AP Macroeconomics - National Income and Price Determination
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| 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
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| 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
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| 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
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| 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
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| full-employment equilibrium | when equilibrium real GDP equals potential GDP
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| above full-employment equilibrium | when real GDP exceeds potential GDP
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| below full-employment equilibrium | when potential GDP exceeds equilibrium real GDP
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| stagflation | a combination of recession (falling real GDP) and inflation (rising price level)
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| inflationary gap | a gap that exists when real GDP exceeds potential GDP and that brings a rising price level
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| recessionary gap | a gap that exists when potential GDP exceeds real GDP and that brings a falling price level
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| aggregate planned expenditure | planned consumption expenditure plus planned investment plus planned government expenditure plus planned exports minus planned imports
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| autonomous expenditure | the components of aggregate expenditure that do not change when real GDP changes
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| induced expenditure | the components of aggregate expenditure that change when real GDP changes
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| consumption function | the relationship between consumption expenditure and disposable, other things remaining the same
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| 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
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| 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
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| equilibrium expenditure | the level of aggregate expenditure that occurs when aggregate planned expenditure equals real GDP
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| 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
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| 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
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| classical macroeconomics | a body of theory about how a market economy works and why it experiences economic growth and fluctuations
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| Great Depression | a decade in 1930s of high-unemployment and stagnant production throughout the world economy
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| 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
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| 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
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| potential GDP | the level of real GDP that the economy would produce if it were at full employment
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| 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
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| diminishing returns | the tendencty for each additional hour of labor employed to produce a successively smaller additional amount of real GDP
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| 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
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| 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
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| 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
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| 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
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| job search | the activity of looking for an acceptable vacant job
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| job rationing | a situation that arises when the real wage rate is above the full-employment equilibrium level
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| efficiency wage | a real wage rate that is set above the full-employment equilibrium wage rate to induce greater work effort
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| union wage | a wage rate that results from collective bargaining between a labor union and a firm
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