AP Macroeconomics Ultimate Guide Flashcards

studied byStudied by 2130 people
5.0(9)
get a hint
hint

Economics

1 / 237

encourage image

There's no tags or description

Looks like no one added any tags here yet for you.

238 Terms

1

Economics

the study of how people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants

New cards
2

Scarcity

all factors of production are scarce; therefore, the production of goods and service are also scarce

New cards
3

Macroeconomics

consider the big picture- the nation’s economy as a whole

New cards
4

Microeconomics

individuals in an economy while keeping the overall economy in mind

New cards
5

Labor

human effort and talent, physical and mental. ex. education and training (human capital)

New cards
6

Land and Natural Resources

any resource created by nature

New cards
7

Physical Capital

human-made equipment like machinery as well as buildings, roads, vehicles, and computers

New cards
8

Entrepreneurial Ability

the effort and know-how to put the other resources together in a productive venture

New cards
9

Traditional Economy

tied to the evolution of economics, and it is related to subsistence and tribal life

New cards
10

Command Economy

consists of the central planning of the economy which differed in different regions of the world depending on the political regime

New cards
11

Market Economy

where buyers and sellers perform transactions. built around Laissez Faire ("free market") philosophy

New cards
12

Mixed Economy

a mix of command and market structure→ government plays a role in organizing the economy to some degree

New cards
13

Opportunity Cost

the value of what was given up

New cards
14

Production Possibilities Curve

simplified model of an individual, or a nation, that can choose to allocate its scarce resources between the production of two goods or services

New cards
15

What does the slope of the curve measure in an PPC curve?

opportunity cost of the good on the x-axis

New cards
16

What does the inverse slope of the curve measure in an PPC curve?

opportunity cost of the good on the y-axis

New cards
17

Productive Efficency

when the economy is producing the maximum output for a given level of technology and resources

New cards
18

Allocative Efficency

the economy is producing the optimal mix of goods and services

New cards
19

Optimal Allocative Efficiency

the combination of goods and services that provides the most net benefit to society

New cards
20

Market Failure

when a market fails to produce the allocative efficient quantity

New cards
21

Economic Growth

the ability to produce a larger total output over time

New cards
22

Economic Contraction

when a country's economy shrinks due to factors such as reduced spending by consumers, businesses, or the government

New cards
23

Absolute Advantage

producing goods/services more efficiently, using fewer inputs

New cards
24

Comparative Advantage

this principle is the basis for showing how nations can gain from free trade

New cards
25

Terms of Trade

the country’s export prices to income prices and determines the relative price between the nation’s exports and imports

New cards
26

Law of Demand

holding all else equal, when the price of good rises, consumers decrease the quantity demanded of that good

New cards
27

Ceteris Paribus

to predict how a change in one variable affects a second, we hold all other variables constant

New cards
28

Acronym of Determinants of Demand

INSECT:
I - Income
N - Number of Buyers/Consumers
S - Substitutes
E - Expectations of Future Prices
C - Completements
T - Taste and Preferences

New cards
29

Supply

the different quantities of goods and services that are willing to produce at various price levels

New cards
30

Law of Supply

holding all else equal, when the price of good rises, the quantity of good supplied increases

New cards
31

Quantity Supplied

the amount of a good or service that is produced at a particular price level (one point)

New cards
32

Demand Line

the entire line with all of the points that make it up

New cards
33

Determinants of Supply Acronym

R- Resources
O - Other good prices
T - Taxes
T - Technology
E - Supplier Expectations
N - Number of Competitors

New cards
34

Market Equilibrium Price

price that the market sets, where buyers buy the exact amount which the sellers are willing to produce

New cards
35

Market Disequilibrium

occurs when shortage or suplus in the market

New cards
36

Market Shortage (Excess Demand)

when the quantity demanded exceeds the quantity supplied → prices rise to eliminate shortage

New cards
37

Market Surplus (Excess Supply)

when the quantity supplied exceeds the quantity demanded → prices fall to eliminate surplus

New cards
38

Circular Flow of Economic Activity

a model that shows how households and firms circulate resources, goods, and incomes through the economy, and also includes government and banks

New cards
39

Closed Economy

a circular flow model that assumes there is no foreign sector (imports and exports).

