AP Macro Fall Final

1. Spend it 2. Save it

average propensity to consume

average propensity to save

marginal propensity to consume

marginal propensity to save

More money

Less money

the amount any change in spending will be magnified in terms of RGDP

amount by which RGDP exceeds fully employed RGDP

amount by which RGDP fall short of full employed RGDP

(1/MPS) or (1/1-MPC), Change in C,I,G,Nx

(-MPC/MPS), Change in taxes

(change in spending)(multiplier)= change in RGDP

(change in taxes)(tax multiplier)= change in RGDP

When money is spent, money is spending, but if taxes are cut. people dont spend all the money

business spending on physical capital (tools), new homes, and inventories (products)

they borrow money, higher interest rate=less borrowing, lower interest rate=more borrowing

expected return>expected cost

1. acquisition, maintenance and operating costs (inverse)

2. businesses taxes (inverse)

3. Rate of Innovation and tech (change)

4. Amount of capital have on hand (you dont buy more if you have unused stock)

Aggregate sum total

RGDP at all possible price levels

decreased output

increased output

change in price level = movement along the curve

Change in price level = change in purchasing power

price level increasing = more money needed

price level increasing = Americans buy foreign goods

Change in C, I, G, Nx

price level and RGDP

short run aggregate supply

sticky wages (hard to change)

Input costs, productivity, change in inflation expectations, legal intervention

income

output and UE

long run aggregate supply

potential output

fully employed RGDP

shocks

right

left

combination of recession and inflation have to wait it out

y(f)>y(star), high UE=wages decrease=SRAS increasing

y(f)<y(star), low UE=wages increase=SRAS decreasing

how the economy fixes itself

manipulation of public budget process to achieve, 1. Full Employment, 2. Create low inflation, 3. Allow for growth

taxing and spending

government takes action, change in taxes, change in spending

built in stabilizer, no action

AD curve

fix it by increasing

fix it by decreasing

revenue: money coming in (taxes)

expendsures: money going out (spending)

balanced

surplus

deficit

progressive, more you make the more you pay

recession, AD increasing, G increasing, T decreasing

inflation, AD decreasing, G decreasing, T increasing

shows government borrowing

people who save

people who borrow

change in investment → change in AD and change in growth rate