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ap_macroeconomics [2024/04/10 23:35] – created mrdoughap_macroeconomics [2024/04/20 05:37] (current) – external edit 127.0.0.1
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 ====== AP Macro Study Guide ====== ====== AP Macro Study Guide ======
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image1|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image1.jpeg}}]]+Credit: [[https://drive.google.com/file/d/1hiWaXGCw3kmDF32ITlIsczsxUbAq9IIl/view?usp=sharing|this]] pdf on google drive
  
-> Unit 1: Basic Economic Concepts 1.1: Scarcity 1.2: Opportunity Cost and the Production Possibilities Curve (PPC / PPF) 1.3: Comparative Advantage and Gains from Trade 1.4: Demand 1.5: Supply 1.6: Market Equilibrium, Disequilibrium, and Changes in Equilibrium Unit 2: Economic Indicators and the Business Cycle 2.1: The Circular Flow and GDP 2.2: Limitations of GDP 2.3: Unemployment 2.4: Price Indices and Inflation 2.5: Costs of Inflation 2.6: Real v. Nominal GDP 2.7: Business Cycles Unit 3: National Income and Price Determination 3.1: Aggregate Demand (AD) 3.2: Multipliers 3.3: Short-Run Aggregate Supply (SRAS) 3.4: Long-Run Aggregate Supply (LRAS) 3.5: Equilibrium in the Aggregate Demand--Aggregate Supply (AD--AS) Model 3.6: Changes in the AD--AS Model in the Short Run 3.7: Long-Run Self-Adjustment 3.8: Fiscal Policy 3.9: Automatic Stabilizers Unit 4: Financial Sector 4.1: Financial Assets 4.2: Nominal v. Real Interest Rates 4.3: Definition, Measurement, and Functions of Money 4.4: Banking and the Expansion of the Money Supply 4.5: The Money Market 4.6: Monetary Policy 4.7: The Loanable Funds Market Unit 5: Long-Run Consequences of Stabilization Policies 5.1: Fiscal and Monetary Policy Actions in the Short Run 5.2: The Phillips Curve 5.3: Money Growth and Inflation 5.4: Government Deficits and the National Debt 5.5: Crowding Out 5.6: Economic Growth 5.7: Public Policy and Economic Growth Examples: 1.2: Opportunity Cost and the Production Possibilities Curve FRQ Example: 1.3: Comparative Advantage and Gains from Trade FRQ Example: 2.3: Unemployment FRQ Example: 2.4, 2.5, 2.6 FRQ Example: 3.2: Multipliers FRQ Example: 4.2: Nominal v. Real Interest Rates FRQ Example: 4.1, 4.3, & 4.4 FRQ Example: 5.3: Money Growth and Inflation FRQ Example:  +====Unit 1: Basic Economic Concepts====
- +
- +
- +
-Unit 1: Basic Economic Concepts+
  
 1.1: Scarcity 1.1: Scarcity
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     * Causes us to make choice     * Causes us to make choice
  
-1.2: Opportunity Cost and the Production Possibilities Curve (PPC / PPF)+1.2: Opportunity Cost and the Production Possibilities Curve (PPC : PPF)
  
   * All choices have tradeoffs   * All choices have tradeoffs
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     * Also a representation of an economy’s maximum sustainable capacity     * Also a representation of an economy’s maximum sustainable capacity
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image2|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image2.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image2|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image2.jpeg}}]]> -
  
   * Types of PPCs:   * Types of PPCs:
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-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image3|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image3.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image3|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image3.jpeg}}]]> -
  
   * Factors of Production   * Factors of Production
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       * Raw materials used to produce finished goods       * Raw materials used to produce finished goods
     * Labor (workers)     * Labor (workers)
-      * Human effort/work+      * Human effort:work
     * Capital (anything used to make anything else)     * Capital (anything used to make anything else)
       * finished goods used to produce other goods (machines, tools, factories, etc.)       * finished goods used to produce other goods (machines, tools, factories, etc.)
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   * Output Table Example ("Other goes over")   * Output Table Example ("Other goes over")
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled.png}}]][[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%201|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%201.png}}]]  * Input Table Example ("Other goes under") [[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%202|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%202.png}}]] +[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled.png}}]][[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_1|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_1.png}}]]  * Input Table Example ("Other goes under") [[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_2|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_2.png}}]] 
  
