The Ultimate AP Macroeconomics Mid-Term Review Kit

Transcription

1 Name: Date: Perid: The Ultimate AP Macrecnmics Mid-Term Review Kit Structure & Infrmatin: - 50 multiple chice questins cvering all the units we ve studied this year. - 3 FRQ questins yu will be given 10 questins t prepare fr, f these 10, three f them will shw up n the Mid-Term exam minutes will be given t take the Mid-Term - Questins will cme frm a number f surces but mainly will be pulled frm past AP Macr Tests - Exam Date: Perid 2 1/20/15 Sessin 2; Perid 7 1/19/15 Sessin 2 Hw t Study: - Take the diagnstic test this will give yu a gd barmeter as t hw prepared yu are ging int the exam blind. It ll give yu a sense f what yu knw already vs. areas that yu have t study. Use the diagnstic answer key t see what units yu need t review mre than thers. - T review fr units: Lk at yur ntes Lk at yur practice prblems and past quizzes! I feel that by ver viewing these items, it will aid yur studying mre than lking at the bk Review the class website As a last resrt, lk at yur bk. It tends t cmplicate things mre than it needs t, hwever it can give yu additinal supprt when needed especially n tpics that will be n the exam that were nt cvered in depth n the test. - Very rarely have yu been asked the definitins f wrds n tests r quizzes. That said, it s imprtant that yu understand the ecnmic vcabulary, hwever the test will nt ask yu what these terms mean but rather HOW they are APPLIED in the prblems yu will slve. Additinal Supprt: - I m here t help! My schedule: 1/12 Same free perids as abve; Unavailable after schl (meetings) 1/13 Same free perids as abve; Unavailable after schl (meetings) 1/14 Free during Exam sessin 2; Free frm 12:45 2:15 1/15 Free during Exam sessin 2; Free frm 12:34 2:15 Helpful Links: - Macr Study Guide: - Key Graphs 1: - Key Graphs 2: key Graphs.pdf - AC/DC Ecn Review Vide: - Macr Cncepts Review Vide:

2 Majr Graphs yu need t knw:

3 Basic Ecnmic Cncepts: Opprtunity Csts Ecnmic Decisins are Purpseful Macrecnmics versus Micrecnmics Psitive versus Nrmative Ecnmics Underemplyment f Resurces (Factrs f Prductin) leads t prductin inside the PPC Seeing Opprtunity Cst Graphically Increasing versus Cnstant Opprtunity Cst (graphically) Shifts in PPC are caused by. Shifts in PPC can be relevant t bth gds r ne gd Shifts versus mvements f PPC Capital Gds (accumulatin) leads t ecnmic grwth (higher prductivity) Hypthesis versus Principle Efficient Allcatin f resurces means t prduce t the quantity f utput where the MB=MC Cmparative Advantage Abslute Advantage Terms f Trade Cmmand Ecnmies have very strng Central Planning Market Ecnmies have privately wned capital, private prperty, incentives and cmpetitin assciated with them Divisin f Labr OR Specializatin has becme imperative in tday s glbal ecnmy Bartering (and the cincidence f wants) versus Mney (currency) Five Key (Fundamental) Questins Incentive Prblem with a Centrally Planned Ecnmy Circular Flw Diagram (Prduct-Gds Market & Resurce-Factr Market ; Husehlds & Businesses) Firms in a Cmpetitive Setting will always chse the least cst prductin technique t maximize Supply & Demand: Differences between Quantity Demanded and Demand Changes Differences between Quantity Supplied and Supply Changes Law f Dwnward Slping Demand and Upward Slping Supply Equilibrium in a Market Shifts (Demand r Supply) cause changes in Equilibrium Price & Quantity Price Flrs and Price Ceilings and their impact Elastic, Unit Elastic and Inelastic Price Elasticity f Demand Why is a prduct r service cnsidered Elastic r Inelastic? Midpint frmula and Ttal Revenue test

