AP Macroeconomics Studying :)

The price level can be the

GDP Deflator or CPI

GDP =

Consumption + Investment + Government Spending + Net Exports; C + I + G + NX

Factors of Production

Land, labor, and capital

Supply & Demand Graph

X: Price, Y: Quantity

Aggregate Supply & Aggregate Demand Graph

X: Price level, Y: rGDP

What causes an aggregate demand shift

Changes in consumption, investment, government spending, and net exports

What causes an aggregate supply shift

changes in productivity or the price of a key input

Money Market Graph

x: nominal interest rate, y: Quantity of money

Ample reserves Graph

x: policy rate, y: Quantity of reserves

Monetary Policy

interest rates, money supply, managed by the Fed

policy rate

interest rate governments pay banks to keep money in reserves

Fiscal policy

taxes, government spending, managed by government

What causes shifts in money demand

changes in rGDP

what causes shifts in money supply

changes in the reserve requirement, discount rate, and OMO

reserve requirement

the amount of money banks must hold in reserves

discount rate

the interest rate the Fed charges for loaning money to other financial institutions

federal funds rate

the interest rate banks charge each other for overnight lending

loanable funds market graph

x: real interest rate, y: Quantity of loanable funds

what causes shifts in the loanable funds supply

changes in savings public (government savings) and savings private (household and business savings)

what causes shifts in the loanable funds demand

changes in investment return expectations and government policy

a government deficit decreases

the supply of loanable funds (government is borrowing more money)

Crowding out

the government borrowing more money raises the real interest rate resulting in decreases of private consumption and investment

Phillips Curve

x: inflation rate, y: unemployment rate, behaves like a mirror of the as/ad graph

what causes shifts in the short run Phillips curve

changes in inflationary expectations

what is the long run Phillips curve

the natural rate of unemployment (structural and frictional)

structural unemployment

involuntary unemployment caused by a mismatch between the a workers’ skills and the skills desired by employers.

frictional unemployment

unemployment caused by a worker quitting a job to find another

cylical unemployment

unemployment that results from changes in the business cycle

foreign exchange market graph

x: the price of domestic currency in a foreign currency (ex. pesos/$), y: Quantity of domestic currency

foreign exchange market demand

foreign currency that wants to be spent in domestic country

foreign exchange market supply

domestic currency that wants to be spent in foreign country

unemployment rate

(Number of Unemployed/Labor Force) x 100

labor force participation rate

(Labor force/adult population) x 100

labor force

people who are employed/seeking employment

expenditures multiplier

1/MPS

gdp Deflator

(Nominal GDP/Real GDP) x 100

consumer price index (CPI)

(cost current year)/(cost in base year) x 100

velocity of money

Money Supply x Velocity = Price Level x Real GDP