AP Macroeconomics Exam Review

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Questions and Answers

What causes movement on the Short-Run Phillips Curve?

Shift in Money Supply

Shift in Short-Run Aggregate Supply

Shift in Aggregate Demand (correct)

Change in Fiscal Policy

What is a shift of the Short-Run Phillips Curve caused by?

Shift in Aggregate Demand

Shift in Long-Run Aggregate Supply

Shift in Short-Run Aggregate Supply (correct)

Change in Money Demand

What are the four factors of production?

Land, Labor, Capital, Technology

What are the shifters of demand for loanable funds?

Incentive to Invest, Contractionary Fiscal Policy Signup and view all the answers

What are the shifters of supply of loanable funds?

Incentive to Save, Monetary Policy, Expansionary Fiscal Policy Signup and view all the answers

What are the shifters of money supply?

Monetary Policy, Federal Reserve Bank Signup and view all the answers

What are the shifters of money demand?

Price Level, Income, Fiscal Policy Signup and view all the answers

What are the shifters of Long-Run Aggregate Supply?

Factors of Production Signup and view all the answers

What are the shifters of Short-Run Aggregate Supply?

Factors of Production, Input Costs, Supply Shock Signup and view all the answers

What are the shifters of Aggregate Demand?

GDP, Monetary Policy, Fiscal Policy Signup and view all the answers

What does a PPC graph illustrate?

Production possibilities of 2 products based on resources Signup and view all the answers

What is the equation for GDP using the expenditure approach?

GDP = C + I + G + Xn Signup and view all the answers

What is the equation for GDP using the income approach?

GDP = W + I + R + P Signup and view all the answers

How do you calculate nominal GDP?

Quantity of goods produced times their current prices, added together. Signup and view all the answers

What is the GDP deflator?

A price index used to measure inflation. Signup and view all the answers

How do you calculate the inflation rate via the CPI?

(This year's CPI - Last year's CPI)/(Last year's CPI) x 100 Signup and view all the answers

What is the real interest rate?

The interest rate corrected for the effects of inflation Signup and view all the answers

What defines the unemployment rate?

The percentage of those 16 or older actively seeking employment Signup and view all the answers

What is the formula for the money multiplier?

1/RR, where RR equals the required reserve ratio Signup and view all the answers

What does the Quantity Theory of Money state?

MV = PQ = Y Signup and view all the answers

What does MPC + MPS = 1 denote?

The fraction of disposable income spent plus the fraction saved equals 1 Signup and view all the answers

What is the spending multiplier formula?

1/(1-MPC) or 1/MPS Signup and view all the answers

What is the tax multiplier formula?

MPC/MPS x Tax decrease Signup and view all the answers

What is absolute advantage?

Produces more or fewer resources than another Signup and view all the answers

What is appreciation in the context of currency?

An increase in the value of one currency relative to another Signup and view all the answers

What does the Balance of Payments measure?

All monetary exchanges between one nation and another Signup and view all the answers

What are bonds?

A certificate of debt issued by a company or government Signup and view all the answers

What is a budget deficit?

When a government spends more than it collects in tax Signup and view all the answers

Study Notes

Short-Run Phillips Curve

Movement indicates a shift in aggregate demand (AD) impacting inflation and unemployment in opposite directions.
A leftward shift in aggregate demand leads to a decrease in inflation and an increase in unemployment.

Shift of Short-Run Phillips Curve

Occurs due to shifts in short-run aggregate supply (SRAS), impacting inflation and unemployment inversely.
When SRAS shifts left, inflation rises while unemployment increases.

Factors of Production

Essential components:
- Land: natural resources available for production.
- Labor: human effort used in production.
- Capital: tools, equipment, and facilities for production.
- Technology: innovations that improve efficiency.

Shifters of Demand for Loanable Funds

Factors that shift demand include incentives to invest, influenced by interest rates and economic outlook.
Contractionary fiscal policy leads to a rightward shift in demand, increasing the quantity of funds demanded.

Shifters of Supply of Loanable Funds

Includes incentives to save, impacted by interest rates and consumer confidence.
Monetary policy and expansionary fiscal policy generally shift supply to the left, reducing the quantity of funds available.

Shifters of Money Supply

Primarily influenced by monetary policy directed by the Federal Reserve Bank, adjusting interest rates and reserve requirements.

Shifters of Money Demand

Key factors influencing demand include price levels (inflation), consumer income, and fiscal policy changes.

Shifters of Long-Run Aggregate Supply

Determined by changes in factors of production, such as labor force growth and technological advancements.

Shifters of Short-Run Aggregate Supply

Influenced by factors of production, input costs, and supply shocks (sudden changes in supply impacting prices).

Shifters of Aggregate Demand

Includes components of GDP: consumption (C), investment (I), government spending (G), and net exports (Xn) as well as monetary and fiscal policy changes.

PPC Graph

Represents production possibilities of two goods based on limited resources, illustrating opportunity costs and trade-offs.

GDP Measurement

Expenditure approach: GDP calculated as C + I + G + Xn, correlating with aggregate demand.
Income approach: GDP calculated as income from wages (W), interest (I), rent (R), and profits (P), relating to aggregate supply.

Calculating Nominal GDP

Total value of goods produced multiplied by their current market prices, reflecting economic output.

GDP Deflator

A price index used to measure the level of inflation within the economy.

Inflation Rate via CPI

The formula for calculating inflation: ((This year's CPI - Last year's CPI) / Last year's CPI) x 100, indicating percentage change in consumer prices.

Real Interest Rate

The nominal interest rate adjusted for the effects of inflation, indicative of the true cost of borrowing.

Unemployment Rate

Defined as the percentage of individuals aged 16 or older who are actively seeking employment.

Money Multiplier

Calculated as 1/RR (required reserve ratio), demonstrating the banking system's capacity to create money from deposits.

Quantity Theory Of Money

Expressed as MV = PQ = Y, linking money supply (M) to price levels (P) and output (Y) under stable velocity (V).

MPC + MPS = 1

Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) must collectively equal one, representing consumer behavior.

Spending Multiplier

Formula: 1/(1-MPC) or 1/MPS, illustrating the total change in spending resulting from an initial increase in government spending.

Tax Multiplier

Expressed as MPC/MPS multiplied by the tax decrease, it reflects the total impact of tax changes on spending, always negative.

Absolute Advantage

The ability of an agent to produce more of a good or service using fewer resources than another agent, highlighting efficiency in production.

Appreciation

An increase in a currency's value relative to others due to heightened demand or reduced supply in foreign exchange markets.

Balance Of Payments

A comprehensive measure of a nation's monetary transactions with the rest of the world, encompassing the current account and capital account.

Bonds

A formal debt security issued by corporations or governments, promising to repay the invested principal along with interest.

Budget Deficit

Occurs when government spending surpasses its tax revenues, often requiring borrowing to finance the deficit.

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Description

Prepare for your AP Macroeconomics exam with this set of flashcards covering key concepts like the Short-Run Phillips Curve and factors of production. Each card provides concise definitions and explanations to help reinforce your understanding of macroeconomic principles.