Transcript AP Macroeconomics

AP Macroeconomics
In-Class Final Exam Review
Economic growth
• A sustained increase in real per capita GDP
• stimulate economic growth - Technological
progress
exchange rate
• The price of nation’s currency
• e.g. If a Japanese firm buys cars from the
United States, there would be an increase in
which of the following in the foreign exchange
market (demand for US dollars and supply of
yen)
• Impact of high inflation in a given country?
Trade
• Absolute v Comparative advantage
– with PPC
• Comparative advantage implies that two
countries should benefit from trade (unless
both have equal opportunity costs in every
good)
Nominal v Real
• Real interest rate = Nominal – inflation
• Nominal interest rate = Real + inflation
• Nominal rate of increase v real (with % change
calculation)
fiscal policy
• government expenditures
• taxes
• most expansionary
– Cut taxes & increase government spending
Monetary policy
• Contraction to fight inflation (higher interest
rate)
• Expansion to fight recession (lower interest
rate)
• Increasing the reserve requirement – Fed
reduces the ability of the banking system to
create money
GDP
• Counting gross domestic product - A final
good or service produced in country
GDP = AD
• GDP/AD = Consumption, Investment,
Government spending and net exports (Xn)
• impact of a decrease/increase in foreign
income on the aggregate demand in the
United States
short-run Phillips curve
• decrease in unemployment = increase in
inflation
• Increase in unemployment = decrease in
inflation
AS
• Input costs (e.g. labor wages) rise, supply
shifts left (up)
• decrease in the price of inputs = increase in
the short-run AS and a decrease in the price
level
national debt
• accumulation of past and current budget
deficits and surpluses
Purchasing power
• A decrease in the purchasing power of the
currency most undermines the ability of a
nation’s currency to store value
Types of unemployment
• Cyclical unemployment
• Frictional unemployment e.g. recent graduate
who is looking for her first job
• Structural unemployment
• Problems measuring unemployment discouraged workers