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Macroecon Unit 3
AP Macroeconomics Unit 3 Test Review
| Clues | Answer |
|---|---|
| Total demand in an economy for all final goods and services ; y-axis is labeled P for aggregate Price Level ; Not the price of only one good ; X-axis is Y for real GDP or aggregate output. | Aggregate Demand |
| Output and Unemployment are __________ related | negatively |
| There's a ________ relationship between price level and aggregate demand | negative |
| AD curve represents the _____ ________ in an economy | total spending |
| Expenditures approach to calculate GDP ; Also formula for calculating AD (Aggregate Demand) | AD = C + I + G + NX |
| 1. Consumer Spending 2. Investment Spending 3. Government Spending 4. Net Exports 5. Wealth 6. Expectations 7. Fiscal Policy 8. Monetary Policy | Shifters of the aggregate demand curve |
| 1. Increase in Consumer Spending 2. Increase in Investment Spending 3. Increase in Government Spending 4. Increase in Net Exports 5. Increase in Wealth 6. Optimistic Expectations 7. Expansionary Fiscal Policy 8. Expansionary Monetary Policy | Increases in Aggregate Demand |
| 1. Decrease in Consumer Spending 2. Decrease in Investment Spending 3. Decrease in Government Spending 4. Decrease in Net Exports 5. Decrease in Wealth 6. Pessimistic Expectations 7. Contractionary Fiscal Policy 8. Contractionary Monetary Policy | Decreases in Aggregate Demand |
| An increase in spending leads to a larger increase in GDP than the amount initially spent | Multiplier Effect |
| The initial change in aggregate spending that causes a series of income and spending changes | Autonomous Spending |
| Disposable Income (Yd) formula | Yd = Income + Transfers - Taxes |
| The increase in consumption that results from an increase in disposable income | Marginal Propensity to Consume (MPC) |
| The increase in saving that results from an increase in disposable income | Marginal Propensity to Save (MPS) |
| MPC formula | change in consumption (C) /change in disposable income (Yd) |
| MPS formula | change in saving (S) /change in disposable income (Yd) |
| MPC + MPS = | 1 |
| Expenditures Multiplier | 1/MPS |
| The expenditures multiplier quantifies the size of ______ __ __ that results from a change in one of the components of AD | change in AD |
| shows the change in AD that results from a change in taxes/transfers | Tax Multiplier |
| The ___ multiplier is smaller than the ___________ multiplier | tax ; expenditure |
| A change in government spending ________ affects GDP while taxes & transfers only __________ affect GDP | directly ; indirectly |
| SRAS curve is upward sloping ; positive relationship between quantity of goods and services supplied and price level ; Movement upward along the SRAS curve means output is increasing and unemployment is decreasing | Short-run aggregate supply |
| There is a short-run trade-off between _________ and ____________ | inflation ; unemployment |
| The short run refers to a period of time in which...... | all production costs such as inputs and wages are taken as fixed |
| Nominal wages are slow to fall when unemployment is high and slow to rise when unemployment is low | Sticky Wages |
| 1. Nominal Wages 2. Inflationary Expectations 3. Resource Prices 4. Government Policies 5. Productivity | Shifters of SRAS |
| The ____ run occurs when all prices and wages are fully flexible | long |
| On x-axis ____ is labeled (Yp) for potential output | LRAS Curve |
| AKA the full employment output ; the total output that will be produced if all resources are fully employed | Potential Output |
| 1. Increase in productivity 2. Increase in physical capital 3. Increase in the size of the workforce 4. Increase in resources / FoP | Shift of LRAS to the right |
| Intersection of AD and SRAS curves (Short-run equilibrium) | AD-AS Model |
| AD curve shifting to the right on AD-AS model | Positive Demand Shock |
| 1. Increase in Price Level (P) 2. Increase in Output (Y) 3. Decrease in unemployment (U) 4. Nominal Wages stay the same 5. Decrease in Real Wages | Short-run results of increase in AD (aggregate demand) |
| Shifts the AD curve left | Negative demand shock |
| 1. Decrease in Price Level (P) 2. Decrease in GDP (Y) 3. Increase in Unemployment (U) 4. Nominal Wages stay the same 5. Increase in Real Wages | Short-run results of decrease in AD (aggregate Demand) |
| Shifts SRAS curve to the right | Positive Supply Shock |
| 1. Decrease in Nominal Wages 2. Decrease in inflationary expectations 3. Decrease in resource Prices 4. Decrease in business taxes/regulations 5. Increase in Productivity | Increase in SRAS |
| Shifts SRAS to the left | Negative Supply Shock ; also known as stagflation |
| High Inflation & High Unemployment | Stagflation |
| 1. Increase in Nominal Wages 2. Increase in inflationary Expectations 3. Increase in Resource Prices 4. Increase in Business Taxes/Regulations 5. Decrease in Productivity | Decrease in SRAS |
| Inflation caused by a positive demand shock | Demand-pull inflation |
| Inflation caused by a negative supply shock | Cost-push inflation |
| Intersection of all three curves : LRAS, SRAS, AD ; Economy is at the natural rate of unemployment | Long-run equilibrium |
| Actual output > Potential Output | Positive output / Inflationary Gap |
| Actual Output < Potential Output | Negative output / Recessionary gap |
| In the _____ ___ all production costs such as inputs and wages are fixed. In the ____ ___ all prices & wages are fully flexible | short run ; long run |
| In the Short-Run 1. Increase in GDP (Y) 2. Decrease in Unemployment (U) 3. Nominal Wages stay the same (Wn) in the Long-Run 4. Increase in the nominal wages (Wn), inflationary expectations 5. SRAS shifts to the left | Self-adjustment in the Long Run during Inflationary gap (No government action) |
| In the Short-Run 1. Decrease in GDP (Y) 2. Increase in unemployment (U) 3. Nominal Wages stay the same (Wn) In the Long-Run 4. Decrease in nominal wages (Wn), inflationary expectations 5. SRAS shifts to the right | Self-adjustment in the Long Run during recessionary gap (No government action) |
| Government tax and spending policies (also government transfers) | Fiscal policy |
| ____________ fiscal policy is intended to increase GDP (Y) and decrease unemployment (U) by increasing AD | Expansionary |
| 1. Increase in government spending 2. Decrease in taxes 3. Increase in government transfers | Expansionary Fiscal Policy |
| ______________ fiscal policy is intended to decrease price level (P) but by decreasing AD also decreasing GDP (Y) and Increasing unemployment (U) | Contractionary |
| 1. Decrease in government spending 2. Increase in Taxes 3. Decrease in government transfers | Contractionary Fiscal Policy |
| The time it takes to collect data and realize the state of the economy | Recognition Lag |
| It takes time for money to be spent and actually enter the economy | Implementation Lag |
| When policymakers take deliberate action to close an output gap & smooth the business cycle | Discretionary Fiscal Policy |
| Government programs that kick in automatically without any new action by policymakers | Automatic Stabilizers |
| Decrease in Tax Revenue ; Increase in Government Transfers | Expansionary Automatic Stabilizers |
| Increase in Tax Revenue ; Decrease in Government Transfers | Contractionary Automatic Stabilizers |
Created by:
LaFishFille
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