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70 terms

Macroeconomics AP Exam

STUDY
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3 main questions of macroeconomics
-What is produced?
-How is it produced?
-Who gets it when it is produced?
Production Possibilities Curve (PPC)
If all resources are used than we are located on the line. If not all resources are used than we are below the curve.
How can we increase the PPC?
-New Technology
-New Resources
-Increase in Productivity
What graph is the PPC similar too?
Long Run Aggregate Supply
What is Demand?
the amount of a good or service you're willing and able to buy at different prices
What is the Law of Demand?
inverse relationship between price and quantity.
-As Price level increases, Quantity decreases
Things that shift the entire Demand curve:
1)Tastes and Preferences
2)Related Goods
3)Income (of consumers)
4)Population
5)Expectations
What are Related Goods?
complements & substitutes
What is Supply?
Your willingness and abilitity to sell a productive at different prices
What is the Law of Supply?
Direct Relationship between Price and Quantity
Things that shift the entire Supply curve:
1)Natural and Manmade Phenomenon
2)Input Cost
3)Competition
4)Expectations
5)Profitability of alternate goods in supply
6)Profitability of goods in joint supply
What is a natural phenomenon?
hurricane
what is a manmade phenomenon?
strike
what is an example of goods in joint supply?
beef and leather: came from the same cow
What is surplus?
The greater price of an item when compared to the equilibrium price
What is shortage?
The smaller price of an item when compared to the equilibrium price
Price Ceiling
Govenment intervention. Price can not rise above the Price Ceiling
Examples of Price Ceiling
Rent Control
What does the Price Ceiling create?
a shortage
What does a shortage create?
a blackmarket
What is a Price Floor?
Price can not go below the price floor
Example of Price Floor
minimum wage
What does a price floor create?
Surplus
Gross Domestic Product (GDP)
the total dollar value of all goods and services produced in a country in 1 year
Gross National Product (GNP)
the total dollar value and all goods and services produced by a country in 1 year
Where does GDP come from?
within the country. Anything made within the country
Where does GNP come from?
the entire world. Anything made by American companies both inside and outside the country.
The consumer equation of GDP
C+I+G+NX
Nominal GDP
total dollar amount
Real GDP
adjusted for inflation
Equation to find real GDP
Nominal/CPI
Problems (Short comings) w/ GDP
1) underground economy (black market)
2)improved quality
3) More leisure time
Inflation
increase the average price level
Deflation
decrease the average price level
Disinflation
Falling infaltion rate (prices are still increasing, just at a slower rate)
Types of Inflation
1) Cost-push (supply side)
2) Demand-pull (demand side)
Cost-Push
cost of production leads to a price level increase
Demand-Push
Too many dollars chasing too few goods; increase in demand for goods increases the price level
Types of Unemployment
1)Seasonal
2)Frictional
3)Stuctural
4)Cyclical
Inflation rate
(CPI2-CPI1/CPI1) * 100
labor force
employed + unemployed (does not include those institutionalized or in the military)
unemployed
ACTIVELY seeking work
employed
working, not seeking for employment
Seasonal unemployment
agriculture, tourism
Frictional unemployment
between jobs
Structural unemployment
because of changes in technology
Cyclical unemployment
Business cycle layoffs
True/ False
individuals who argue for in increase in government spending as the best use of the budget surpluses justify this option in part based on its beneficial effect on household incomes and consumption in the economy
True
Between 1980 and 1995, the public debt
increased as a percentage of GDP
Foreign individuals and institutions hold about what percentage of the public debt?
22 percent
The public debt as a percentage of GDP rose to over 100 percent during...
WWII
The public debt is the sum of all previous...
budget deficits minus any budget surpluses of the Federal Government
True/False
Functional finance is the view that the primary purpose of Federal finance is to stabilize the economy, and that the problems associated with consequent deficits or surpluses are of secondary importance
True
The crowding- out effect from government borrowing to finance the public debt is reduced when
public investment complements private investment
Even if the social security surpluses are excluded from the projected bedget surpluses form 2000 to 2010, the accumulated surpluses are still projected to be
$3 billion
a major reason that a public debt cannot bankrupt the Federal Government is because
the public debt can easily be refinanced
Incurring an internal debt to finance a war does not pass the cost of the war on to future generations because
the opportunity cost of wartime expenditures was borne by the generation that lived during the war
Which was a concern with the Federal deficit and the public debt in the first half of the 1990's
the absolute size of Federal deficits and public debt had increased substantially
True/False
The size of recent annual Federal budget surpluses may be overstated because they include items such as the social security surplus
True
True/False
A large public debt will not bankrupt the Federal government because it can refinance the debt or increase taxes to pay it
True
A cyclically balanced budget philosophy would call for what during a period of high inflation
higher taxes and less government spending
True/False
Historically, growth of the public debt has been primarily caused by the deficit financing of wars and recession
True
An increase in the public debt will
increase the inequity in the distribution of income
A major problem with a cyclically balanced budget is
the upswings and downswings of the business cycle may not be of equal magnitude or duration
One important consequence of the public debt in the United States is that
it transfers a portion or real output to foreign nations
Assume that the multiplier is 2. If the amout of saving done at full employment increased by $12 billion and the amount of private borrowing increased by $5 billion then to maintain full employment, the public debt would have to increase by
$7 billion
Before the Great Depression, the budget philosphy that was most generally accepted was
an annually balanced budget
True/ False
Over 95 percent of the total public debt is held by banks and private individuals
False
What is Velocity of money?
the number of times per year the average dollar is spend on final goods and services
According to the classical economic theory, the reason that firms do not change production behavior when the price level decreases is because:
input costs would fall along with product prices to leave real profits and output unchanged.