AP EXAM REVIEW UNIT 3 NATIONAL INCOME AND PRICE DETERMINATION.
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Transcript of AP EXAM REVIEW UNIT 3 NATIONAL INCOME AND PRICE DETERMINATION.
Marginal Propensity to consumeA. Marginal = extraB. proportion of any change in income that is consumedC. MPC = change in consumption
change in income
Marginal Propensity to SaveA. proportion of any change in income that is savedB. MPS = change in saving
change in income
C. MPC + MPS = 1
MultiplierA. A small change in
1. Investment spending 2. Consumption3. Net exports4. Government purchases
leads to an even bigger change in GDPB. Multiplier determines how large the change will be
C. Multiplier =
D. Multiplier =
___1___1 - MPC
_1__MPS
http://www.youtube.com/watch?v=JQVfkH-2G-I
Remember this formula?
Instead of X – M we used Xn
The same formula works for ADAD = C + I + G + XnWhen part of the formula changes the curve will shift
Movement along the AD curve1. caused by a change in price level 2. movements along a fixed aggregate demand curve represent changes in real GDP
Aggregate Demand
Shift in the curve or demand shock1. Rightward shift shows increase in AD2. Leftward shift shows decrease in AD
Real GDP
Shifts caused by a change in the determinants of ADa. Consumer spending - Cb. Investment spending - Igc. Government spending - Gd. Net export spending - Xn
A. Shows the level of real domestic output firms will produce at each price level
B. AS curve is upward sloping showing a positive relationship between price and output
C. Movement along the curve caused by a change in price
SRAS
Aggregate Supply
Shift in the curve or Supply Shocka. Leftward shift – decrease in SRASb. Rightward Shift – increase in SRASc. Changes in factors other than price shift curve
1. Change in price of resources (input)2. Change in wages (input)3. Changes in productivity
https://www.youtube.com/watch?v=UwAQRnpVMzI&index=3&list=PLBC35DEA1D1A98034
Long Run Equilibrium1. Where short run equilibrium and LRAS curve intersect2. The economy self corrects