AP Macroeconomics Flashcards: Public Policy And Economic Growth

What this deck covers

This deck focuses on Public Policy And Economic Growth, giving you a quick way to review the definitions, rules, and examples that matter most for AP Macroeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: Which economic indicator measures inflation?

Answer: Consumer Price Index (CPI). Tracks changes in average prices of consumer goods.

Flashcard 2: What does an increase in government spending typically do to GDP?

Answer: Increases GDP. Direct injection of money stimulates economic activity.

Flashcard 3: What is meant by 'supply-side economics'?

Answer: Policies aimed at increasing productivity and economic output. Focuses on increasing production capacity and efficiency.

Flashcard 4: What is the effect of high interest rates on borrowing?

Answer: Decreases borrowing. Higher costs discourage loans and major purchases.

Flashcard 5: What does the Laffer Curve illustrate?

Answer: Relationship between tax rates and tax revenue. Demonstrates optimal tax rates for maximum government revenue.

Flashcard 6: What is the definition of 'stagflation'?

Answer: High inflation and high unemployment simultaneously. Occurs when monetary and fiscal policies conflict.

Flashcard 7: Define 'real GDP'.

Answer: GDP adjusted for inflation. Removes effects of price changes to show actual growth.

Flashcard 8: What does an increase in government spending typically do to GDP?

Answer: Increases GDP. Direct injection of money stimulates economic activity.

Flashcard 9: What is contractionary fiscal policy?

Answer: Reducing government spending or increasing taxes. Reduces aggregate demand to slow economic overheating.

Flashcard 10: What is the effect of high interest rates on borrowing?

Answer: Decreases borrowing. Higher costs discourage loans and major purchases.

Flashcard 11: Identify the formula for calculating GDP growth rate.

Answer: $\frac{GDP_{new} - GDP_{old}}{GDP_{old}} \times 100$. Measures percentage change in economic output over time.

Flashcard 12: Identify the primary goal of fiscal policy.

Answer: Manage economic growth and stability. Balances employment, inflation, and sustainable development.

Flashcard 13: What is the impact of increased capital investment on growth?

Answer: Promotes economic growth. Builds productive capacity and future economic output.

Flashcard 14: What is contractionary fiscal policy?

Answer: Reducing government spending or increasing taxes. Reduces aggregate demand to slow economic overheating.

Flashcard 15: Identify the formula for calculating the inflation rate.

Answer: $\frac{CPI_{new} - CPI_{old}}{CPI_{old}} \times 100$. Measures percentage change in price levels over time.

Flashcard 16: Define 'aggregate demand'.

Answer: Total demand for goods and services in an economy. Combines consumer, business, government, and net export spending.

Flashcard 17: Which policy tool involves altering interest rates?

Answer: Monetary policy. Central banks control borrowing costs through money supply changes.

Flashcard 18: What does 'MPC' stand for in economics?

Answer: Marginal Propensity to Consume. Measures fraction of additional income that gets spent.

Flashcard 19: Identify the formula for calculating the inflation rate.

Answer: $\frac{CPI_{new} - CPI_{old}}{CPI_{old}} \times 100$. Measures percentage change in price levels over time.

Flashcard 20: What is a progressive tax system?

Answer: Tax rate increases as income increases. Higher earners pay proportionally more in taxes.

Flashcard 21: What is a budget deficit?

Answer: Government spending exceeds revenue. Creates debt when government expenditures surpass income.

Flashcard 22: What does the Laffer Curve illustrate?

Answer: Relationship between tax rates and tax revenue. Demonstrates optimal tax rates for maximum government revenue.

Flashcard 23: What is the primary goal of supply-side policies?

Answer: Increase economic productivity. Enhances efficiency and long-term economic growth potential.

Flashcard 24: What is the definition of fiscal policy?

Answer: Government spending and taxation to influence the economy. Uses government budget tools to manage economic conditions.

Flashcard 25: What is the natural rate of unemployment?

Answer: The rate of unemployment when the economy is at full employment. Includes only structural and frictional unemployment types.

Flashcard 26: What is a progressive tax system?

Answer: Tax rate increases as income increases. Higher earners pay proportionally more in taxes.

Flashcard 27: How does monetary policy influence interest rates?

Answer: By changing the money supply. More money lowers borrowing costs; less money raises them.

Flashcard 28: Which type of policy aims to reduce unemployment?

Answer: Expansionary fiscal policy. Increases spending and cuts taxes to boost job creation.

Flashcard 29: What is the definition of 'public goods'?

Answer: Non-excludable and non-rivalrous goods. Available to all without reducing others' consumption.

Flashcard 30: What is meant by 'supply-side economics'?

Answer: Policies aimed at increasing productivity and economic output. Focuses on increasing production capacity and efficiency.

Flashcard 31: How does fiscal policy affect aggregate demand?

Answer: Through government spending and taxation. Budget changes directly alter total economic demand.

Flashcard 32: Which economic indicator measures inflation?

