AP MACRO REVIEW (unit 5 focused, but has all units)

for the AP test. Full review, in depth, focusing on primary graphs, concepts, and formulas

What are the Axises for the AS/AD graph

real GDP (x) and price level (y)

What are the axises for the money market graph

quantity of money (x) nominal interest rate (y)

What are the axises on the loanable funds market

quantity of loanable funds (x) real interest rate (y)

What are the axises on the Phillips curve

unemployment rate (x) inflation rate (y)

What is crowding out

government is in a deficit due to the increased public sphere spending which leads to less available loanable funds for the private sector (INCREASED INTEREST RATES)

Real interest rate is up what’s the shift on loanable funds

demand down

real interest rate down. shift on LF?

demand up

What happens when there’s both expansionary monetary and fiscal policy?

AS/AD - AD right, PL inc, output inc

Interest rate - indeterminate

Economic growth - indeterminate

What happens when contractionary monetary policy and expansionary fiscal poly

AD/Unem. rate/price lvl/output - indeterminate

Increased interest rate:

Decreased investment

decreased econ. growth

What happens when money supply increased

• AD right (Wages and PL inc)

• Increase in production cost = in long run end up at same point

• In long run, no change in real output

Debt rises when

taxes are less than spending

Crowding out causes what shift in the demand curve on the loanable funds graph

rightward shift for demand

increased interest rate = (AP or dep

aprpreciate

lower demand for country’s assets

depreciation

increased inflation fate (AP or dep.)

apreciation

OMO for wanting to increase growth/MS

buying treasury bonds

OMO for wanting to decrease growth/MS

selling treasury bonds

Does appreciation cause an increase or decrease in exportation

decrease in exports, which can contribute to trade deficit

MPS + MPC = ?

MPC = ?

change in consumption/change in income

Money multiplier

= 1/reserve req.

MV = ?

PY

what increases interest rate

reduction of money supply, when demand for lanable funds exceeds supply, unexpected future inflation, economic growth if higher

what decreases interest rate

increasing of money supply, more loanable funds, lower unexpected inflation

What factors increase the money supply

OMO buying bonds (lim) , lowering interest rates, lowering reserve requirements

How can they increase the money supply when the bank has ample reserves

lowering the IOR (interest on reserves/policy rate)

When there are ample reserves, what does the central bank do to increase interest rates

raising interest on reserves

Real GDP = ?

nom GDP/deflator

Real interest rate

nom - inflat

Def/surp = ?

Gov revenue - gov expenditure