AP Exam Review

AP Exam Review

Grab your clickers

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?

Crowding out effect

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?

About GDP

• Output = real GDP = real income

Stagflation

A recessionary gap…

• What happens if we do nothing??

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

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

2004 FRQ #1

2004 FRQ #1

2004 FRQ #2

2004 FRQ #2

2004 FRQ #3

2004 FRQ #3