Answer: Consumer Price Index (CPI). Tracks changes in average prices of consumer goods.

Flashcard 33: What is a budget deficit?

Answer: Government spending exceeds revenue. Creates debt when government expenditures surpass income.

Flashcard 34: Identify the primary goal of fiscal policy.

Answer: Manage economic growth and stability. Balances employment, inflation, and sustainable development.

Flashcard 35: Which policy is used to combat inflation?

Answer: Contractionary monetary policy. Reduces money supply to control rising price levels.

Flashcard 36: What is the definition of 'public goods'?

Answer: Non-excludable and non-rivalrous goods. Available to all without reducing others' consumption.

Flashcard 37: What is the definition of fiscal policy?

Answer: Government spending and taxation to influence the economy. Uses government budget tools to manage economic conditions.

Flashcard 38: What is an expansionary monetary policy?

Answer: Increasing money supply to lower interest rates. Stimulates borrowing and investment through cheaper credit.

Flashcard 39: Identify the formula for calculating GDP growth rate.

Answer: $\frac{GDP_{new} - GDP_{old}}{GDP_{old}} \times 100$. Measures percentage change in economic output over time.

Flashcard 40: Which policy is used to combat inflation?

Answer: Contractionary monetary policy. Reduces money supply to control rising price levels.

Flashcard 41: How does monetary policy influence interest rates?

Answer: By changing the money supply. More money lowers borrowing costs; less money raises them.

Flashcard 42: What does the Phillips Curve represent?

Answer: Inverse relationship between inflation and unemployment. Shows short-term trade-off between price stability and jobs.

Flashcard 43: Which policy aims to stimulate economic growth?

Answer: Expansionary fiscal policy. Boosts demand through increased spending and lower taxes.

Flashcard 44: How does fiscal policy affect aggregate demand?

Answer: Through government spending and taxation. Budget changes directly alter total economic demand.

Flashcard 45: What is the primary goal of supply-side policies?

Answer: Increase economic productivity. Enhances efficiency and long-term economic growth potential.

Flashcard 46: What is the definition of 'national debt'?

Answer: Total amount of money a government owes. Accumulates from years of budget deficits and borrowing.

Flashcard 47: Which policy tool involves altering interest rates?

Answer: Monetary policy. Central banks control borrowing costs through money supply changes.

Flashcard 48: Which type of policy aims to reduce unemployment?

Answer: Expansionary fiscal policy. Increases spending and cuts taxes to boost job creation.

Flashcard 49: What is the definition of 'national debt'?

Answer: Total amount of money a government owes. Accumulates from years of budget deficits and borrowing.

Flashcard 50: What effect does a tax cut typically have on consumer spending?

Answer: Increases consumer spending. Lower taxes leave more disposable income for purchases.

Flashcard 51: Which type of unemployment occurs during recessions?

Answer: Cyclical unemployment. Results from reduced economic activity and job losses.

Flashcard 52: Which policy tool is used to manage the money supply?

Answer: Monetary policy. Central banks control currency circulation and availability.

Flashcard 53: Which type of unemployment occurs during recessions?

Answer: Cyclical unemployment. Results from reduced economic activity and job losses.

Flashcard 54: What is the term for the total value of goods and services produced?

Answer: Gross Domestic Product (GDP). Measures total economic output within national borders.

Flashcard 55: What is an expansionary monetary policy?

Answer: Increasing money supply to lower interest rates. Stimulates borrowing and investment through cheaper credit.

Flashcard 56: State the formula for the multiplier effect.

Answer: $\frac{1}{1-MPC}$, where MPC is the marginal propensity to consume. Shows how initial spending creates amplified economic impact.

Flashcard 57: Which policy aims to stimulate economic growth?

Answer: Expansionary fiscal policy. Boosts demand through increased spending and lower taxes.

Flashcard 58: What is the term for the total value of goods and services produced?

Answer: Gross Domestic Product (GDP). Measures total economic output within national borders.

Flashcard 59: Which policy tool is used to manage the money supply?

Answer: Monetary policy. Central banks control currency circulation and availability.

Flashcard 60: Define 'crowding out effect'.

Answer: Private investment decreases due to increased government borrowing. Higher interest rates discourage private sector borrowing.

Flashcard 61: What is the natural rate of unemployment?

Answer: The rate of unemployment when the economy is at full employment. Includes only structural and frictional unemployment types.

Flashcard 62: What is the result of a contractionary monetary policy?

Answer: Reduced money supply and increased interest rates. Tightens credit to reduce inflationary pressures.

Flashcard 63: State the formula for the multiplier effect.

Answer: $\frac{1}{1-MPC}$, where MPC is the marginal propensity to consume. Shows how initial spending creates amplified economic impact.

Flashcard 64: What is a regressive tax system?

Answer: Tax rate decreases as income increases. Lower-income earners pay higher proportional tax rates.

Flashcard 65: What is the primary goal of monetary policy?

Answer: Control inflation and stabilize currency. Maintains price stability and economic balance through monetary tools.