Ap macroeconomics Exam: Course Study Guide [ unit I ] What is economics?

The BIG Picture of Fiscal/Monetary Policy

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The BIG Picture of Fiscal/Monetary Policy

rGDP

FISCAL POLICY

EXPANSIONARY

 G







potential

crowding

out

 T_income







 T_corporate







CONTRACTIONARY

 G







 T_income







 T_corporate







MONETARY POLICY

EXPANSIONARY

OMO buy









potential

accommodating

monetary

policy

 discount rate









 reserve requirement









CONTRACTIONARY

OMO sale









 discount rate









 reserve requirement









[ UNIT VI ]

International Economics

r in county X
r in the U.S., relative to country X
capital outflow from country X OR
capital inflow to the U.S.

 demand for dollar denominated financial assets

 D_$

appreciation of the US$relative to the X$ from (e₁– e₂)

r in county X
r in the U.S., relative to country X
capital inflow to country X OR
capital outflow from the U.S.

 demand for dollar denominated financial assets

 D_$

depreciation of the US$relative to the X$ from (e₁– e₂)

[Typical International Goods (Current Account) Question]:

[HINT] If forced to use S_$, it should respond to ΔrGDP. [TRUTH] Goods questions are S_$.

Appreciation of the $ relative to the  from e₁ –e₂	$ denominated goods become relatively more expensive » D_$ [truth » S_$] ( denominated goods become relatively less expensive)	 X  M
Depreciation of the $ relative to the  from e₁ –e₂	$ denominated goods become relatively less expensive » D_$ [truth » S_$] ( denominated goods become relatively more expensive)	 X  M
PL in U.S. ($)	$ denominated goods become relatively more expensive » D_$ [truth » S_$] ( denominated goods become relatively less expensive)	 X  M
PL in U.S. ($)	$ denominated goods become relatively less expensive » D_$ [truth » S_$] ( denominated goods become relatively more expensive)	 X  M

[Flow of Goods and Services]:

CAUSE	EXPLANATION	EFFECT
PL in the U.S – country you are looking at Appreciation of $ –  value of the currency you are looking at PL in  – the other country Depreciation of  –  value of the other country’s currency	PL: The increase in price level makes dollar denominated goods relatively more expensive. Appreciation here: The appreciated $ makes dollar denominated goods relatively more expensive. PL in other country: The decrease in price level makes  denominated goods relatively less expensive. Depreciation of : The depreciated  makes  denominated goods relatively less expensive.	Decrease in U.S. exports (X) Increase in U.S. imports (M)
PL in the U.S – country you are looking at Depreciation of $ – value of the currency you are looking at PL in  – the other country Appreciation of  – value of the other country’s currency.	PL: The decrease in price level makes dollar denominated goods relatively less expensive. Depreciation here: The depreciated $ makes dollar denominated goods relatively less expensive. PL in other country: The increase in price level makes  denominated goods relatively more expensive. Appreciation of : The appreciated  makes  denominated goods relatively more expensive.	Increase in U.S. exports (X) Decrease in U.S. imports (M)

A Look-Ahead to Other International Consequences:

[NOTICE] Your answer is different depending on whether it is a goods or financial assets question.

Goods/Current Account

Value of the $

Financial Assets/Capital Account

Value of the $

FISCAL POLICY

EXPANSIONARY

G



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

T_income



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

T_corporate



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

CONTRACTIONARY

G



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

T_income



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

T_corporate



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

MONETARY POLICY

EXPANSIONARY

OMO buy



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

 discount rate



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

 reserve requirement



$ denominated goods become relatively more expensive  D_$

(truth  S_$)

Depreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

depreciation of the $ relative to the  from e₁ - e₂

CONTRACTIONARY

OMO sale



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

 discount rate



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

 reserve requirement



$ denominated goods become relatively less expensive  D_$

(truth  S_$)

Appreciation of the $ relative to the  from e₁ – e₂



 demand for $ denominated financial assets in order to yield a higher return  D_$

appreciation of the $ relative to the  from e₁ - e₂

[Unit VII]

Phillips Curve

Four Scenarios “Something that…”	1	AD	 PL UE	 inflation  unemployment	a  b, along the curve
	2	AD	 PL UE	 inflation  unemployment	a  c, along the curve
	3	AS	 PL UE	 inflation  unemployment	SRPC₁ SRPC₂
	4	AS	 PL UE	 inflation  unemployment	SRPC₁ SRPC₃

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