AP Macroeconomics (copy)

Scarcity

unlimited wants with limited resources

Macroeconomics

study of the economy as a whole

Microeconomics

study of small economic units

4 factors of production

land, labor, capital, entrepreneurship

opportunity cost

the loss of potential gain when choosing to produce one thing over another

households provide in the product market

money

households demand in the product market

goods

firms provide in the product market

goods

firms demand in the product market

money

households demand in the factor market

wages

households supply in the factor market

labor

firms demand in the factor market

labor

firms supply in the factor market

wages

Absolute advantage

can produce the most output or requires the least input

comparative advantage

lowest opportunity cost

GDP

the total dollar value of all final goods and services produced within a country's borders in a given year

formula to calculate GDP

C+I+G+Xn

3 things not counted in GDP

intermediate goods, non production transactions, nonmarket/illegal activities

intermediate goods

goods inside the final goods

non production transactions

nothing produced or used goods, transfer payments

non market and illegal activities

things made at home

transfer payment

welfare, social security, subsidies

GNP

the value of all finished goods and services owned by a countries citizens

GDP per capita

GDP/population, used to calculate standard of living

frictional unemployment

in-between jobs or looking for first job

structural unemployment

skillset isn’t needed anymore

cyclical unemployment

caused by a recession or economic downturn

formula for calculating unemployment rate

unemployed/labor force x 100

who is in the labor force

at least 16, willing and able to work

discouraged worker

no longer looking for work

natural rate of unemployment

frictional+structural unemployment

expenditure approach for calculating GDP

C+I+G+(x-m)

income approach

wages+interest+rent+profit

expenditure approach=income approach because

one person’s spending is always equal to another’s income

who is helped by inflation

borrowers

hurt by inflation

lenders, ppl with fixed income, savers

CPI

(price of market basket/price of basket in particular year)x100

inflation rate

(new-old)/old x 100

real GDP

(nominal/deflator) x100

real interest rate

nominal-inflation rate

nominal interest rate

real + inflation rate

why is the AD downward sloping

wealth effect, interest rate effect, foreign trade effect

wealth effect

higher price levels reduce the purchasing power of money, which decreases the quantity of expenditures

interest rate effect

when the price level increases lenders need to charge higher interest rates to get a real return on their loans

Foreign trade effect

when us price level increases, foreign buyers purchase less us goods and Americans buy more foreign goods

wages and resource costs in the short run

fixed

wages and resources in the long run

flexible

shifters of the aggregate demand curve

consumption spending, investment spending, government expenditures, net exports

shifters of SRAS

resource costs, actions by the government, productivity

shifters of LRAS and PPC

change in resource quantity or quality, change in technology

cost push inflation

higher production costs increase prices

demand pull inflation

demand increases AD which increases price levels

stagflation

high employment, low GDP, high price levels

expansionary fiscal policy

increase gov spending, decrease income taxes, creates budget deficit

contractionary fiscal policy

decrease gov spending, increase income taxes, creates budget surplus

spending multiplier

1/MPS

tax multiplier

one less than spending multiplier

does the spending or tax multiplier have a larger impact on RGDP

spending

discretionary fiscal policy

Congress creates a new bill to change AD through gov spending or taxation

Non discretionary fiscal policy

automatic stabilizers

common assets

reserves, government bonds/securities, loans

common liabilities

demand deposits

formula for money multiplier

1/reserve requirement

government bonds/securities

IOUs, represent the debt that must be repaid to the lender

discount rate

interest charged by the fed for overnight loans

federal funds rate

interest charged by commercial banks for overnight loans

expansionary monetary policy for limited reserves

buy bonds, decrease discount rate, decrease reserve requirement

contractionary monetary policy for limited reserves

sell bonds, increase discount rate, increase reserve requirement

administered rates

interest on reserves (IOR) and discount rate

expansionary monetary policy

decrease administered rates

contractionary monetary policy

increase administered rates

3 functions of money

medium of exchange, unit of account, store of value

medium of exchange

used to buy goods and services

unit of account

measures the value of goods and services

store of value

store purchasing power for the future

crowding out

deficit spending raises interest rates which decreases the amount of investment spending.

equation of exchange

MxV=PxQ

M

money supply

V

velocity

P

price

Y

RGDP, quantity of output

why is SRPC downward sloping

there is a tradeoff between unemployment and inflation

why is LRPC vertical

there is no tradeoff between unemployment and inflation

what causes the LRPC to shift

change in the NRU, change in unemployment compensation

net exports

exports-imports

current account

a country's net income over a period of time

what’s in a country’s current account

goods and services, investment income, net transfers

capital/financial account

net change of assets and liabilities during a particular year

current and capital account must ________

equal each other

appreciation

the increase of value of a country’s currency with respect to a foreign currency

Depreciation

loss of value of a country’s with respect to a foreign currency

4 shifters of the FOREX

changes in, taste, relative income, price levels, and relative interest rates

Production possibilities curve x and y axis

goods

ppc shifters

Change in the quantity or quality of resources, technology, or trade.

how do you portray economic growth on the ppc

outward shift

ADAS x axis

rgdp

ADAS y axis

price level

Phillips curve x axis

unemployment

Phillips curve y axis

inflation rate

what shifts the SRPC

changes in AS