AP Macroeconomics Macroeconomics & Circular Flow of the Economy

Circular Flow of Goods & Services

Why does output fluctuate? As output prices rise and fall, the amount of goods and services people have increases and decreases Thus, the standard of living rises and falls, and people are better off or worse off Changes in output causes changes in the number of people employed

Macroeconomics looks at the determinants (factors) of output fluctuation and how these factors can be controlled.

What determines economic growth? Remember, f l u ct u a ti on s in output from year to year affect the standard of living Similarly, the long-run growth in output is important for society’s welfare

Growth in the economy depends on the following determinants: number of workers education and training of workers technological advances amount of machinery and technology labor has to work with basic material sources

Which government policy affects output, growth, unemployment, and inflation? $$$$FISCAL$$$$ policy! “What the deuce is that?” Fiscal policy is a summary of the government’s decisions about expenditures and taxation. Government decisions about taxes and how much it will spend affect the level of output, growth, unemployment, and inflation.

How do changes in the amount of $money$ in the economy affect growth, output, unemployment, and inflation? The decisions of the central bank—the Federal Reserve in the United States—determine the amount of money in the economy. The amount of money in the economy (i.e. MONEY SUPPLY) in conjunction with how much money society wants to use determine the interest rate. $ SUPPLY + $ SOCIETY WANTS TO USE = INTEREST RATE

How do domestic economic activities affect other countries and our trade? A nation’s economy does not operate independent of other countries’ economies! Trade policies, monetary policies, and fiscal policies all affect the impact of the domestic economy on the economies of other nations

Circular Flow of Goods & Services

And Now… Macroeconomics

The Economics of Seinfeld. Krugman, Paul, and Robin Wells. Krugman’s Economics for AP. New York, Worth Publishers. Reffonomics.