1 What is the difference between real and

1. What is the difference between real and nominal? 2. What’s not included in GDP? 3. What are the determinants (shift factors) of aggregate demand? 4. What are the determinants (shift factors) of aggregate supply? 5. What is cost-push inflation? 6. What is demand-pull inflation? 7. What is considered to be investment (I)? 8. What does full employment mean? 9. Who is excluded from the labor force? 10. What are the types of unemployment? 11. How does one calculate the unemployment rate? 12. What is the best pizza topping?







AP MACRO REVIEW - 1 1. 2. 3. 4. PPC Supply and Demand Market Equilibrium Consumer and Producer Surplus

Concepts: Points on the curve—Efficiency Pizza Capital Goods • • 4 Key Assumptions Only two goods can be produced Full employment of resources Fixed Resources (Ceteris Paribus) Fixed Technology ·Points inside—inefficient ·Points outside the curve— unattainable with available resources ·Outward shift can occur with new resources or technology ·Inward shifts can occur due to war, plagues ·Demonstrates Opportunity Cost ·Related to LRAS 3 Shifters of the PPC 1. Change in resource quantity or quality 2. Change in Technology 3. Change in Trade

Constant vs. Increasing Opportunity Cost Law of Increasing Opportunity Cost • As you produce more of any good, the opportunity cost (forgone production of another good) will increase. Constant Opportunity Cost- Resources are easily adaptable for producing either good. Pizza Cactus Calzones Pineapples

Productive and Allocative Efficiency Productively Efficient 14 A B 12 Bikes • Products are being produced in the least costly way. • This is any point ON the Production Possibilities Curve combinations A through D G 10 Allocative Efficient 8 E 6 • The products being produced are the ones most desired by society. • This optimal point on the PPC depends on the desires of society. C 4 F 2 D 0 0 2 4 6 8 10 Computers 11

Production Possibilities Graph Producing Capital Goods will lead to greater economic growth than producing consumer goods. Capital Goods Points A, B, C, are efficient pts. Point D is underutilization Point E is economic growth A May Lead to most Future economic growth E B D C F. E. 1 Outward shifts illustrate economic growth Inward shifts indicate destruction of resources Consumer Goods

Supply and Demand

• Shifts in demand supply caused by changes in determinants Demand Changes when: [Timer] Tastes, Fads, Preferences change Income change Market Size (# of potential consumers) Expectations about future price, income & availability. Related Products, complements and substitutes, (price or quality change) Supply Changes When: [RATNEST] Resource prices change (resources and wages) Alternative output price changes Price S EP [substitutes in production] Technology Number of sellers change Expectations (about future price) Subsidies Taxes • Market clearing price and equilibrium D EQ Quantity
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