1. AP EXAM REVIEW UNIT 3 NATIONAL INCOME AND PRICE DETERMINATION

2. Marginal Propensity to consume A. Marginal = extra B. proportion of any change in income that is consumed C. MPC = change in consumption change in income Marginal Propensity to Save A. proportion of any change in income that is saved B. MPS = change in saving change in income C. MPC + MPS = 1

3. Multiplier A.A small change in 1.Investment spending 2.Consumption 3.Net exports 4.Government purchases leads to an even bigger change in GDP B.Multiplier determines how large the change will be C.Multiplier = D.Multiplier = ___ 1___ 1 - MPC _ 1__ MPS http://www.youtube.com/watch?v=JQVfkH- 2G-I

4. Remember this formula? Instead of X – M we used Xn The same formula works for AD AD = C + I + G + Xn When part of the formula changes the curve will shift

5. Movement along the AD curve 1. caused by a change in price level 2. movements along a fixed aggregate demand curve represent changes in real GDP Aggregate Demand

6. Shift in the curve or demand shock 1.Rightward shift shows increase in AD 2.Leftward shift shows decrease in AD Real GDP Shifts caused by a change in the determinants of AD a. Consumer spending - C b. Investment spending - Ig c. Government spending - G d. Net export spending - Xn

7. A.Shows the level of real domestic output firms will produce at each price level B.AS curve is upward sloping showing a positive relationship between price and output C.Movement along the curve caused by a change in price SRAS Aggregate Supply

8. Shift in the curve or Supply Shock a.Leftward shift – decrease in SRAS b.Rightward Shift – increase in SRAS c.Changes in factors other than price shift curve 1.Change in price of resources (input) 2.Change in wages (input) 3.Changes in productivity https://www.youtube.co m/watch?v=UwAQRnpV MzI&index=3&list=PLBC 35DEA1D1A98034

9. Long Run Equilibrium 1.Where short run equilibrium and LRAS curve intersect 2.The economy self corrects

10. Draw an AD/AS model showing the change indicated.