New cards
40

Circular Flow Model: Consumer

the people who buy the goods/services in an economy and provide labor and receive wages/income from the factor market

New cards
41

Circular Flow Model: Firms

any business that produces goods and supplies them to the product market and then receives the payment for those goods and receive factors of production from the factor market and then pay them with wages

New cards
42

Circular Flow Model: Product Market

an exchange of goods and services for money between firms and households

New cards
43

Circular Flow Model: Factor Market

where factors of production such as labor, capital, and land are bought and sold

New cards
44

Gross Domestic Product (GDP)

the market value of the final goods and services produced within a nation in a given period

New cards
45

Aggregate Spending (GDP)

the sum of all spending from four sectors of the economy. GDP = C + I + G + (X – M)

New cards
46

Aggregate Spending: Consumer Spending

spending done by customers

New cards
47

Aggregate Spending: Investment Spending

current spending to increase output or productivity later

  • New capital machinery purchased by firms.

  • New construction for firms or consumers.

  • The market value of the change in unsold inventories.

New cards
48

Aggregate Spending: Government Spending

purchases made by the government for final goods and services and investments in infrastructure

New cards
49

Aggregate Spending: Net Exports

Exports → X, Imports → M

New cards
50

Aggregate Income (AI)

the sum of all income—Wages + Rent + Interest + Profit—earned by suppliers of resources in the economy

New cards
51

Value-Added Approach

a third approach to calculating GDP that considers all stages of production of a final good and the value that was added to the final good along the way

New cards
52

What is not included in GDP?

Illegal Activities:

Unpaid work

Transfer payments

Intermediate goods

Depreciation

New cards
53

What are the 5 uses of GDP in economics?

  1. measuring economic growth

  2. comparing living standards

  3. assessing business cycles

  4. formulating economic policies

  5. attracting foreign investment

New cards
54

What are the 4 limitations of GDP?

  1. Differing Populations

  2. Inequality

  3. Environment

  4. Shadow/Black Economy

New cards
55

Employed

if a person has worked for pay at least one hour per week

New cards
56

Unemployed

if a person is not currently working but are actively seeking work

New cards
57

Labor Force

sum of all individuals 16 years and older who are either currently employed (E) or unemployed (U). LF = E + U

New cards
58

Out of the Labor FOrce

A person is classified as out of the labor force if they have chosen to not seek employment

New cards
59

Labor Force Participation

the ratio of the size of the labor force to the size of the population 16 years and older. LFPR = (LF/Pop)*100

New cards
60

Unemployment Rate

the percentage of the labor force that falls into the unemployed category. Sometimes called the jobless rate. UR = 100 × U/LF

New cards
61

Discouraged Workers

citizens who have been without work for so long that they become tired of looking for work and drop out of the labor force

New cards
62

Frictional Unemployment

a type of unemployment that occurs when someone new enters the labor market or switches jobs

New cards
63

Seasonal Unemployment

a type of unemployment that is periodic, predictable, and follows the calendar

New cards
64

Structural Unemployment

a type of unemployment that is the result of fundamental, underlying changes in the economy such that some job skills are no longer in demand

New cards
65

Cyclical Unemployment

a type of unemployment that rises and falls within the business cycle

New cards
66

Full Employment

when the economy is experiencing no cyclical unemployment

New cards
67

Natural Rate of Unemployment

unemployment rate associated with full employment, somewhere between 4 to 6 percent in the United States

New cards
68

Consumer Price Index (CPI)

the price index that measures the average price level of the items in the base year market basket. This is the main measure of consumer inflation

New cards
69

Deflation

the general decrease in prices

New cards
70

Inflation

general increase in prices

New cards
71

Disinflation

a decrease in the rate of inflation

New cards
72

Inflation Rate

the percent change in aggregate price level across an entire economy in a year

New cards
73

Market Basket

a collection of goods and services used to represent what is consumed in the economy

New cards
74

The Annual Rate of Inflation on Goods Consumed by the Typical Consumer

the percentage change in the CPI from one year to the next.

