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Unit III Vocab

AP Macroeconomics - National Income and Price Determination

TermDefinition
recession a decrease in real GDP that lasts for at least two quarters (six months) or a period of significant decline in total output, income, employment, and trade, usually lasting from six months to a year
aggregate supply the relationship between the quantity of real GDP supplied and the price level when all other influences on production plans remain the same
aggregate demand the relationship between the quantity of real GDP demanded and the price level when all other influences on expenditure plans remain the same
macroeconomic equilibrium when the quantity of real GDP demanded equals the quantity of real GDP supplied at the point of intersection of the AD curve and the AS curve
full-employment equilibrium when equilibrium real GDP equals potential GDP
above full-employment equilibrium when real GDP exceeds potential GDP
below full-employment equilibrium when potential GDP exceeds equilibrium real GDP
stagflation a combination of recession (falling real GDP) and inflation (rising price level)
inflationary gap a gap that exists when real GDP exceeds potential GDP and that brings a rising price level
recessionary gap a gap that exists when potential GDP exceeds real GDP and that brings a falling price level
aggregate planned expenditure planned consumption expenditure plus planned investment plus planned government expenditure plus planned exports minus planned imports
autonomous expenditure the components of aggregate expenditure that do not change when real GDP changes
induced expenditure the components of aggregate expenditure that change when real GDP changes
consumption function the relationship between consumption expenditure and disposable, other things remaining the same
marginal propensity to consume the fractione of a change in disposable income that is spent on consumption - the change in consumption expenditure divided by the change in disposable income that brought it about
marginal propensity to import the fraction of an increase in real GDP that is spent on imports - the change in imports divided by the change in real GDP
equilibrium expenditure the level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP
multiplier the amount by which a change in any component of autonomous expenditure is magnified or multiplied to determine the change that it generates in equilibrium expenditure and real GDP
marginal tax rate the fraction of a change in real GDP that is paid in income taxes - the change in tax payments divided by the change in real GDP
classical macroeconomics a body of theory about how a market economy works and why it experiences economic growth and fluctuations
Great Depression a decade in 1930s of high-unemployment and stagnant production throughout the world economy
Keynesian macroeconomics a body of theory about how a market economy works that stresses its inherent instability and the need for active government intervention to achieve full employment and sustained economic growth
new macroeconomics a body of theory about how the economy works that is based on the view that macro outcomes depend on micro choices - the choices of rational individuals and firms interacting in markets
potential GDP the level of real GDP that the economy would produce if it were at full employment
production function a relationship that shows the macimum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on production remain the same
diminishing returns the tendencty for each additional hour of labor employed to produce a successively smaller additional amount of real GDP
quantity of labor demanded the total labor hours that all the firms in the economy plan to hire during a given time period at a given real wage rate
demand for labor the relationship between the quantity of labor demanded and real wage rate when all other influences on firms' hring plans remain the same
quantity of labor supplied the number of labor hours that all the households in the economy plan to work during a given time period at a given real wage rate
supply of labor the relationship between the quantity of labor supplied and the real wage rate when all other influences on work plans remain the same
job search the activity of looking for an acceptable vacant job
job rationing a situation that arises when the real wage rate is above the full-employment equilibrium level
efficiency wage a real wage rate that is set above the full-employment equilibrium wage rate to induce greater work effort
union wage a wage rate that results from collective bargaining between a labor union and a firm
Created by: ChasingRubies