AP Macroeconomics Unit 4 Study Guide 1. What are the components of aggregate demand? What could be included in each category? What are some the things that are excluded?
2. Why does aggregate demand have a negative slope?
3. How does an increase in the price level affect real wealth? 4. How does the level of income in other countries affect our aggregate demand? 5. What is the marginal propensity to consume (MPC)? 6. What is the multiplier? How can the multiplier be calculated using the MPC? How does the multiplier affect AD?
7. What is the investment demand curve? How do interest rates affect the level of investment in the economy? What can cause the investment demand curve to shift?
8. What are the three ranges of aggregate supply? 9. Why is the aggregate supply upward-sloping in the short run but not the long run?
10. What are the determinants of long-run aggregate supply? (What are some things that will shift the LRAS?)
11. What does it mean to say that wages are “sticky”? Why are wages sticky? Given sticky wages, how does an increase in the price level affect production?
12. What is the misperceptions theory? 13. How is the short-run aggregate supply curve affected by a change in expected inflation?
14. What will shift both the SRAS and LRAS curves at the same time? What will shift only the SRAS and not the LRAS?
15. Be able to identify and read from graphs of AD-AS. Know the long-run adjustment process, and be able to identify what happens to PL, RGDP, and U at each stage.
16. What are the characteristics of a recession? Of demand-pull inflation? Of stagflation (costpush inflation)?
17. What is fiscal policy? What are the options for an expansionary fiscal policy? For a contractionary fiscal policy?
18. From the perspective of mainstream economics, which curve (AD or AS) will be affected using fiscal policy? 19. According to the long-run adjustment model, what will eventually be the affects of an expansionary fiscal policy? 20. What is supply-side economics? According to supply-side economics, how does a change in the tax rate affect AS?
21. What are automatic stabilizers? How do automatic stabilizers help to diminish the peaks and troughs of the business cycle?
22. What is the Laffer curve? What does it show, and how is it used?
23. What makes up the supply of loanable funds? What makes up the demand for loanable funds? How are interest rates related to the supply and demand for loanable funds (why is supply upward-sloping, demand downward sloping)?
24. What happens to the equilibrium real interest rate if the demand or supply of loanable funds shifts? 25. How would an investment tax credit affect the loanable funds market? 26. What is the relationship between national savings and investment in a closed economy? 27. What is crowding out? What causes it?
28. How does the AD-AS model relate to the Phillips curve? How can an increase or decrease in AD be shown on the SRPC? How does an increase or decrease in AS affect the SRPC?
29. What is the tradeoff between inflation and unemployment in the short run? Does this tradeoff exist in the long run? 30. What determines the location of the LRPC? What can shift the LRPC?
