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AP Macro Studying
| Question | Answer |
|---|---|
| GDP Expenditures Approach: | C + I + G + Xn (X-M) |
| GDP Income Approach: | National Income (Wages + Rent + Interest + Profit) + (Indirect Taxes - Subsidies) + Depreciation + Net Foreign Factor Income + Statistical Adjustments |
| GDP Deflator Equation (for Real GDP) | Real GDP = (Nominal GDP / GDP Deflator) x 100 |
| GDP Deflator Equation (for Nominal GDP) | Nominal GDP = Real GDP x GDP Deflator (price index)(in hundredths) |
| GDP Deflator Equation (regular) | GDP Deflator = (Nominal GDP / Real GDP) x 100 |
| GDP Growth Rate Equation | GDP Growth Rate = [(GDPnew - GDPold) / GDPold] x 100 |
| CPI Equation | Consumer Price Index (CPI) = (current price / base price) x 100 |
| Inflation equation(derived from CPI) | Inflation Rate = [(CPInew - CPIold) / CPIold] x 100 |
| Labor Force | Labor Force = # employed + # unemployed |
| Unemployment Rate equation | Unemployment Rate = (# of unemployed / # in the labor force) x 100 |
| Labor Force Participation Rate equation | Labor Force Participation Rate = (# in the labor force / population) x 100 |
| GDP per Capita equation | GDP per Capita = Real GDP / population |
| Marginal Propensity to Consume (MPC) ∆S/∆DI | ∆C/∆DI |
| Marginal Propensity to Save (MPS) | MPC + MPS = 1 |
| SPENDING MULTIPLIER | 1/MPS; OR ∆GDP/∆Spending |
| TAX MULTIPLIER | -MPC/MPS; OR ∆GDP/∆Taxes |
| Absolute advantage in an input problem? | Which producer uses LESS resources |
| Absolute advantage in an output problem? | Which producer makes MORE goods/services |
| EQUATION OF EXCHANGE | MV=PY |
| What is a difference between stocks and bonds? | Bonds earn interest, while stocks do not. Stocks represent ownership in a company, while bonds represent a loan to a company or government. |
| A short-run increase in real output due to an increase in aggregate demand represents? | A phase of the business cycle |
| What accurately describes the relationship between inflation and unemployment in the long run? | As inflation increases, unemployment remains constant. |
| What is a similarity between the short-run aggregate supply curve and the short-run Phillips curve? | A change in inflationary expectations will shift both curves. |
| A decrease in a nation’s capital and financial account balance will lead to which of the following for that nation? | An increase in real interest rates |
| What could cause a rightward shift of the long-run Phillips curve? | An increase in manufacturing automation |
| What is M1 money? | Physical currency in circulation and highly liquid deposits Ex: Demand deposits, coins, banknotes |
| What is M2 money? | Includes highly liquid cash (M1) plus "near money" assets that are easily convertible to cash Ex: Savings deposits, time deposits (under \(\$100,000\)), and retail money market funds |
| What is the Monetary base/M0 money? | The total amount of physical currency in circulation plus the reserve balances held by commercial banks at the central bank Ex: Notes, coins, bank reserves. |
| GDP | all spending on final goods and services in an economy |
| Deflation | Decline in an economy's price level |
| Price floor | a price set above the equilibrium by by the government |
| Price ceiling | a price set below the equilibrium by by the government |
| Automatic Stabilizers | Systems that keep the economy in balance without government action (Progressive income taxes) |
| How can countries depreciate their currency? | By selling their money in foreign markets |
| How can countries appreciate their currency? | By buying their money in foreign markets |
| What is the main shortcoming of CPI? | It generally overstates the true cost of living . |
| What is the substitution bias in terms of CPI? | When prices rise, consumers switch to cheaper alternatives Because the CPI uses a fixed market basket, it keeps counting the expensive good, overstating inflation. |
| What is the new goods bias in terms of CPI? | New products (e.g., smartphones, streaming services) are not immediately added to the basket. Therefore, the CPI misses the initial price drops and increased variety/value these goods bring to consumers. |
| What is the main idea of Unmeasured Quality Change in terms of CPI? | If a product's price rises, the CPI often treats it as inflation, even if the product is better, safer, or more durable (e.g., cars with better technology). If quality improves more than the price, the CPI overstates inflation. |
| What is the main idea of Outlet Substitution in terms of CPI? | The CPI has historically been slow to adjust for consumers switching from traditional retail stores to cheaper online shopping or discount warehouses. |
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