AP®︎ Macroeconomics: Topic 5.1 Flashcards

Master key terms and definitions for Topic 5.1 of AP Macroeconomics – Fiscal and Monetary Policy Actions in the Short Run to help you prep for quizzes and the AP exam.

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Term

Expansionary Fiscal Policy

Definition

Higher government spending and/or lower taxes used to increase aggregate demand.

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Expansionary Fiscal Policy
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Higher government spending and/or lower taxes used to increase aggregate demand.

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Contractionary Fiscal Policy
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Lower government spending and/or higher taxes used to decrease aggregate demand.

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Expansionary Monetary Policy
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Federal Reserve actions that increase money supply and lower interest rates.

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Contractionary Monetary Policy
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Federal Reserve actions that decrease money supply and raise interest rates.

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Monetary Policy Tools
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Federal Reserve tools that change money supply through bond trades, bank reserves, and lending rates.

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Combined Fiscal and Monetary Policy
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Using fiscal and monetary policy together shifts aggregate demand to close output gaps.

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Short-Run Effects of Fiscal and Monetary Policy
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Policy actions change aggregate demand, real output, the price level, and interest rates.

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Negative Output Gap
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A recessionary gap where real GDP is below full-employment output.

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Positive Output Gap
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An inflationary gap where real GDP is above full-employment output.

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