   * Terms of Trade   * Terms of Trade
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 1.4: Demand 1.4: Demand
  
-  * Demand - curve/schedule showing various quantities demanded at various prices+  * Demand - curve:schedule showing various quantities demanded at various prices
     * Change in demand - a shift of the whole demand curve     * Change in demand - a shift of the whole demand curve
  
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 1.5: Supply 1.5: Supply
  
-  * Supply - curve/schedule showing various quantities sellers are willing to produce at various prices+  * Supply - curve:schedule showing various quantities sellers are willing to produce at various prices
     * Change in supply - a shift of the whole supply curve     * Change in supply - a shift of the whole supply curve
  
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   * The Law of Supply   * The Law of Supply
     * Direct relationship between price and quantity     * Direct relationship between price and quantity
-  * [[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%203|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%203.png}}]] +  * [[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_3|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_3.png}}]] 
   * Non-Price Determinants of Supply   * Non-Price Determinants of Supply
     * Number of sellers (direct)     * Number of sellers (direct)
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 1.6: Market Equilibrium, Disequilibrium, and Changes in Equilibrium 1.6: Market Equilibrium, Disequilibrium, and Changes in Equilibrium
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image6|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image6.jpeg}}]][[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%204|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:Untitled%204.png}}]]  * Concurrent Shifts (what happens if S & D shifts simultaneously?)+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image6|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image6.jpeg}}]][[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_4|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:Untitled_4.png}}]]  * Concurrent Shifts (what happens if S & D shifts simultaneously?)
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image7|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image7.jpeg}}]]Unit 2: Economic Indicators and the Business Cycle+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image7|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image7.jpeg}}]] 
 +====Unit 2: Economic Indicators and the Business Cycle====
  
 2.1: The Circular Flow and GDP 2.1: The Circular Flow and GDP
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       * Private gifts       * Private gifts
       * Government transfer payments       * Government transfer payments
-      * Stock/bond trading+      * Stock:bond trading
  
   * Calculating GDP:   * Calculating GDP:
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         * I = Gross Private Domestic Investment (business investment)         * I = Gross Private Domestic Investment (business investment)
         * G = Government Consumption Expenditures & Gross Investment         * G = Government Consumption Expenditures & Gross Investment
-        * (X - M)= Net exports of goods/services (X = exports; M = imports)+        * (X - M)= Net exports of goods:services (X = exports; M = imports)
     * Income approach:     * Income approach:
       * Y=W+I+R+P       * Y=W+I+R+P
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   * Civilian Labor Force - # of people older than 16 who are employed or actively seeking work (excluding members of the military, homeless, and discouraged workers)   * Civilian Labor Force - # of people older than 16 who are employed or actively seeking work (excluding members of the military, homeless, and discouraged workers)
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image8|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image8.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image8|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image8.jpeg}}]]> -
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image9|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image9.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image9|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image9.jpeg}}]]> -
  
-  * Unemployment rate - the % of people in the labor force w/o jobs looking for jobs.+  * Unemployment rate - the % of people in the labor force w:o jobs looking for jobs.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image10|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image10.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image10|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image10.jpeg}}]]> -
  
-  * The unemployment rate calculation method is often criticized for understating the level of joblessness, as it excludes discouraged / part-time workers.+  * The unemployment rate calculation method is often criticized for understating the level of joblessness, as it excludes discouraged : part-time workers.
  
   * Types of Unemployment:   * Types of Unemployment:
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 2.4: Price Indices and Inflation 2.4: Price Indices and Inflation
  
-  * Inflation - an increase in the general (average) price level of goods/services+  * Inflation - an increase in the general (average) price level of goods:services
  
-  * Deflation - a decrease in the general (average) price level of goods/services+  * Deflation - a decrease in the general (average) price level of goods:services
  
   * Disinflation - a reduction in the rate of inflation   * Disinflation - a reduction in the rate of inflation
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     * GDP Deflator     * GDP Deflator
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image11|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image11.png}}]]+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image11|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image11.png}}]]
  
 2.5: Costs of Inflation 2.5: Costs of Inflation
  
-  * Inflation erodes real value / reduces real income+  * Inflation erodes real value : reduces real income
  
