Glossary
Aggregate Demand (AD)
The total demand for all goods and services produced in an economy at a given price level and in a given time period.
Example:
A strong consumer confidence report often leads to an increase in overall spending, boosting Aggregate Demand.
Expansionary Fiscal Policy
Government policy designed to stimulate economic growth, typically used during a recession.
Example:
During the 2008 financial crisis, the government implemented Expansionary Fiscal Policy by increasing spending and cutting taxes to boost the economy.
Federal Reserve (the Fed)
The central banking system of the United States, responsible for conducting monetary policy and regulating banks.
Example:
Students often learn about the Federal Reserve when studying how interest rates are set in the U.S. economy.
Fiscal Policy
Government actions that influence the economy through changes in government spending and taxation.
Example:
When the economy is slowing down, Congress might pass a bill to increase infrastructure spending, which is an example of Fiscal Policy.
Government Spending (G)
Expenditures by the government on goods and services, such as infrastructure projects, defense, and public employee salaries.
Example:
Building a new highway system is a direct increase in Government Spending and can stimulate economic activity.
Monetary Policy
Actions taken by a central bank, like the Federal Reserve, to manage the money supply and credit conditions to influence the economy.
Example:
To combat inflation, the Federal Reserve might raise interest rates, a key tool of Monetary Policy.
Recessionary Gap
A situation where the actual output (real GDP) of an economy is below its potential output (full employment GDP), indicating high unemployment and underutilized resources.
Example:
If the unemployment rate is persistently high and factories are operating below capacity, the economy is likely experiencing a Recessionary Gap.
Taxes (T)
Compulsory financial contributions levied by a government on individuals or corporations to fund public services.
Example:
When the government reduces income Taxes, consumers have more disposable income, which can lead to increased spending.