AP Exam Review

1. AP Exam Review Grab your clickers

4. 2 things • Gov’t spends more $$. • Which means they borrow more $$. • What happens to interest rates? • What happens to AD? RGDP? • Fed buys bonds. • What happens to money supply? • What happens to interest rates? • What happens to AD? RGDP?

7. Crowding out effect

9. Marginal Propensity to Consume • Remember, marginal refers to what’s on the margin; what’s been added; what’s new. • NOT the same as the average or the total. • So, marginal benefit is the benefit from one more. • …and MPC is how much one will spend of any increase to their income. • If I get a $10 raise, and my MPC is 80%, how much do I spend?

12. About GDP • Output = real GDP = real income

16. Stagflation

18. A recessionary gap… • What happens if we do nothing??

20. How is the unemployment rate measured??? • What matters?? • Population • Employed • Not employed but looking (unemployed) • Not employed, not looking. • Unemployment Rate = • Unemployed/Labor Force • What is the labor force?? • Employed + Unemployed

22. Spending Multiplier • Says that if the government spends money, output increases by more than the amount spent. • Spending Multiplier = 1/1-MPC • Tax Multiplier = -MPC/1-MPC

24. 2004 FRQ #1

25. 2004 FRQ #1

26. 2004 FRQ #2

27. 2004 FRQ #2

28. 2004 FRQ #3

29. 2004 FRQ #3