   * Inflation affects fixed payments   * Inflation affects fixed payments
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   * Real GDP - aggregate output adjusted for inflation   * Real GDP - aggregate output adjusted for inflation
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image13|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image13.png}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image13|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image13.png}}]]> -
  
 2.7: Business Cycles 2.7: Business Cycles
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   * Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.   * Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image14|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image14.jpeg}}]]+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image14|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image14.jpeg}}]]
  
-Unit 3: National Income and Price Determination+====Unit 3: National Income and Price Determination====
  
 3.1: Aggregate Demand (AD) 3.1: Aggregate Demand (AD)
  
-  * Curve representing the total amount of demand for all finished goods/services produced in an economy. Each point on the curve represents the total amount of money exchanged for those goods/services at a specific price level and point in time.+  * Curve representing the total amount of demand for all finished goods:services produced in an economy. Each point on the curve represents the total amount of money exchanged for those goods:services at a specific price level and point in time.
  
   * Why is the Aggregate Demand curve downward sloping?   * Why is the Aggregate Demand curve downward sloping?
     * Real Balance Effect     * Real Balance Effect
-      * The impact on total spending caused by the inverse relationship between the price level and the real value of financial assets w/ fixed nominal value.+      * The impact on total spending caused by the inverse relationship between the price level and the real value of financial assets w: fixed nominal value.
       * In other words: inflation erodes value, & that value buys less real GDP.       * In other words: inflation erodes value, & that value buys less real GDP.
     * Interest Rate Effect     * Interest Rate Effect
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 3.2: Multipliers 3.2: Multipliers
  
-  * Marginal propensity to consume (MPC) = the portion/percentage of a dollar of income that gets spent.+  * Marginal propensity to consume (MPC) = the portion:percentage of a dollar of income that gets spent.
  
-  * Marginal propensity to save (MPS) = the portion/percentage of a dollar of income that gets saved.+  * Marginal propensity to save (MPS) = the portion:percentage of a dollar of income that gets saved.
  
   * MPC + MPS = 1 (there are no other uses for income)   * MPC + MPS = 1 (there are no other uses for income)
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   * The degree to which an initial change in spending multiplies into further rounds of spending, as spending becomes income, some of which gets spent.   * The degree to which an initial change in spending multiplies into further rounds of spending, as spending becomes income, some of which gets spent.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image15|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image15.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image15|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image15.jpeg}}]]> -
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image16|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image16.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image16|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image16.jpeg}}]]> -
  
   * Tax Multiplier   * Tax Multiplier
     * Since people save a portion of their income and tax changes aren’t a form of spending, the tax multiplier is always smaller than the spending multiplier.     * Since people save a portion of their income and tax changes aren’t a form of spending, the tax multiplier is always smaller than the spending multiplier.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image17|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image17.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image17|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image17.jpeg}}]]> -
  
 3.3: Short-Run Aggregate Supply (SRAS) 3.3: Short-Run Aggregate Supply (SRAS)
  
-  * Curve representing the total amount of supply for all finished goods/services produced in an economy. Each point on the curve represents the total amount of goods supplied at a specific price level and point in time.+  * Curve representing the total amount of supply for all finished goods:services produced in an economy. Each point on the curve represents the total amount of goods supplied at a specific price level and point in time.
  
   * Why is the Aggregate Supply curve upwards sloping?   * Why is the Aggregate Supply curve upwards sloping?
-    * Prices/wages are sticky in the short run. +    * Prices:wages are sticky in the short run. 
-      * It takes time for changes in the price level to affect nominal wages/prices+      * It takes time for changes in the price level to affect nominal wages:prices
  
   * Aggregate Supply determinants   * Aggregate Supply determinants
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   * Another representation of an economy’s maximum sustainable capacity (like PPC).   * Another representation of an economy’s maximum sustainable capacity (like PPC).
  
