ap macro relationships

What is the relationship between inflation and unemployment in the short-run?

Inverse; as inflation rises, unemployment tends to fall (Phillips Curve).

What happens to investment spending when interest rates increase?

Investment spending decreases because higher rates make borrowing more expensive.

How do higher taxes affect consumer spending?

Higher taxes lead to less disposable income, which decreases consumer spending.

What effect does government spending have on aggregate demand?

Direct; more government spending leads to higher aggregate demand.

How do interest rates impact aggregate demand?

Inverse; higher interest rates discourage borrowing and spending.

What is the relationship between money supply and interest rates?

Inverse; more money in circulation leads to lower interest rates.

How does the relationship between interest rates and unemployment manifest?

Direct; higher interest rates result in less investment and therefore fewer jobs.

What effect does inflation have on the value of money?

Inverse; higher inflation erodes purchasing power.

What is the long-run relationship between unemployment and wages?

Inverse; high unemployment puts downward pressure on wages.

How are real GDP and unemployment related?

Inverse; more output requires more jobs, reducing unemployment.

What is the relationship between price level and purchasing power?

Inverse; higher prices mean less can be bought with the same amount of money.

How do nominal interest rates relate to inflation?

Direct; lenders demand higher rates when expecting inflation (Fisher effect).