In-Class Final Exam Review AP Macroeconomics In-Class Final Exam Review

Economic growth A sustained increase in real per capita GDP stimulate economic growth - Technological progress

exchange rate The price of nation’s currency e.g. If a Japanese firm buys cars from the United States, there would be an increase in which of the following in the foreign exchange market (demand for US dollars and supply of yen) Impact of high inflation in a given country?

Trade Absolute v Comparative advantage with PPC Comparative advantage implies that two countries should benefit from trade (unless both have equal opportunity costs in every good)

Nominal v Real Real interest rate = Nominal – inflation Nominal interest rate = Real + inflation Nominal rate of increase v real (with % change calculation)

fiscal policy government expenditures taxes most expansionary Cut taxes & increase government spending

Monetary policy Contraction to fight inflation (higher interest rate) Expansion to fight recession (lower interest rate) Increasing the reserve requirement – Fed reduces the ability of the banking system to create money

GDP Counting gross domestic product - A final good or service produced in country

GDP = AD GDP/AD = Consumption, Investment, Government spending and net exports (Xn)

impact of a decrease/increase in foreign income on the aggregate demand in the United States

short-run Phillips curve decrease in unemployment = increase in inflation Increase in unemployment = decrease in inflation

AS Input costs (e.g. labor wages) rise, supply shifts left (up) decrease in the price of inputs = increase in the short-run AS and a decrease in the price level

national debt accumulation of past and current budget deficits and surpluses

Purchasing power A decrease in the purchasing power of the currency most undermines the ability of a nation’s currency to store value

Types of unemployment Cyclical unemployment Frictional unemployment e.g. recent graduate who is looking for her first job Structural unemployment Problems measuring unemployment - discouraged workers