-  * Since prices/wages are flexible in the long run…+  * Since prices:wages are flexible in the long run…
     * There are no long-run tradeoffs between inflation and unemployment.     * There are no long-run tradeoffs between inflation and unemployment.
     * Prices and wages immediately adjust, so the LRAS curve is vertical.     * Prices and wages immediately adjust, so the LRAS curve is vertical.
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 > - E < Efe→ recessionary gap E > Efe**→** expansionary gap  > - E < Efe→ recessionary gap E > Efe**→** expansionary gap 
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image18|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image18.png}}]]  * Long run equilibrium:+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image18|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image18.png}}]]  * Long run equilibrium:
     * The economy is in long run equilibrium when AD = SRAS (i.e they intersect) AND they do so at the full-employment level of output.     * The economy is in long run equilibrium when AD = SRAS (i.e they intersect) AND they do so at the full-employment level of output.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image19|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image19.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image19|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image19.jpeg}}]]> -
  
 3.6: Changes in the AD--AS Model in the Short Run 3.6: Changes in the AD--AS Model in the Short Run
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   * **↑**SRAS **→ ↑**rGDP & **↓**PL   * **↑**SRAS **→ ↑**rGDP & **↓**PL
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image20|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image20.jpeg}}]]3.7: Long-Run Self-Adjustment+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image20|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image20.jpeg}}]]3.7: Long-Run Self-Adjustment
  
   * In the absence of government intervention:   * In the absence of government intervention:
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     * Correcting **↓**AD: **↓**inflation **→ ↓**nominal wages **→ ↓**input prices **→ ↑**SRAS     * Correcting **↓**AD: **↓**inflation **→ ↓**nominal wages **→ ↓**input prices **→ ↑**SRAS
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image21|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image21.jpeg}}]]3.8: Fiscal Policy+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image21|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image21.jpeg}}]]3.8: Fiscal Policy
  
   * The use of changes in government spending & taxes to achieve macroeconomic goals.   * The use of changes in government spending & taxes to achieve macroeconomic goals.
     * Expansionary fiscal policy (​**↑**AD & **↑**rGDP)     * Expansionary fiscal policy (​**↑**AD & **↑**rGDP)
       * Used to correct recessionary gap       * Used to correct recessionary gap
-      * Increase government spending and/or decrease taxes+      * Increase government spending and:or decrease taxes
         * **↑**G **→ ↑**AD **→ ↑**rGDP & **↑**PL         * **↑**G **→ ↑**AD **→ ↑**rGDP & **↑**PL
         * **↓**taxes **→ ↑**disposable income **→ ↑**C **→ ↑**AD **→ ↑**rGDP & **↑**PL         * **↓**taxes **→ ↑**disposable income **→ ↑**C **→ ↑**AD **→ ↑**rGDP & **↑**PL
     * Contractionary fiscal policy (**↓**AD & **↓**rGDP)     * Contractionary fiscal policy (**↓**AD & **↓**rGDP)
       * Used to correct expansionary gap       * Used to correct expansionary gap
-      * Decrease government spending and/or increase taxes+      * Decrease government spending and:or increase taxes
         * **↓**G **→ ↓**AD **→ ↓**rGDP & **↓**PL         * **↓**G **→ ↓**AD **→ ↓**rGDP & **↓**PL
  
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       * Provides an increasing injection of income as an economy slows, helping to reduce declines in consumption during a recession.       * Provides an increasing injection of income as an economy slows, helping to reduce declines in consumption during a recession.
  
-Unit 4: Financial Sector+====Unit 4: Financial Sector====
  
 4.1: Financial Assets 4.1: Financial Assets
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       * Gives a share of ownership and a vote in a company       * Gives a share of ownership and a vote in a company
       * Pays out dividends       * Pays out dividends
-      * Bought/sold on the stock market+      * Bought:sold on the stock market
     * Bonds (debt)     * Bonds (debt)
       * Does not give ownership nor a vote in a company       * Does not give ownership nor a vote in a company
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-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image22|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image22.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image22|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image22.jpeg}}]]> -
  
 4.3: Definition, Measurement, and Functions of Money 4.3: Definition, Measurement, and Functions of Money
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   * Functions of money:   * Functions of money:
-    * Medium of exchange - it’s accepted in buying and selling goods/services.+    * Medium of exchange - it’s accepted in buying and selling goods:services.
     * Store of value - it’s a way of storing wealth without it depreciating quickly. Measure of value (unit of account) - it states how much things are worth.     * Store of value - it’s a way of storing wealth without it depreciating quickly. Measure of value (unit of account) - it states how much things are worth.
       * M1: Most narrowly defined money supply.       * M1: Most narrowly defined money supply.
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         * Currency in circulation & bank reserves         * Currency in circulation & bank reserves
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image23|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image23.jpeg}}]]4.4: Banking and the Expansion of the Money Supply+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image23|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image23.jpeg}}]]4.4: Banking and the Expansion of the Money Supply
  
-  * Bank assets/liabilities organized on a balance sheet (assets = liabilities)+  * Bank assets:liabilities organized on a balance sheet (assets = liabilities)
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image24|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image24.jpeg}}]]  * Fractional reserve banking - a system in which banks keep only a percentage of their deposits on reserve as vault cash or on deposit with the Fed.+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image24|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image24.jpeg}}]]  * Fractional reserve banking - a system in which banks keep only a percentage of their deposits on reserve as vault cash or on deposit with the Fed.
  