New cards
75

GDP Deflator

includes all items that make up domestic products

New cards
76

Nominal Income

today’s income is measured in today’s dollars. These are dollars unadjusted by inflation

New cards
77

Real Income

today’s income is measured in base year dollars. These inflation-adjusted dollars can be compared from year to year to determine whether purchasing power has increased or decreased

New cards
78

CPI Difficulties: Consumer Substitute

as the price of goods begins to rise, consumers seek substitutes → base year market basket a poor representation of the current consumption pattern

New cards
79

CPI Difficulties: Goods Evolve

the emergence of new products (smartphones) and the extinction of others (manual typewriters) is understood by firms and consumers, but the market basket must reflect this or it risks becoming irrelevant.

New cards
80

CPI Difficulties: Quality Differences

some price increases are the result of improvements in quality. Prices that increase because the product is fundamentally better are not an indication of overall inflation → overstated CPI

New cards
81

Real Rate of Interest

the percentage increase in purchasing power that a borrower pays a lender

New cards
82

Costs of Inflation: Menu Costs

results from firms having to change prices

New cards
83

Costs of Inflation: Shoe-leather costs

refers to the time and effort that people end up spending to counterattack the effects of inflation

New cards
84

Costs of Inflation: Loss of Purchasing Power

when inflation causes the value of the individual dollar to decrease over time

New cards
85

Costs of Inflation: Wealth Distribution

involves the real value of wealth being transferred from one group to another

New cards
86

Nominal GDP

the value of current production at the current prices

New cards
87

Real GDP

the value of current production but using prices from a fixed point in time

New cards
88

Price Index

a measure of the average level of prices in a market basket for a given year, when compared to the prices in a reference (or base) year

New cards
89

The Business Cycle

the periodic rise and fall in 4 phases present in economic activity. Can be measured by changes in real GDP

New cards
90

Business Cycle: Expansion

a period where real GDP is rising

New cards
91

Business Cycle: Peak

the top of a business cycle where expansion has ended

New cards
92

Business Cycle: Contraction

a period where real GDP is falling

New cards
93

Business Cycle: Recession

unofficially defined as two consecutive quarters of falling real GDP

New cards
94

Business Cycle: Depression

a prolonged, deep contraction in the business cycle

New cards
95

Business Cycle: Trough

the bottom of the cycle where a contraction has stopped

New cards
96

Aggregate Demand (AD)

the inverse relationship between all spending on domestic output and the aggregate price level of that output

New cards
97

What does aggregate demand measure?

the sum of consumption spending by households, investment spending by firms, government purchases of goods and services, and net exports (exports minus imports)

New cards
98

What are the 3 general groups of substitutes for national output?

Foreign sector substitution effect, interest rate effect, and wealth effect

New cards
99

Foreign Sector Substitution Effect

when goods and services produced in other nations are more appealing due to domestic inflation → brings real GDP down

New cards
100

Interest Rate Effect

wait-and-see mentality for goods and services in the future as prices rise and real GDP falls

New cards

Explore top notes

note Note
studied byStudied by 17 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 131 people
Updated ... ago
5.0 Stars(2)
note Note
studied byStudied by 12 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 2 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 4 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 19 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 8 people
Updated ... ago
5.0 Stars(1)
note Note
studied byStudied by 195 people
Updated ... ago
5.0 Stars(1)

Explore top flashcards

flashcards Flashcard58 terms
studied byStudied by 6 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard70 terms
studied byStudied by 12 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard38 terms
studied byStudied by 6 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard110 terms
studied byStudied by 8 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard53 terms
studied byStudied by 32 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard206 terms
studied byStudied by 13 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard450 terms
studied byStudied by 22 people
Updated ... ago
5.0 Stars(1)
flashcards Flashcard41 terms
studied byStudied by 6 people
Updated ... ago
5.0 Stars(1)