1. Intro to Macroeconomics AP Comp Gov

2. Economic Systems Fundamental problem: scarcity Partial solution: efficiency 3 Economic Qs: what, how, who? Systems’ answers to the Qs: Market/capitalist: the market (  cigarettes) Command: Stalin (  tanks) Traditional: the way we’ve always done it (  food) The US: all 3 combined (  iPhones used to drop bombs on people so we can get their oil to drive our Escalades with spinner rims)

3. GDP Gross Domestic Product: total market value ($) of all final goods and services produced within a country in 1 year GDP= C + I + G + Xn C: personal consumption (durable, nondurable, services; about 70% of US) I: investment: esp. capital goods G: government expenditures Xn: exports – imports (what did Americans make)

4. Nominal vs. Real and Inflation Consumer Price Index = (price market basket specific year)/(price same basket in base year) x 100 Inflation: rising price level Inflation rate Inflation rate Disinflation: slow in rate; 4%  2% Disinflation: slow in rate; 4%  2% Hyperinflation: warm, flat beer Hyperinflation: warm, flat beer Deflation: great depression Deflation: great depression Both Hyper- and de-  economic shutdown

5. Unemployment Frictional, structural, cyclical, seasonal Full employment/natural rate  potential output Okun’s Law: every 1% actual U > natural rate, GDP gap (actual less than potential) 2% Okun’s Law: every 1% actual U > natural rate, GDP gap (actual less than potential) 2% Unequal burdens: occupation, age, race, gender, education, duration Unequal burdens: occupation, age, race, gender, education, duration Noneconomic costs: depression, crime, political impacts Noneconomic costs: depression, crime, political impacts Unemployed, discouraged, underemployed “Real” unemployment rate closer to 16% “Real” unemployment rate closer to 16%

6. Cycles Expansion  recession  expansion Causation of cycles: 1) major innovations  I and C; 2) Political and random events (war); 3) Money supply Noncyclical fluctuations: seasonal variations, secular trend

7. Aggregate Supply and Aggregate Demand Real GDP = employment level Price Level AS AD0 AD1 AD2

8. Shifts in AD Change in any components of GDP: C, I, G, X- M  entire curve shifts (if increase, “right,” if decrease, “left”) Multiplier effect: a change in a component of agg expenditures leads to a larger change in equilibrium GDP US estimated “complex multiplier”: 2x So $100B increase G  $200B increase GDP; $50B decrease  $100 decrease GDP So $100B increase G  $200B increase GDP; $50B decrease  $100 decrease GDP Tax cuts have much smaller multiplier: approx 0.9  larger tax cuts to achieve same spending effect Tax cuts have much smaller multiplier: approx 0.9  larger tax cuts to achieve same spending effect BUT: “crowding out effect”: G pushes private firms out of the business (but NOT at “zero lower limit”; i.e. 2009) BUT: “crowding out effect”: G pushes private firms out of the business (but NOT at “zero lower limit”; i.e. 2009)

9. Shifts in AS 1) Input Prices Domestic Resources: land, labor, capital, entrepreneurial ability; Price Imported Resources; Market Power Domestic Resources: land, labor, capital, entrepreneurial ability; Price Imported Resources; Market Power 2) Productivity Total output/total inputs Total output/total inputs Per unit prod.= total input cost/total output Per unit prod.= total input cost/total output 3) Legal-Institutional Environment Taxes and Subsidies, Regulation Taxes and Subsidies, Regulation

10. rGDP AD AS1 PL AS2 AS3

11. Trade Comparative advantage: what can do cheapest Focus on: land, labor, capital, entrepreneurial ability Focus on: land, labor, capital, entrepreneurial ability Currency manipulation: China buys $1.4 trillion  stronger dollar/weaker renminbi/yuan  relatively cheaper Chinese products  US trade deficit