   * Total reserves = (required reserves) + (excess reserves)   * Total reserves = (required reserves) + (excess reserves)
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   * Required reserve ratio (RR) - The % of deposits that the Fed requires to hold in vault cash or on deposit with the Fed.   * Required reserve ratio (RR) - The % of deposits that the Fed requires to hold in vault cash or on deposit with the Fed.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image25|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image25.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image25|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image25.jpeg}}]]> -
  
   * Money Multiplier (MM)   * Money Multiplier (MM)
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   * Consumer deposits vs Fed bond purchase   * Consumer deposits vs Fed bond purchase
     * Some of a consumer deposit needs to go to required reserves, so not all of the consumer deposit is given out.     * Some of a consumer deposit needs to go to required reserves, so not all of the consumer deposit is given out.
-      * [[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image27|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image27.jpeg}}]] +      * [[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image27|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image27.jpeg}}]] 
     * When the Fed purchases bonds, it’s the banks’ “securities” assets directly going into excess reserves. Therefore, it “bypasses” the required reserves and can all be given out.     * When the Fed purchases bonds, it’s the banks’ “securities” assets directly going into excess reserves. Therefore, it “bypasses” the required reserves and can all be given out.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image28|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image28.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image28|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image28.jpeg}}]]> -
  
   * ΔMS may be less than predicted as it does not take into account a bank’s desire to hold excess reserves or the public holding more currency.   * ΔMS may be less than predicted as it does not take into account a bank’s desire to hold excess reserves or the public holding more currency.
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   * Equilibrium where MD = MS (i.e where they intersect)   * Equilibrium where MD = MS (i.e where they intersect)
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image29|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image29.png}}]]4.6:+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image29|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image29.png}}]]4.6:
  
 Monetary Policy Monetary Policy
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   * Tools of monetary policy:   * Tools of monetary policy:
-    * Open market operations: Buying/selling bonds+    * Open market operations: Buying:selling bonds
       * Most common form of monetary policy       * Most common form of monetary policy
-    * Reserve requirement: decrease/increase required reserve ratio +    * Reserve requirement: decrease:increase required reserve ratio 
-    * Discount rate (interest rate from borrowing from Fed): decrease/increase rate+    * Discount rate (interest rate from borrowing from Fed): decrease:increase rate
       * Banks can also borrow from other banks at the federal funds rate. The federal funds rate, however, is directly related to the discount rate.       * Banks can also borrow from other banks at the federal funds rate. The federal funds rate, however, is directly related to the discount rate.
  
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     * In the long run, interest rates don’t change     * In the long run, interest rates don’t change
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image30|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image30.jpeg}}]]4.7: The Loanable Funds Market+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image30|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image30.jpeg}}]]4.7: The Loanable Funds Market
  
 > - Market between sales of funds and borrowers of funds - “links savers and borrowers” The demand for loanable funds curve (D​ )​ shows the inverse relationship between real  > - Market between sales of funds and borrowers of funds - “links savers and borrowers” The demand for loanable funds curve (D​ )​ shows the inverse relationship between real 
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 > interest rates and the quantity supplied of loanable funds. > interest rates and the quantity supplied of loanable funds.
  
