run, the SRAS adjusts back to Yf and fixes itself.

23
Q

How an inflationary gap fixes itself on AD/AS model…

A

Short run: investments rise

Long run: wages adjust upwards causes SRAS to decrease and the employment returns back to Yf

24
Q

MPC

A

The portion we spend when we earn it

Change in consumption/change in disposable income

25
Q

MPS

A

The portion we save

Change in savings/change in disposable income

26
Q

Multiplier effect

A

Any increase in spending will result in even larger increase in GDP due to the fact that every $ is spent again multiple times.

1/MPS or 1/1-MPC

27
Q

Change in GDP or AD

A

Change in spending x multiplier

28
Q

Tax multiplier

A

Govt can use taxes to regulate fiscal policy
Raising taxes: negative
Cut taxes: positive

-MPC/MPS
MPC/MPS

29
Q

Balanced Budget Multiplier

A

Always 1

When govt spending increase are matched with equal decrease in taxes

30
Q

Stabilization Policy

A

The use of Govt policy to reduce the severity of a recession and rein in inflation

1) fiscal policy
2) monetary policy

31
Q

Non-Discretionary Fiscal Policy

A

Govt doesn’t choose it’s already done.
AKA: automatic stabilizers
ex) unemployment, welfare

32
Q

Discretionary Fiscal Policy

A

Govt chooses to spend

33
Q

Contractionary fiscal policy

A

THE BRAKE
laws that reduce inflation, decrease GDP (close inflationary gap)
Increase taxes, decrease gov spending

34
Q

Expansionary Fiscal Policy

A

THE GAS
Laws that reduce unemployment and increase GDP
Increase gov spending decrease taxes

35
Q

Problems of Govt spending

A

1) Deficit spending
2) Problens of timing
3) Politically motivated policies
4) Crowding out effect
5) Net export effect

36
Q

Budget deficit

A

When the gov expenditures exceeds its revenue

37
Q

Crowding out effect

A

When the gov borrows a ton of money.
“Crowds out” consumers and or investors
Govt spending must borrow so it increases AD-> Increase price for money (interest rate) -> interest rates rise so investment falls (decreased AD)

38
Q

Net export effect

A

International trade reduces the effectiveness of fiscal policies
Ex) Recessionary gap so gov spends to increase AD -> Increase in PL and interest rates -> US goods more expensive -> foreign countries buy less

39
Q

Monetary policy

A

Federal reserve

1) changing reserve requirements
2) changing the discount (interest) rates
3) purchasing and selling bonds

40
Q

Expansionary Policy

A

Policy that seeks to expand the money supply to encourage economic growth or combat recession
Monetary policy

41
Q

Contractionary Policy

A

Form of economic policy used to fight inflation which involves decreasing the $ supply in order to increase the cost of borrowing which in turn decreases GDP and dampens inflation.

AP MACROECONOMICS (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions