ap macro full review

PPC curved outward

increasing opportunity cost

straight (PPC)

constant opportunity cost

economic growth (PPC)

PPC shifts outward

Economic decline (PPC)

PPC shifts inward

law of demand

higher pricer = lower demand

gdp

market value of all final goods and serves

gdp does include

transter payments

gdp expenditure approach

C + I + G + (X - M), exports - imports

Non-market transactions

• don’t capture well-being

• doesn’t capture depreciation

• income inqueualty

unemployment rate

unemployed/labor force * 100

labor force includes…

people acitvely working or seeking a job. DOES NOT include people who aren’t looking.

Labor force participation rate

labor force/cicvilan noninstitutional * 100

frictional unemployemnt

looking for a job/ in between

structural unemployment

don’t have skills

cycical

caused by economic recession

natural unemployment

frictional + structural

CPI

cost of market goods with current prices/cost of makret basket with base prices * 100

inflation

current cpi - past cpi/past cpi * 100

nominal current prices

price * quanitty

Real gdp base prices

(price ( bases) * quanity)

GDP deflator

gdp deflator = nominal gdp/real gdp * 100

unexpected infaltion

borrows benefit

Expansion

RDGP RISING

Recession

Rgdp falling

output gap actual output

output gap actual output - potential output

Higher RGDP

lower unemployment

if price levels decrease

more will deamnded by housesholds, firms, the governemnt, and other countires

wealth effect

people can purchase more goods and services with their money

interest rate effect

peope can spend less and save more, causing interest rates to go down

exchange rate

a relative price of one currency expressed in terms of another currency

aggregate demand shift ( if taxes are down)

people have to spend more, ad shifts right

(AD shift) if people. are more confidnet in spending

ad shifts right

if firms are more confident in investing (ad shift)

ad shifts right

if governemnt spending increase ( ad shift)

ad shifts right

if other countries demand more (exports) (ad)

ad shifts right

if a country makes more domestic goods and imports less (ad)

ad shifts right

aggregate supply

total output firms are willing to produce

if price lvelss increase (AS)

firms are more willing to produce more output in the short run ( the period of time where wages and some other inputs cost are fixed)

stick wages & prices

alothough prices for a product go up, production costs are relatively stable so producing leads to more profit

sras

shows trade. of between inflaiton and unemployment

shifts of sras

• proucitvy (increase - rightward shift)

• input costs ( input costs increase 0 leftward shift)

• labor market ( more people working - rightward shift)

LRAS

output is independent of price levels

Why is lras indepent of price lelves?

wages an dother input costs adjust to price cahnges and profit - maximaizng quanity returns to natural level.

Shoft run equilibrium

intersection of ad and sras

positive supply shock

postive shocks shifts ad or sras to the right

negative supply shock

negative shock sifts ad or sras to the left

deamnd pull inflation

caused by postive shock

cost - push inflaiton

caused. bynegative shock in sras (as shifts left) price level increase

lras key point

without government intervention, sras shifts to establish long run equlibrium

current output < LRAS

unemployment is higher than nautral ( wages and inpout prices would fall, sras would shift left)

current output > LRAS

wages and input costs rise causing SRAS to shift left

Marginal prpersnity to consume

change in compustion spending / change in disposable income

marginal propensity to save

change in amount saved / change in dispoable income

MPC + MPS

1

total expensitdues

total gdp

total change in gdp

intial spending / 1 - mpc

spedning multipler

1 / 1 - mpc

tax multipler

-mpc/ 1- mpc

increase taxes

less disposable income and gdp increase

fiscal policy consits

governemnt spending and taxation/transers in order to shift ad

contractionary fiscal policy

can be employed to fix infaltion

expansionary fiscal policy

to fix a reccesion

expansionary

increasing spending and decreasing taxation

contractionary

decreasing spedning and increases taxes

automatic stablizers

• income taxes are percentage of income so they automatically rise in infatlion ( contractionary ) and fall in recession (expanionary)

lists of finical assets

cash, demand depostis, bonds, and stocks

price of previousla issued bonds & inverse rates are…

inversely related

nominal interest rate is

not adjusted for infaltion

expected real interest rate

nominal interest rate - expected inflation rate

actual real interst rate

nominal rate - actaul inflation rate

fucntions of money

mediun of exchange, store of value, and unit of account

mo

the amount the central bank prints

m1

currency in circlualtion, checkable depsotsi and travelrs checks

m2

m1 + money in savings accounts + small CDS

aasets

what the bank has

liabilites

what the bank owes others

assets equation

libilites = equity

required reserve ratio

dictates the minimum percentage of checkable deposits that must be held in reserve

money market demand shifts

• price level (price goes up, money demanded goes down)

• if ination income goes up, money demanded goes up

• tech conversts to cash ( money deamnded goes up)

expansionary monetary policy

decreases nominal interest rates + quantity of money needed

contractionary monetary policy

nominal interest rate increase and quanity decrease of money held (counteract inflation)

buying bonds

increase money supply (expansionary)

selling bonds

decarese money supply (contractionary)

discount rate

banks can borrow from central bank

discount rate decarese

commercial banks loan more

increased money supply

expansioanyr, discount rate increase - commerical bank loan less

decrease in money supply

contractionary

RRR down

comeriial banks can loan more - increase money supply (expansioanry)

RR increase

commerical banks loan less = increase in money supply (contractionary)

fedral funds areate

interst rate comeraical banks charge each other for overnight loans

increase in ior rate

contractionary

decrease in ior rate

expansioary

central bank decrease

less spealing to hold reserves - encorugages loans , more borrows = more spending

fiscal polic

controled by government

monetry

contorled by central bank

nru chaning (philips curve)

shifts lrpc

quanity theory of money

MV = PQ

crowding out

a government could use deficit speeding to comabt a recession, the deficit spending could be funded by borrowing ( increases interest rates, decrease priveate investnment)

demand for loandbale fund increase

increase real interest rates

current account

record of interntail transtiona that do not create libalitaitles