-> - Desire by individuals to save more/less (direct) Equilibrium where D​ ​= S​ ​(i.e where they intersect) LF LF +> - Desire by individuals to save more:less (direct) Equilibrium where D​ ​= S​ ​(i.e where they intersect) LF LF 
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image31|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image31.png}}]]Unit 5: Long-Run Consequences of Stabilization Policies+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image31|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image31.png}}]] 
 +====Unit 5: Long-Run Consequences of Stabilization Policies====
  
 5.1: Fiscal and Monetary Policy Actions in the Short Run 5.1: Fiscal and Monetary Policy Actions in the Short Run
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image32|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image32.jpeg}}]]5.2: The Phillips Curve+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image32|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image32.jpeg}}]]5.2: The Phillips Curve
  
   * Represents the short run tradeoffs between inflation and unemployment   * Represents the short run tradeoffs between inflation and unemployment
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     * Changes in minimum wages & changes in job availability information     * Changes in minimum wages & changes in job availability information
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image33|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image33.png}}]]5.3: Money Growth and Inflation+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image33|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image33.png}}]]5.3: Money Growth and Inflation
  
   * Quantity theory of money:   * Quantity theory of money:
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image34|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image34.jpeg}}]]MV=PQ+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image34|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image34.jpeg}}]]MV=PQ
  
 M = Quantity of money M = Quantity of money
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   * Reported debt understates true debt!   * Reported debt understates true debt!
-    * Why? The government has a lot of implicit liabilities - spending promises (like Social Security - paying into social security means you trust gov. to pay you back in the future) also medicare / medicaid, which are all not counted for in debt+    * Why? The government has a lot of implicit liabilities - spending promises (like Social Security - paying into social security means you trust gov. to pay you back in the future) also medicare : medicaid, which are all not counted for in debt
  
   * *Large public debt makes it harder for economic growth to occur.%%**%%   * *Large public debt makes it harder for economic growth to occur.%%**%%
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 5.5: Crowding Out 5.5: Crowding Out
  
-  * Government deficit spending typically requires it to borrow money; can “crowd out” / reduce investment spending+  * Government deficit spending typically requires it to borrow money; can “crowd out” : reduce investment spending
  
   * **↑**G **→ ↑**D_LF **→ ↑**RIR **→ ↓**I   * **↑**G **→ ↑**D_LF **→ ↑**RIR **→ ↓**I
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   * Economic growth measured by per capita rGDP   * Economic growth measured by per capita rGDP
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image35|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image35.jpeg}}]]> -+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image35|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image35.jpeg}}]]> -
  
-  * Rule of 70 - approximate time it takes to double a nation’s output/income +  * Rule of 70 - approximate time it takes to double a nation’s output:income 
-    * [[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image36|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image36.jpeg}}]] +    * [[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image36|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image36.jpeg}}]] 
   * Change in LRAS:   * Change in LRAS:
     * **↑**NIR or RIR **→ ↓**I **→ ↓**capital formation **→ ↓**LRAS     * **↑**NIR or RIR **→ ↓**I **→ ↓**capital formation **→ ↓**LRAS
     * **↓**NIR or RIR **→ ↑**I **→ ↑**capital formation **→ ↑**LRAS     * **↓**NIR or RIR **→ ↑**I **→ ↑**capital formation **→ ↑**LRAS
  
-  * Increase/decrease in LRAS corresponds to outward/inward shift of PPC.+  * Increase:decrease in LRAS corresponds to outward:inward shift of PPC.
  
 5.7: Public Policy and Economic Growth 5.7: Public Policy and Economic Growth
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   * Factors that increase growth   * Factors that increase growth
     * i​mprovements in technology     * i​mprovements in technology
-    * Improvement in labor force education/training+    * Improvement in labor force education:training
     * Political Stability     * Political Stability
     * Larger labor force through procreation or immigration (health care helps)     * Larger labor force through procreation or immigration (health care helps)
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     * Reliable infrastructure (helps get good and services produced to market)     * Reliable infrastructure (helps get good and services produced to market)
  
-Examples:+====Examples:====
  
 1.2: Opportunity Cost and the Production Possibilities Curve FRQ Example: 1.2: Opportunity Cost and the Production Possibilities Curve FRQ Example:
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 2013 #2 2013 #2
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image37|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image37.jpeg}}]]1.3: Comparative Advantage and Gains from Trade FRQ Example:+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image37|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image37.jpeg}}]]1.3: Comparative Advantage and Gains from Trade FRQ Example:
  
 2008 #3 - “Output” table problem: 2008 #3 - “Output” table problem:
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image38|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image38.png}}]]  - 2 (hats)+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image38|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image38.png}}]]  - 2 (hats)
  
-  - Rayland will import bikes because it has a comparative disadvantage in bike production. (Many other explanations were accepted - basically any correct observation about comparative advantage/disadvantage or opportunity cost will work.)+  - Rayland will import bikes because it has a comparative disadvantage in bike production. (Many other explanations were accepted - basically any correct observation about comparative advantage:disadvantage or opportunity cost will work.)
  
