| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| contractionary fiscal policy | Government spending decreases or tax increases designed to decrease aggregate demand and reduce inflation. |
| contractionary monetary policy | Central bank actions that decrease the money supply and raise interest rates to reduce inflation and cool down an overheating economy. |
| expansionary fiscal policy | Government spending increases or tax decreases designed to increase aggregate demand and stimulate economic growth. |
| expansionary monetary policy | Central bank actions that increase the money supply and lower interest rates to stimulate economic growth and reduce unemployment. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| inflationary output gap | A positive output gap occurring when actual real output exceeds the full-employment level of output, putting upward pressure on prices. |
| interest rates | The cost of borrowing money, influenced by monetary policy and affecting exchange rates through changes in currency demand. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| real output | The total production of goods and services in an economy adjusted for inflation, measured in constant dollars. |
| Term | Definition |
|---|---|
| demand shocks | Unexpected changes in aggregate demand that cause movement along the short-run Phillips curve. |
| employment | The state of having a paid job or being engaged in work for compensation. |
| inflation | A sustained increase in the general price level of goods and services in an economy over time. |
| inflationary gap | An economic condition represented by points to the left of long-run equilibrium, where actual output exceeds potential output and inflation pressures exist. |
| long run | A time period in macroeconomics where all factors of production are variable and prices fully adjust to changes in supply and demand. |
| long-run equilibrium | The point where the short-run Phillips curve intersects the long-run Phillips curve, representing a stable economic state. |
| long-run Phillips curve | A vertical curve at the natural rate of unemployment that illustrates the long-run relationship between inflation and unemployment. |
| natural rate of unemployment | The unemployment rate that exists when the economy produces full-employment real output, equal to the sum of frictional and structural unemployment. |
| Phillips curve model | An economic model showing the relationship between the rate of inflation and the rate of unemployment in an economy. |
| recessionary gap | An economic condition represented by points to the right of long-run equilibrium, where actual output falls short of potential output and unemployment is elevated. |
| short run | A time period in macroeconomics where at least one factor of production is fixed and prices may not fully adjust to changes in demand. |
| short-run equilibrium | The point where aggregate demand and short-run aggregate supply intersect, determining the current price level and output in the Phillips curve model. |
| short-run Phillips curve | A downward-sloping curve that illustrates the short-run trade-off between inflation and unemployment in an economy. |
| supply shocks | Unexpected changes in aggregate supply that cause the short-run Phillips curve to shift. |
| Term | Definition |
|---|---|
| deflation | A sustained decrease in the general price level of goods and services in an economy over time. |
| full employment | An economic condition where all available labor resources are being used efficiently and unemployment is at its natural rate. |
| inflation | A sustained increase in the general price level of goods and services in an economy over time. |
| inflation rate | The percentage change in the general price level of goods and services in an economy over a specific time period. |
| money supply | The total amount of money available in an economy at a given time, including currency in circulation and deposits in financial institutions. |
| price level | The average of all prices of goods and services produced in an economy, typically measured by price indices like the CPI. |
| quantity theory of money | An economic theory stating that the money supply multiplied by its velocity of circulation equals the price level multiplied by real output, establishing a direct relationship between money supply growth and inflation. |
| real output | The total production of goods and services in an economy adjusted for inflation, measured in constant dollars. |
| velocity | The average number of times a unit of money is spent on final goods and services in a given time period. |
| Term | Definition |
|---|---|
| burden of the national debt | The economic and fiscal consequences and challenges that result from a large national debt, including effects on interest payments, economic growth, and future fiscal policy. |
| government budget deficit | The situation when tax revenues fall short of government purchases plus transfer payments in a given year. |
| government budget surplus | The situation when tax revenues exceed government purchases plus transfer payments in a given year. |
| government purchases | Spending by the government on goods and services. |
| national debt | The total accumulated debt owed by the government, which increases when budget deficits occur and requires interest payments. |
