Introduction to AP Macroeconomics Concepts

Oct 17, 2024

ACDC Econ Introduction by Jacob Clifford

Course Overview

  • Designed to prepare for AP Macroeconomics test or final exam.
  • Quick review for spotting areas needing more study.
  • Encouragement to support channel through "Ultimate Review Pack."

Basic Economic Concepts

  • Scarcity: Unlimited wants vs. limited resources.
  • Opportunity Cost: The cost of what you give up to get something else.
  • Production Possibilities Curve (PPC):
    • Efficient: On the curve.
    • Inefficient: Inside the curve.
    • Impossible: Outside the curve.
    • Shapes:
      • Straight line: Constant opportunity cost.
      • Bowed out: Increasing opportunity cost.
    • Shifts: Due to more/less resources, better technology, or trade.

Comparative Advantage

  • Specialization based on lower opportunity cost.
  • Absolute Advantage:
    • Who produces more.
  • Comparative Advantage:
    • Requires calculations to determine specialization.
  • Terms of Trade: Exchange rate that benefits both countries.

Economic Systems

  • Types:
    • Free market (Capitalism)
    • Command economy
    • Mixed economy
  • Circular Flow Model:
    • Interaction between businesses, individuals, government.
    • Markets:
      • Product market
      • Resource market
    • Vocab:
      • Transfer payments
      • Subsidies
      • Factor payments

Supply and Demand

  • Demand: Downward sloping; price up = buy less.
  • Supply: Upward sloping; price up = produce more.
  • Equilibrium: Where supply and demand meet.
  • Shifts:
    • Demand: Increase/decrease.
    • Supply: Increase/decrease.

Three Goals of an Economy

  1. Economic Growth
    • GDP: Dollar value of all final goods/services within a country.
    • GDP per Capita: GDP divided by population.
  2. Limit Unemployment
    • Types: Frictional, Structural, Cyclical.
    • Natural Rate: Around 5% in the U.S.
  3. Limit Inflation
    • Inflation: Rise in general price level.
    • CPI: Consumer Price Index for measuring inflation.

Key Macroeconomic Concepts

  • Nominal vs Real GDP: Real GDP adjusts for inflation.
  • Business Cycle: Phases - peak, recession, trough, expansion.
  • Unemployment Rate: (Unemployed/Labor Force) x 100.
  • Criticisms:
    • Discouraged workers
    • Part-time workers

Inflation

  • Causes:
    • Printing money
    • Demand-pull inflation
    • Cost-push inflation

Aggregate Demand and Supply

  • Aggregate Demand: Total demand for all things in the economy.
    • Downward sloping due to wealth, interest rate, and foreign trade effects.
  • Aggregate Supply: Total supply of all goods and services.
    • Short-run: Upward sloping.
    • Long-run: Vertical at full employment.

Fiscal Policy

  • Expansionary: Increase spending, cut taxes.
  • Contractionary: Decrease spending, increase taxes.
  • Multiplier Effect: Initial spending leads to increased total spending.

Monetary Policy

  • Money: Medium of exchange, unit of account, store of value.
  • Banks: Fractional reserve banking.
  • Money Supply: Controlled by the Fed.
  • Monetary Tools: Reserve requirement, discount rate, open market operations.

International Trade

  • Balance of Payments: Current account and financial account.
  • Foreign Exchange: Currency valuation.
    • Appreciation vs Depreciation.
  • Exchange Rates: Floating vs fixed rates.

Conclusion

  • Encouragement for exam preparation.
  • Importance of understanding economic principles and graphs.