4 Intr t Macrecnmics: - Frictinal Unemplyment - Structural Unemplyment - Seasnal Unemplyment - Cyclical Unemplyment - Business Cycle - Inflatin - Deflatin - Unemplyment (wh is, wh isn t) - GDP (what s included, what s nt included) - Psitives f Frictinal and Structural Unemplyment - Discuraged wrkers - Underemplyed wrkers - Wh is helped by inflatin? - Wh is hurt by inflatin? - What are the three causes f inflatin? Demand Pull Inflatin Cst Push Inflatin Hyperinflatin - Leakages in the Circular Flw Mdel - Injectins in the Circular Flw Mdel - Incme apprach twards GDP - Recessin - Sticky Prices - Flexible Price - Shcks - Knw the cmpnents f the expenditures apprach f GDP Cnsumptin (2/3 f the GDP) Investment Gvernment Spending Net Exprts AD/AS, Fiscal Plicy, Phillips Curve - Average Prpensity t Cnsume " knw hw t - Average Prpensity t Save " knw hw t - Marginal Prpensity t Cnsume " knw hw t - Marginal Prpensity t Save " knw hw t - Multiplier; Multiplier Effect " knw hw t (3 different ways) - Aggregate Demand Knw the shifters!!! Changes in C, I, G, r X n - Shrt-Run Aggregate Supply Knw the shifters!!! R.A.P. " Resurces Prices, Actins f the Gvernment, Prductivity! Whenever the LRAS curve shifts - Lng-Run Aggregate Supply Knw the shifters!!! Land, Labr, Capital, Technlgy, Entrepreneurial Ability - Supply Shcks (negative and psitive) - Cst push inflatin - Demand pull inflatin - Inflatinary Gap - Recessinary Gap - Stagflatin - Classical v. Keynesian schls f ecnmic thught - Phillips Curve What it tells us (inflatin v. unemplyment) Knw hw each f these lks n a graph. Hw it lks n a graph Hw it shifts, why it shifts, and directin f shift; what factrs allw the pint t mve alng the curve - Fiscal Plicy Discretinary v. nn-discretinary fiscal plicy Cntractinary v. Expansinary & when each wuld apply within the ecnmy - Prblems with fiscal plicy (understand the Chapter 30 questins) Budgets, plitics, crwding ut, etc! Crwding ut effect is the mst imprtant! Knw this cncept

5 Mney and Mnetary Plicy: - Mney as a Stre f Value when mney is used fr saving Unit f Accunt when mney is used fr assigning wrth t smething Medium f Exchange when mney is used t buy stuff - M1 mney supply (highest liquidity) Cash, checking accunts, and travelers checks - M2 mney supply Savings accunts, lng term time depsits, mney market accunts - Present value f mney knw frmula - Future value f mney knw frmula - Assets - Liabilities - Lans - Balance Sheet - Bnds - Stcks - Fractinal Reserve Banking - Federal Reserve (central bank) - Cmmercial banks - Demand Depsits - Reserve Rati - Required Reserves - Excess Reserves - Mney Multiplier knw frmula - Frmula hw much mney is created Increase in mney supply = Mney Multiplier x Excess Reserves - Understand that banks can create mney (by lending their excess reserves) and understand that mney can be taken ut f the supply (with peple repay their lans). - Transactin Demand fr Mney - Asset Demand fr Mney - Understand the Mney Demand / Mney Supply graph What des Mney Demand mean? What des Mney Supply mean? - Shifts f the mney supply and mney demand curve - Understanding the shifts f the MS / MD curve and the relatin t the AS / AD curve MS increases " ir decreases " Investment increases " AD increases MS decreases " ir increase " Investment decreases " AD decreases MD and AD mve in the same directin; MS and AD als mve in the same directin - Mnetary Plicy; three tls f mnetary plicy when the Federal Reserve Changes reserve rati Changes discunt rate Buys/Sells Securities! Understand the actins f the Fed during a recessin / inflatinary gap - Federal Funds Rate - Real Interest Rate knw frmula; what it means - Nminal Interest Rate knw frmula; what it means - Lanable Funds Market - Crwding Out Effect Knw the graph and what causes the shifts in supply and demand Internatinal Trade & FOREX: - Balance f Payments - Balance f Trade - Net Exprts - Trade Surplus - Trade Deficit - Balance f Payments - Current Accunt Trades in Gds and Services (Net Exprts) Investment / Factr incme Net Transfers - Financial Accunt (AKA Capital Accunt) - Current Accunt + Financial Accunt = 0 If a cuntry has a deficit in the current accunt, they must have a surplus in the financial accunt - Net Capital Outflw - Financial Accunt Surplus - Financial Accunt Deficit - Depreciatin - Appreciatin - Fixed Exchange Rate - Flating Exchange Rate Knw: - Relatinship between Financial Accunt Surplus and Lanable Funds Market - Relatinship between Financial Accunt Deficit and Lanable Funds Market - Hw t categrize a given example as part f the current accunt r financial accunt - Hw t cnvert ne currency t anther - Hw t graph the Currency (FOREX) Market - FOREX Shifters Changes in Tastes Changes in Relative Incme RESULTING IN a change in imprts Changes in Relative Price Levels RESULTING IN a change in imprts Changes in Relative Interest Rates RESULTING IN a change in interest bearing assets