| tax revenues | Income collected by the government through taxation. |
| transfer payments | Government payments to individuals or groups that are not in exchange for goods or services, such as social security or welfare benefits. |
| Term | Definition |
|---|---|
| crowding out | The phenomenon where increased government borrowing leads to higher interest rates, which reduces private investment spending. |
| economic growth | An increase in the production of goods and services in an economy over time, measured by the growth rate of real GDP per capita. |
| equilibrium real interest rate | The interest rate at which the quantity of loanable funds supplied equals the quantity demanded. |
| fiscal policy | Government spending and taxation decisions that influence aggregate demand, real output, price level, and exchange rates. |
| government borrowing | When a government borrows money, typically by issuing bonds, to finance a budget deficit. |
| government budget deficit | The situation when tax revenues fall short of government purchases plus transfer payments in a given year. |
| loanable funds market | The market where savers supply funds available for borrowing and borrowers demand funds, with the real interest rate serving as the price. |
| physical capital accumulation | The process of building up the stock of productive assets and equipment in an economy. |
| private investment | Spending by the private sector on capital goods and other interest-sensitive expenditures. |
| Term | Definition |
|---|---|
| aggregate employment | The total number of workers employed across an entire economy. |
| aggregate output | The total quantity of goods and services produced in an economy, typically measured as real GDP. |
| aggregate production function | An economic model showing the relationship between total inputs (labor, capital, technology) and total output produced in an economy. |
| economic growth | An increase in the production of goods and services in an economy over time, measured by the growth rate of real GDP per capita. |
| human capital | The skills, knowledge, education, and experience of workers that contribute to their productivity. |
| labor productivity | The amount of output produced per worker, measured as output per employed worker. |
| Long-Run Aggregate Supply curve | A vertical line on a graph representing the maximum sustainable output an economy can produce when all resources are fully employed and wages and prices have fully adjusted. |
| output per capita | The total output produced in an economy divided by the population, showing average production per person. |
| outward shift | Movement of a curve away from the origin, indicating an increase in production capacity or economic output. |
| physical capital | Tangible assets such as machinery, equipment, buildings, and infrastructure used in production. |
| Production Possibilities Curve | A graph showing the maximum combinations of two goods that can be produced with available resources and technology. |
| real GDP per capita | The total value of goods and services produced by an economy adjusted for inflation and divided by the population, used to measure economic growth. |
| rightward shift | Movement of a curve to the right on a graph, indicating an increase in quantity supplied or produced at each price level. |
| technology | Tools, techniques, and knowledge used in production that improve efficiency and output. |
| Term | Definition |
|---|---|
| aggregate demand | The total quantity of goods and services demanded across an entire economy at different price levels. |
| aggregate supply | The total quantity of goods and services that producers are willing and able to supply at various price levels. |
| economic growth | An increase in the production of goods and services in an economy over time, measured by the growth rate of real GDP per capita. |
| incentives | Factors that motivate households and businesses to make economic decisions and take actions. |
| infrastructure | Basic physical systems and facilities, such as roads, bridges, and utilities, that support economic activity. |
| labor force participation | The percentage of the working-age population that is either employed or actively seeking employment. |
| long-run economic growth | The sustained increase in an economy's productive capacity and real GDP over an extended period of time. |
| potential output | The maximum level of real GDP an economy can produce when all resources are fully and efficiently utilized. |
| productivity | The amount of output produced per unit of input, such as output per worker or output per hour of labor. |
| public policies | Government actions and programs designed to influence economic outcomes and achieve specific economic objectives. |
| real GDP per capita | The total value of goods and services produced by an economy adjusted for inflation and divided by the population, used to measure economic growth. |
| supply-side fiscal policies | Government policies that focus on increasing aggregate supply through tax cuts, deregulation, or incentives to boost production, investment, and economic growth. |
| technology | Tools, techniques, and knowledge used in production that improve efficiency and output. |