hey how you doing econ students this is jacob clifford it's time for macroeconomics unit 3 summary video as you know i already made a bunch of videos on youtube covering these topics but this video is about getting it back in your brain and helping you practice so right now pause the video make sure you've downloaded and printed out the unit study guide that goes with this video now i'm focusing on the ap economics curriculum but if you're a college student or you're taking the clep exam whatever you're doing this is all the same stuff this is introductory macroeconomics we'll start off by talking about aggregate demand and i'll talk about the multiplier effects and the idea the spending and the tax multiplier then we'll do shorten aggregate supply long rat supply put them together and then talk about how to shift those curves then i'm going to talk about when there's no policy when there's a long run self-adjustment then we'll talk about fiscal policy and end it off with the automatic stabilizers and there's one more thing please remember that the ultimate review packet is sold with the per student license so if you're a teacher please don't show this video to your students and use my study guides unless of course you got licenses and if you bought my ultimate review packet please don't share or upload any of the study guides or the practice sheets i really appreciate it this is how i make a living okay enough of that let's jump into it time for macroeconomics unit 3. so you already probably learned about aggregate demand in class or with my other video that's on youtube so let's start by looking at the three questions in the study guide i want you to pause the video fill out those three questions if you can do that you understand aggregate demand remember the accurate demand curve is just a demand for everything instead of looking at price we're looking at price level and the quantity is real gdp but like a market demand curve it's downward sloping and there's three reasons the real wealth effect the interest rate effect and the exchange rate effect these all explain why there's a negative relationship between price level and the real gdp the price level goes up people can't buy as much as they did before their assets have less value so they're gonna buy less if the price level goes up interest rates also go up and so people are gonna borrow less and spend less and if the price level goes up other people in other countries are gonna buy less of our products and of course the aggregate demand curve can shift and increases to the right a decreases to the left and the four components are the shifters consumer spending investment business spending governance spending and net exports now we're going to practice shifting the aggregate demand later but for now let's go talk about the multipliers this is the only math heavy part inside this unit remember the multiplier effect is the idea that initial change in spending causes a bigger change in spending in the economy that's because one person's spending becomes somebody else's income and that person saves a portion and spends the rest the arrest they spend becomes somebody else's income they save some and spend the rest multiplier effect and the key to it is knowing how much people save and spend of new income how much they save is the marginal penalty to save how much they spend is the marginal penalty to consume and the equation for the simple spending multiplier is one over the marginal propensity to save in addition to the spending multiplier there's also something else called the tax multiplier which is just basically one less than the spending multiplier so if the spending multiplier is four then the tax multiplier would only be three because there's one less round of spending because people save a portion of a tax cut now i know i can cover that pretty quick but in the end it's not the definitions that matter what matters is be able to do the calculation so right now look at the study guide and fill out that box each one of these is telling you what component change how much was the change what's the marginal tends to consume and what's the total change in spending this is all about using the multipliers now if you can fill that out then you understand how to calculate it and you get it but if you're having a hard time i made a special video that's only in the ultimate review packet that practices the multipliers you're definitely going to want to watch that exclusive practice video because it's going to give you several examples and verify you understand how to close gaps and use the multipliers but right now go back to the study guide and answer the six questions under topic 3.2 okay now we're back to graphing in 3.3 we're talking about the short run aggregate supply and just like a market supply curve it's upward sloping showing you a direct relationship between price level and real gdp but remember this is the short run aggregate supply when price level goes up producers have an incentive to produce more when price level goes down producers are going to produce less in the short run in the short run wages and resource prices don't change in the long run wages and resource prices are going to adjust and as you know the short mag supply can shift and increases to the right a decrease to the left and anything that affects a lot of producers is going to shift the curve so if there's a change in the price or availability of key resources that can shift the curve or government actions like taxes and subsidies or productivity that changes the amount that we can produce in the short run now another thing that can shift this curve is expectations of inflation if people expect inflation to go up the short run ag supply curve will shift to the left because wages and contracts will all increase if i'm a worker and i think prices are going to go up i'm going to go to my boss and i'm going to demand a raise and that's going to increase the cost to those firms that's going to shift the aggregate supply curve in the short run in the long run it's a different story that's topic 3.4 as you know there's no relationship between price level and real gdp in the long run doesn't matter what's going to happen in the short run eventually we'll be right back here in the long run and that output represents the full employment output that we're going to produce at the natural rate of unemployment and this curve can shift if we have better technology we can produce more stuff in the long run but i'll talk more about that later for now jump in the study guide and answer all the questions for topic 3.3 and 3.4 okay here we go in topic 3.5 we're putting aggregate demand and aggregate supply together and as you know there's three places an economy can be so right now pause this video go to the study guide and draw each one of them negative output gap full employment and a positive output gap i guarantee that your teacher or professor is going to have you draw these graphs in a macro class negative output gap full employment and a positive output gap now the ap test is move away from the terms recessionary gap and inflationary gap instead they're using the terms negative output gap and positive output gap so if