6 Frmula GDP = Cnsumptin + Investment + Gvernment Spending + (Exprts Imprts) Unit 4: Critical Frmulas: Intr t Macr Ecnmics What des it tell us and why is it used? GDP s all the gds and services prduced within the brders f the United States. This number is relevant because it tells us hw well the ecnmy is ding and hw much it grws year t year. Nminal GDP = Current Year Quantities x Current Year Prices Real GDP = Current Year Quantities x Base Year Prices GDP Grwth Rate = [(Newest GDP Oldest GDP) / Oldest GDP] x 100 GDP Per Captia = Real GDP / Ppulatin GDP Deflatr = (NGDP/RGDP) x 100 CPI = (Price f Market Basket in the Current Year / Price f Market Basket in Base year) x 100 Inflatin Rate = [(Newest CPI Oldest CPI) / Oldest CPI] x 100 Inflatin Rate = [(Newest Market Basket Price Oldest Market Basket Price) / Oldest Market Basket Price] x 100 Inflatin Rate = [(Newest GDP Deflatr Oldest GDP Deflatr) / Oldest GDP Deflatr] x 100 Nminal Interest Rate Real Interest Rate = Nminal Interest Rate Inflatin Nminal Incme Real Incme = Nminal Incme / CPI in hundredths Unemplyment Rate = (Number f Peple Unemplyed / Number f peple in the Labr Frce) x 100 Natural Rate f Unemplyment = Frictinal Unemplyment + Structural Unemplyment This tells us the Grss Dmestic Prduct as measured in dllars frm the given year; these dllars are NOT adjusted fr inflatin. Real GDP is the best way t measure ecnmic grwth. This number IS adjusted fr inflatin. This number gives us a percentage as t hw much GDP grew by frm ne year t anther. If this number is psitive, the ecnmy is grwing, if it s negative, then the ecnmy may be in a recessin. GDP per capita is the best way t measure a cuntry s standard f living. The GDP Deflatr is ne way t measure inflatin. Yu can the inflatin rate with the GDP Deflatr. It tells us hw much the prices f all gds and services rse r fell. The CPI (Cnsumer Price Index) is anther way t measure inflatin. Yu can the inflatin rate with the CPI, hwever it may be different than the GDP Deflatr because it nly takes int cnsideratin the prices f a basket f specific gds and services. The inflatin rate tells us hw much prices have risen frm year t year. If the number frm the frmula is psitive, then there is inflatin and rising prices. If the number frm the frmula is negative, then there is deflatin and prices are falling. It s useful t knw and understand the inflatin rate because if prices in the ecnmy are rising, that means cnsumer purchasing pwer decreases and can lead t negative ecnmic grwth. Ntice hw the CPI, the prices f the market basket itself, r GDP deflatr can all be used t the inflatin rate. Interest rate nt adjusted fr inflatin. These are interest rates adjusted fr inflatin. Incme nt adjusted fr inflatin. Incme adjusted fr inflatin. This number tells us the amunt f peple wh are unemplyed in a cuntry. The natural rate f unemplyment is the amunt f unemplyment that exists when the ecnmy is healthy and grwing.

7 Unit 5: Critical Frmulas: AD/AS, Fiscal Plicy, Phillips Curve Frmula: What des it tell us and why is it used? Average Prpensity t Cnsume (APC) = Cnsumptin / Incme The fractin, r percentage, f ttal incme that is cnsumed is called the average prpensity t cnsume (APC). Average Prpensity t Save (APS) = Saving / Incme The fractin, r percentage, f ttal incme that is saved is called the average prpensity t save (APS). Marginal Prpensity t Cnsume (MPC) = Change in Cnsumptin / Change in Incme Marginal Prpensity t Cnsume (MPC) measures ne s change in cnsumptin t ne s change in incme Marginal Prpensity t Save (MPS) = Change in Saving / Change in Incme Marginal Prpensity t Save (MPS) measures ne s change in saving t ne s change in incme Spending Multiplier = (Change in Real GDP) / (Change in Spending) Spending Multiplier = 1 / (1 MPC) Spending Multiplier = 1 / MPS A change in a cmpnent f ttal spending leads t a larger change in GDP; determines hw much larger the change will be. If yu dn t knw the Change in GDP r Change in Spending, yu can als the multiplier this way, by using the MPC. If yu dn t knw the Change in GDP r Change in Spending, yu can als the multiplier this way, by using the MPS. Tax Multiplier = MPC / MPS Tax Multiplier = MPC x (1 / MPS) Tells us hw much t gvernments must tax (r nt tax) cnsumers t get back t lng-run equilibrium. Tax Multiplier = Spending Multiplier 1 Mney and Mnetary Plicy Frmulas: Mney Multiplier = 1 / Reserve Rati Future Value f Mney = $X (1 + ir) N Present Value f Mney = $X / (1 + ir) N Real Interest Rate = Nm IR inflatin Nm. Interest Rate = Real IR + inflatin