A.P. Macroeconomics Review
I. Basic Economic Concepts
Ceteris Paribus / “Other things equal assumption”
Production Possibilities Curve
- Efficiency
- Opportunity Cost (Increasing vs. Constant)
- Trade Offs
- Gains from trade
Demand Curve
- Shift of the demand curve
- Movement along the curve
- 5 Factors that shift the demand curve
Supply Curve
- Shift of the supply curve
- Movement along the curve
- 5 factors that shift the supply curve
Competitive Market Structures and Demand and Supply
- Equilibrium
- Excess vs. Shortage
- Price Ceiling vs. Price Floor
II. Measurement of Economic Performance
The Simple Circular Flow Diagram
- Households, firms, factor market, product market
Expanded Circular Flow Diagram
Gross Domestic Product
- Value of final production of all final goods and services
- Spending on domestically produced goods/services
- Factor income earned from firms in the economy
- What is counted vs. what is not counted
- Nominal vs. Real GDP
Unemployment
- Labor Force
- Labor force participation rate
- Unemployment rate
- Marginally attached workers
- Underemployed
- Frictional unemployment
- Structural unemployment
- Natural rate of unemployment
Inflation
- Calculation
- Shoe leather costs
- Menu costs
- Unit of account costs
- Nominal vs. Real interest
- Disinflation vs. Deflation
Aggregate Price Level
- Market basket
- Price Index
- CPI
- PPI
- GDP Deflator
III National Income and Price Determination
The Multiplier
- Marginal Propensity to Consume
- Marginal Propensity to Save
- Autonomous Changes in Aggregate Spending
Disposable Income
- The Consumption Function
- Autonomous Consumer Spending
- Aggregate Consumption Function
* Two factors that shift the Aggregate Consumption Function
Investment Spending
- Interest Rate
- Expected Real GDP
- Inventories and Unplanned Investment
Aggregate Demand
- Four Factors that Shift AD
Aggregate Supply
- Short Run vs. Long Run
- Three Factors that Shift AS
Short Run Macroeconomic Equilibrium
- Positive vs. Negative Demand Shocks
- Positive vs. Negative Supply Shocks
Long Run Macroeconomic Equilibrium
- Recessionary Gap
- Inflationary Gap
Stabilization Policy
- Expansionary vs. Contractionary Policy
- Response to Demand Shocks
- Response to Supply Shocks
Fiscal Policy
- Expansionary Measures
- Contractionary Measures
- Lags in Fiscal Policy
Fiscal Policy and the Multiplier
- Government Purchase of Goods and Services
- Taxes and Transfer Payments
Automatic Stabilizers
Discretionary Fiscal Policy
IV The Financial Sector
Savings – Investment Spending Identity
Budget Surplus vs. Budget Deficit
National Savings
Capital Inflow
Financial vs. Physical Asset
Three Tasks of a Financial System
- Reducing Transaction Costs
- Reducing Risk
- Providing Liquidity
Financial Assets
- Loans
- Bonds
- Loan Backed Securities
- Stocks
Financial Intermediaries
- Mutual Funds
- Pension Funds and Life Insurance Companies
- Banks
Money
a. Medium of Exchange
b. Store of Value
c. Unit of Account
Types of Money
a. Commodity Money
b. Commodity Backed Money
c. Fiat Money
M1 vs. M2
Defining Present Value
T Account
Reserve Ratio
Required Reserve Ratio
Excess Reserves
Bank Regulation
a. Deposit Insurance
b. Capital Requirements
c. Reserve Requirements
d. Discount Window
The Money Multiplier
Structure of the Federal Reserve
Functions of the Federal Reserve
a. Provide Financial Services
b. Supervise and Regulate Banking Institutions
c. Maintain the Stability of the Financial System
d. Conduct Monetary Policy
The Money Demand Curve
- Four Factors That Shift it
Liquidity Preference Model of the Interest Rate
Demand for Loanable Funds
- Two Factors That Shift it
Supply of Loanable Funds
- Two Factors That Shift it
Market for Loanable Funds
V Inflation, Unemployment, and Stabilization Policies
The Budget Balance
The Business Cycle
Cyclically Adjusted Budget Balance
Deficits
Surpluses
Debt
Monetary Policy and the Interest Rate
Monetary Policy and Aggregate Demand
Effects of an Increase in the Monetary Supply
Money Neutrality
Classical Model of Money and Prices
Inflation Tax
Seignorage
Cost – Push Inflation
Demand – Pull Inflation
Output Gaps
Short Run Phillips Curve
Long Run Phillips Curve
Nonaccelerating Inflation Rate of Unemployment
Zero Bound
Liquidity Trap
Keynesian Model of Economics
Monetary Theory of Economics
Quantity Theory of Money
New Classical Theory of Economics
Rational Expectations
VI Economic Growth and Productivity
Real GDP per Capita
Rule of 70
Sources of Long Run Growth
Aggregate Production Function
VII The Open Economy: International Trade and Finance
Balance of Payments Accounts
Loanable Funds Market in Two Countries
International Capital Flows
The Foreign Exchange Market
Purchasing Power Parity
Exchange Market Intervention
Monetary Policy and the Exchange Rate