   - (i) Artland can either forego ½ of a bike producing 1 hat themselves or forego **⅕** of a bike by trading for 1 bike. Trading has a lower opportunity cost, so trade is advantageous for Artland.   - (i) Artland can either forego ½ of a bike producing 1 hat themselves or forego **⅕** of a bike by trading for 1 bike. Trading has a lower opportunity cost, so trade is advantageous for Artland.
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 FRQ Example for 2.3 (2018 #3): FRQ Example for 2.3 (2018 #3):
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image39|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image39.jpeg}}]](b)+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image39|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image39.jpeg}}]](b)
  
 2.4, 2.5, 2.6 FRQ Example: 2.4, 2.5, 2.6 FRQ Example:
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 2011B #3 2011B #3
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image40|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image40.jpeg}}]]  - By definition, inflation reduces real income. Thus, real wages will be lower.+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image40|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image40.jpeg}}]]  - By definition, inflation reduces real income. Thus, real wages will be lower.
  
   - Sara benefits from the unexpected inflation because her fixed loan payments are worth less real dollars.   - Sara benefits from the unexpected inflation because her fixed loan payments are worth less real dollars.
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 2015 #1 2015 #1
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image41|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image41.jpeg}}]]  * $300 billion = Initial ΔrGDP x+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image41|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image41.jpeg}}]]  * $300 billion = Initial ΔrGDP x
  
   * Initial ΔrGDP = $60 billion   * Initial ΔrGDP = $60 billion
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 1 1
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image42|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image42.png}}]]1−0.8+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image42|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image42.png}}]]1−0.8
  
   - Greater, because the tax multiplier (4) is smaller than the spending multiplier (5) due to part of the initial increase in disposable income caused by the decrease in income tax being saved rather than spent.   - Greater, because the tax multiplier (4) is smaller than the spending multiplier (5) due to part of the initial increase in disposable income caused by the decrease in income tax being saved rather than spent.
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 FRQ Example for 4.2 (2009 #1) FRQ Example for 4.2 (2009 #1)
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image43|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image43.jpeg}}]](b) (RIR) + (inflation) = (NIR) **→** (RIR) + (6%) = (8%) **→** RIR = 2%+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image43|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image43.jpeg}}]](b) (RIR) + (inflation) = (NIR) **→** (RIR) + (6%) = (8%) **→** RIR = 2%
  
 4.1, 4.3, & 4.4 FRQ Example: 4.1, 4.3, & 4.4 FRQ Example:
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 2011 #3 2011 #3
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image45|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image45.jpeg}}]]  - (i) All of the freed securities goes to excess reserves, so $5,000. (ii) $0. No deposits were made - the Fed bought bonds.+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image45|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image45.jpeg}}]]  - (i) All of the freed securities goes to excess reserves, so $5,000. (ii) $0. No deposits were made - the Fed bought bonds.
  
-  - Because the Fed purchased bonds, all of the newly freed securities can be loaned out. ΔMS = MM × Amount of Fed bond purchase/sale = 01.2 × $5,000 = $25,000+  - Because the Fed purchased bonds, all of the newly freed securities can be loaned out. ΔMS = MM × Amount of Fed bond purchase:sale = 01.2 × $5,000 = $25,000
  
   - **↑**MS **→ ↓**NIR **→ ↑**bond price   - **↑**MS **→ ↓**NIR **→ ↑**bond price
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   - No immediate change, because cash on hand and demand deposits are both in M1.   - No immediate change, because cash on hand and demand deposits are both in M1.
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image46|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image46.png}}]]5.3: Money Growth and Inflation FRQ Example:+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image46|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image46.png}}]]5.3: Money Growth and Inflation FRQ Example:
  
-[[AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image47|{{AP%20Macro%20Study%20Guide%2013acb6915ec848f781d38315f28b4442:image47.jpeg}}]]  - See graph* to left+[[AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image47|{{AP_Macro_Study_Guide_13acb6915ec848f781d38315f28b4442:image47.jpeg}}]]  - See graph* to left
  
   - (i) ​**↓**NIR **→ ↑**bond prices   - (i) ​**↓**NIR **→ ↑**bond prices
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