In Depth Notes for AP Macroeconomics Exam Preparation

Upcoming Events and Exam Schedule

• AP Macroeconomics & AP Gov End Game

  • A Day Schedule
  • Wednesday 9th: Mini Quiz on Unit 4 & 5.1 & 5.2
  • Friday 11th: Senior Breakfast
  • Tuesday 15th: Topics 5.3 & 5.4
  • Thursday 17th: Topics 5.5 & 5.6
  • Tuesday 22nd: Topic 5.7 + Unit 5 Review
  • Thursday 24th: Unit 5 Mini Quiz
  • Friday 25th: Unit 6 All-Day Review
  • Monday 28th: AP Macro Review
  • Wednesday 30th: AP Gov Review
  • Friday 2nd: AP Gov Review
  • Tuesday 6th: AP Gov Exam at 12 PM
  • Wednesday 7th: AP Macroeconomics Review Day
  • Friday 9th: AP Macroeconomics Exam at 12 PM

• AP Macroeconomics & AP Gov End Game - B Day Schedule

  • Tuesday 7th: Finish Unit 4
  • Thursday 10th: Mini Quiz on Unit 4 & 5.1 & 5.2
  • Monday 14th: Topics 5.3 & 5.4
  • Wednesday 16th: Topics 5.5 & 5.6
  • Monday 21st: Topic 5.7 + Unit 5 Review
  • Wednesday 23rd: Unit 5 Mini Quiz
  • Friday 25th: Unit 6 All-Day Review
  • Tuesday 29th: AP Gov Review
  • Thursday 1st: AP Gov Review
  • Tuesday 6th: AP Gov Exam at 12 PM
  • Thursday 8th: AP Macroeconomics Review Day
  • Friday 9th: AP Macroeconomics Exam at 12 PM

Unit 5: Long-Run Consequences of Stabilization Policies

• Focus on AP Macroeconomics
• Exam weighting: 20-30% of the overall AP Exam

Unit 5.1: Fiscal and Monetary Policy

• Actions in the Short Run
  • Combination of government and central bank actions to stabilize the economy

Expansionary vs. Contractionary Policies:

• Fiscal Policy:

  • Expansionary: Increase government spending or decrease taxes
  • Contractionary: Decrease government spending or increase taxes

• Monetary Policy:

  • Expansionary: Increase money supply or decrease interest rates
  • Contractionary: Decrease money supply or increase interest rates

• Impact: These tools shift Aggregate Demand (AD) and influence output, prices, and unemployment.

The Power of Combining Policies

• Why use both fiscal and monetary policy?
  • Sometimes, one policy alone isn't enough to restore full employment.
  • Combined, they can stabilize the economy more effectively.

Example Scenarios:

• Recession:

  • Use Expansionary Fiscal Policy (increase government spending) + Expansionary Monetary Policy (lower interest rates) to significantly boost AD.

• Inflation:

  • Use Contractionary Fiscal Policy + Contractionary Monetary Policy to decrease AD.

Policy Combinations and Their Economic Effects

Unit 5.2: The Phillips Curve

Inflation-Unemployment Trade-off

• The Phillips Curve illustrates the relationship between inflation and unemployment.
• In the short run, there is a trade-off between inflation and unemployment, but this trade-off disappears in the long run.

Short-Run Phillips Curve (SRPC)

• The SRPC is always operational; it is downward-sloping.
• Inversion: As unemployment decreases, inflation increases, and vice versa.
• Movement along the SRPC is influenced by shifts in AD (demand shocks).

Long-Run Phillips Curve (LRPC)

• The LRPC is vertical at the natural rate of unemployment.
• There is no sustainable trade-off between inflation and unemployment in the long run.
• Long-run equilibrium occurs at the point where the SRPC intersects the LRPC.