your textbook or your teacher's been using those terms make sure you understand what they both are and keep in mind that a recessionary gap doesn't necessarily mean that we're in a recession and sometimes you can have a recessionary gap but there's actually inflation when there's stagflation and that's what topic six is all about shifting these curves keep in mind there's only four things that can happen aggregate demand can increase aggregate demand can decrease short-run ag supply can increase or short-run ag supply can decrease and there are some terms here that your teacher professor are definitely going to use a negative supply shock as we run out of some sort of key resource we don't have enough electricity or oil the aggregate supply curve will shift to the left causing stagflation remember this is the idea that price level is up and quantity went down so we have high unemployment and inflation it's like the worst case scenario a positive supply shock is we have more of a key resource so the shortener supply would increase price level will go down and we produce more output and you have to understand the idea of cost push and demand pull inflation cost push is what we saw earlier supply shift into the left higher inflation because we're producing less stuff and demand pull that's demand increasing means we're having higher price level because people are buying more stuff and be careful because many teachers and professors are tricky they'll say what happened to employment or what happened to unemployment so i have to read carefully i'm just trying to show you that the quantity of the real gdp down here is the opposite of unemployment so if we're producing more stuff unemployment is falling for producing less stuff unemployment is going up right now it's time for you to practice so go to the study guide and answer the five questions that require to use the graph for topic 3.6 and when you're done doing that define those key terms in question 6 through 11. okay here we go now we're moving on to topic 3.7 the whole idea that the economy self-adjusts now you've probably already watched the video where i cover this in detail so let's again start with you practicing using the study guide before i talk about it so right now pause this video and answer questions one two and three under topic 3.7 remember when we were talking about long-run adjustments it is not demand that's changing it's the shortened supply because wages and resource prices adjust when we have a negative output gap and unemployment is really high eventually in the long run if wages are flexible wages will go down resource prices will go down short ag supply will shift to the right increase putting us back at full employment and if there's a positive output gap unemployment is really low inflation is high so wages and resource prices will eventually go up short ag supply will shift to the left putting us back at full employment notice in both cases the government isn't doing anything there's no policy here it does it automatically it self-adjusts and remember when there's more spending the economy is going to go right back to where it was before eventually in the long run unless that spending is on something that's going to cause more economic growth so if there's more investment spending on capital goods or government spending on education that improves human capital that could actually shift the long-range supply curve in the long run and will actually produce more than we ever did before so here we go topic 3.8 now the government is going to get involved in the economy there's two types of fiscal policy expansionary and contractionary right now in the study guide answer questions one and two under topic 3.8 fiscal policy is when the government manipulates economy by changing government spending taxes or transfer payments by the way transfer payments are like welfare it's like the stimulus check they give directly to individuals so for example if we have a negative output gap the government can come in increase government spending or cut taxes or give more transfer payments to people and that would increase aggregate demand again they're doing this because they don't want to wait for the economy to self-adjust and fix itself instead they're taking an active role and having expansionary fiscal policy to close the gap and if we have a positive output gap the government can use contractionary fiscal policy to fight inflation by decreasing government spending and increasing taxes now one of the key skills you're going to have to do is put together fiscal policy in this topic with what you learned in topic 3.2 with the multipliers your teacher is going to give you a scenario or a graph that says here's the gap here's the margin pencil to consume close the gap with fiscal policy which is exactly what you have to do inside the study guide answer questions 4 through 11 in topic 3.8 again i mean exclusive multiplier practice video in the ultimate review packet if you need more help if you feel like you're not getting it watch that video i'll go through it step by step and go over all the answers here we go last topic in this unit topic 3.9 we're talking about the automatic stabilizers in topic 3.8 we talked about the government getting involved in the economy and that's called discretionary fiscal policy it's new law is designed to speed up or slow down the economy here we'll talk about laws that are already on the books the automatic stabilizers this is non-discretionary fiscal policy there's two examples that you definitely need to know the first one is like unemployment and welfare if the economy starts to go down then people are going to need that that's going to increase transfer payments and government spending and again it's not a new law it's something that's already in the books and if the economy starts to go up there's going to be less welfare less unemployment and that's going to decrease government spending and transfers another example is the progressive income tax system with tax brackets so when the economy is doing great that means people are going to pay higher taxes because they're moving up in higher tax brackets when the economy starts to go down and there's a recession that people's incomes fall and they pay less taxes because they're going down to the lower tax bracket so right now answer questions one through three on topic 3.9 in the study guide now if you're watching this video properly and filling out a study guide you understand unit 3 or at the very least you understand what you don't know about unit 3 so you can go back to youtube and watch the videos that cover those specific topics if you think you're getting it you're ready to move on watch the multipliers practice video that's in the ultimate review packet and try the practice sheet and the multiple choice questions overall this unit's about 3.5 out of 5 in terms of difficulty so it's really not that hard but it's gonna be a huge chunk of your final exam or the ap exams you have to be able to draw the graphs and do those calculations the next unit unit four is a little trickier so make sure you understand this stuff really well so you're ready to move on thanks for watching until next time