AP Econ Macro Chapter 3

Question 1

What is this?

Answer 1

Aggreagate Demand and Aggregate Supply model

Question 2

How does more “Consumer Spending” effect the AD curve?

Answer 2

C up, AD up

Question 3

How does more “Fiscal Assests” effect the AD curve?

Answer 3

AD up

Question 4

How does more “Household Debt” effect the AD curve?

Answer 4

AD down

Question 5

How do higher “Interest Rates” effect the AD curve?

Answer 5

AD down

Question 6

Expected Returns (all go up)

a) Expected Income
b) Technology
c) Excess Capacity
d) Taxes

Answer 6

a) AD up
b) AD up
c) AD down
d) AD down

Question 7

How does more “Government Spending” effect the AD curve?

Answer 7

AD up

Question 8

How do more “Net Exports” effect the AD curve?

Answer 8

AD up

Question 9

How does more “X” effect the AD curve?

Answer 9

AD up

Question 10

How does more “M” effect the AD curve?

Answer 10

AD down

Question 11

What is the “Investment Multiplier Equation”

Answer 11

Question 12

What is the “Tax Multiplier” equation

Answer 12

Question 13

What is and what do they affect…

S: up

T: up

R: up

I: up

P: up

Answer 13

This means…

Subsities: AS up

Taxes on businesses: AS down

Regulation: AS down

Input Costs: AS down

Productivity: AS up

Question 14

What is the equation for “GDP”?

Answer 14

C + I + G + X - M

C: Consumer spending

**I: **Investments

G: overnment Spending

X: Exports minus inports

M: Imports

Question 15

What is “APC” and the equation for “APC”?

Answer 15

Average propensity to consume (APC) = Total Consumption/Total Disposable Income

Question 16

What is “MPS” and the equation for “MPS”?

Answer 16

Marginal Propensity to Save (MPS) = ∆S / ∆DI

Question 17

What is “MPC” and the equation for “MPC”?

Answer 17

Marginal Propensity to Consume (MPC)= ∆C / ∆DI

Question 18

What is “The Wealth Effect”?

Answer 18

The change in consumer sspending caused by the altered purchasing power of consumers’ assets.

Aggregate Price Level increases

Do to “The Wealth Effect” C falls when aggregate PL rises leading to a downward shift of AD

Question 19

What is “The Interest Effect”?

Answer 19

A rise in aggregate PL depressing investment spending and and consumer spending.

Leads to a downward shift in AD

Question 20

Why is the AD curve downward sloping?

Answer 20

Three explanations for the negative slope are:

1. Interest rate effect
2. Real balance effect
3. Foreign purchases effect

Aggregate demand (AD) is a curve showing the total amount of goods and services (real GDP) that will be purchased at different price levels.

Question 21

What does Cost-Push Inflation do?

Answer 21

PL up

Unemployment up

GDP down

Question 22

What does Demand-Pull inflation do?

Answer 22

PL up

Output up

AD up

Unemployment down

Question 23

What does Stagflation do?

Answer 23

Persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

Question 24

Why is the SRAS curve downward sloping?