ap macro relationships
Variable 1 | Variable 2 | Type of Relationship | Explanation |
|---|
Inflation | Unemployment | Inverse (Short-run) | As inflation rises, unemployment tends to fall (Phillips Curve) |
Interest Rates | Investment Spending | Inverse | Higher rates = more expensive to borrow → less investment |
Taxes | Consumer Spending | Inverse | Higher taxes = less disposable income |
Government Spending | Aggregate Demand (AD) | Direct | More government spending = higher AD |
Interest Rates | Aggregate Demand (AD) | Inverse | Higher rates discourage borrowing and spending |
Money Supply | Interest Rates | Inverse | More money = lower interest rates |
Interest Rates | Unemployment | Direct | Higher rates = less investment = fewer jobs |
Inflation | Value of Money | Inverse | Higher inflation erodes purchasing power |
Unemployment | Wages | Inverse (long-run) | High unemployment = downward pressure on wages |
Real GDP | Unemployment | Inverse | More output = more jobs needed |
Price Level | Purchasing Power | Inverse | Higher prices = less you can buy with the same amount of money |
Nominal Interest Rate | Inflation | Direct | Lenders demand higher rates when expecting inflation (Fisher effect) |