Untitled Flashcards Set

Unit 3 Study Guide - AP Macroeconomics

Key Concepts

Aggregate Demand (AD)

• Definition: The total demand for goods and services within a particular market.

• Components:

  • Consumption (C)

  • Investment (I)

  • Government Spending (G)

  • Net Exports (NX)

Aggregate Supply (AS)

• Definition: The total supply of goods and services that firms in an economy plan on selling during a specific time period.

• Short-run vs Long-run Aggregate Supply:

  • Short-run AS: Can shift due to changes in the price level.

  • Long-run AS: Vertical in the long run; inelastic regarding price changes.

Equilibrium in the AD-AS Model

• Equilibrium occurs where AD equals AS.

Economic Growth

• Causes and measures of economic growth include productivity, technological advancements, and increases in resources.

• Long-term growth indicates potential output increase, reflected in the LRAS shift to the right.

Inflation

• Types: Demand-pull inflation vs Cost-push inflation.

• Consequences of inflation include reduced purchasing power and potential economic instability.

Unemployment

• Types: Frictional, structural, cyclical, and seasonal unemployment.

• The natural rate of unemployment includes only frictional and structural unemployment.

Fiscal Policy

• Tools: Government spending and tax policy to influence economic conditions.

• Expansionary vs Contractionary fiscal policy.

Monetary Policy

• Conducted by the Federal Reserve to manage liquidity.

• Tools include open market operations, reserve requirements, and interest rate targeting.

Important Graphs to Understand

• AD-AS model

• Phillips curve - short-run and long-run

• Loanable funds market

Key Formulas

• GDP = C + I + G + NX

• Unemployment Rate = (Unemployed / Labor Force) x 100

Study Tips

• Review key terms and definitions frequently.

• Practice graphing AD-AS and shifting curves based on different scenarios.

• Familiarize yourself with case studies that illustrate real-world applications of the macroeconomic concepts.