AP Macroeconomics Vocabulary Chapters 10-11

planned investment= I. The amounts that business firms collectively intend to invest.
investment scheduleShows the amount of investment forthcoming at each level of GDP.
aggregate expenditures scheduleShows the amount (C + I) that will be spent at each possible output or income level in a private closed economy.
Government purchases shift it up and raise equilibrium GDP, taxes shift it down and reduce equilibrium GDP.
equilibrium GDPThe output whose production creates total spending just sufficient to purchase that output. It is the level at which the total quantity of goods produces equals the total quantity of goods purchased.
Saving and planned investment are equal and there are no unplanned changes in inventories.
C + I = GDP
unplanned changes in inventoryIncreases of decreases in a firm’s inventory that are not included in their investment plans and are unexpected. These do not occur at equilibrium GDP because C + I = GDP and S = I
net exportsExports minus imports or X – M
lump sum taxA tax of a constant amount or a tax yielding the same amount of tax revenue at each level of GDP.
Ex. $20 lump sum tax: Government obtains $20 billion in tax revenue at each level of GDP regardless of amount of government purchases.
recessionary gapThe amount by which aggregate expenditures at the full employment GDP fall short of those required to achieve the full-employment GDP. Insufficient total spending contracts or depresses the economy. Prices must be raised to fill the gap in expenditures.
inflationary gapThe amount by which an economy’s aggregate expenditures at the full employment GDP exceed those just necessary to achieve the full employment GDP.
aggregate demand-aggregate supply modelEnables the analyzing of changes in real GDP and the price level simultaneously. It provides insights on inflation, recession, unemployment, and economic growth.
real-balances effectA higher price level reduces the real value/purchasing power of the public’s accumulated savings balances; the public is now poorer in real terms and will reduce its spending.
foreign purchases effectWhen the U.S. price level rises relative to foreign price levels, foreigners buy fewer U.S. goods and Americans buy more foreign goods. U.S. exports fall and imports rise. Price level increase reduces demanded quantity of U.S. new exports.
determinants of aggregate demand*Change in consumer spending
– Consumer wealth
– Consumer expectations
– Household debt
– Taxes
Change in investment spending
– Interest rates
– Expected returns
aggregate supplyA schedule/curve showing the level of real domestic output that firms will produce at each price level.
long run aggregate supply curveVertical at the economy’s potential output (or full employment output) as wages and other input prices rise and fall to match changes in the price level. Price level changes do not change real profit or real output.
short run aggregate supply curveAn upsloping curve. A rise in the price level increases real output; a fall in the price level reduces real output.
determinants of aggregate supply*Change in input prices
– Domestic resource prices
– Prices of imported resources
– Market power
– Productivity
Change in institutional environment
– Business taxes and subsidies
– Government regulations
productivityA measure of the relationship between a nation’s level of real output and the amount of resources used to produce that output.
Productivity = total output / total input
equilibrium price levelThe price level that equalizes the amounts of real output demanded and supplied.
equilibrium real outputThe real output level where aggregate supply and aggregate demand intersect.
efficiency wagesWages that elicit maximum work effort and thus minimize labor cost per unit of output.
full employmentPrices are increased if there is a recession in order to fill the expenditures gap and maintain full employment of resources.
Say’s lawSupply creates its own demand. The goods one buys (demands) will have a total value exactly equal to the goods one produces (supplies). The market system ensures full employment of an economy’s resources.
leakageA withdrawal of spending from the income-expenditures stream. This includes saving, and is what causes consumption to be less than total output/GDP.
injectionA deposit of spending into the income-expenditures stream. This includes investment. It serves as a potential replacement for the leakage of saving.
aggregate demandA schedule/curve that shows the amounts of real output that buyers collectively desire to purchase at each possible price level. The relationship between the price level and the amount of real GDP demanded is inverse or negative: When price rises, demanded quantity of GDP decreases.