AP Macroeconomics (copy)

UNIT 1: Basic Economic Concepts

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

UNIT 2: Economic Indicators

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

UNIT 3: National Income and Price Determination

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

UNIT 4: Financial Sector

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.

UNIT 5: Long-Run Consequences of Stabilization Policies

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

UNIT 6: Open Economy International Trade and Finance

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

Graphs!

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

what causes movement in the SRPC: changes in AD

what shifts the LRPC: changes in NRU

money market graph x axis: quantity of money

money market graph x axis: nominal interest rate

money market graph shifters: change in the price level, real GDP output, or the transaction costs of spending money

reserve market model x axis: quantity of resources

reserve market y axis: policy rate

reserve market upper bound: discount rate

reserve market lower bound: ior

loanable funds x axis: quantity of loans

loanable funds y axis: real interest rate

loanable funds demand shifters: changes in borrowing by consumers, businesses, or the government

loanable funds supply shifters: changes in private or public saving behavior, and changes in foreign investment

forex graph x axis: quantity

forex graph y axis: ratio