AP MACROECONOMICS GRAPHS CHEAT SHEET - domainedemanville

AP Macroeconomics Graphs Cheat Sheet: A Quick Guide

AP Macroeconomics can feel overwhelming, especially when trying to keep track of all the graphs. This cheat sheet will help you understand and remember the key graphs, concepts, and their implications for the AP exam.

Understanding these graphs is crucial for analyzing economic scenarios, predicting policy effects, and answering both multiple-choice and free-response questions effectively. This article provides a concise overview to improve your understanding of macroeconomics.

Aggregate Supply and Aggregate Demand (AS-AD) Model

The AS-AD model is the foundation of macroeconomic analysis. It illustrates the relationship between the overall price level and the quantity of output in an economy.

Aggregate Demand (AD)

AD slopes downward, representing the inverse relationship between the price level and real GDP. Factors shifting AD include changes in consumption (C), investment (I), government spending (G), and net exports (NX).

Short-Run Aggregate Supply (SRAS)

SRAS slopes upward, indicating that firms will increase output as the price level rises. Factors shifting SRAS include changes in input costs (wages, raw materials), productivity, and expectations.

Long-Run Aggregate Supply (LRAS)

LRAS is vertical at the potential output level, reflecting the economy's capacity when all resources are fully employed. LRAS shifts due to changes in the quantity or quality of resources, technology, and institutions. ap macro unit 2 progress check mcq

The Phillips Curve

The Phillips Curve demonstrates the inverse relationship between inflation and unemployment. There are two versions: the short-run Phillips Curve (SRPC) and the long-run Phillips Curve (LRPC).

Short-Run Phillips Curve (SRPC)

The SRPC slopes downward, showing the trade-off between inflation and unemployment in the short run. Shifts in aggregate demand cause movements along the SRPC.

Long-Run Phillips Curve (LRPC)

The LRPC is vertical at the natural rate of unemployment, suggesting that there is no trade-off between inflation and unemployment in the long run. Shifts in aggregate supply cause shifts in both SRPC and LRPC if they alter the natural rate of unemployment. You can learn more about it at ap macro unit 3 progress check mcqwikipedia.org/wiki/Phillips_curve" rel="nofollow">Phillips curve's Wikipedia page.

The Money Market

The money market shows the interaction between the supply of money and the demand for money to determine the nominal interest rate. ap macroeconomics unit 2 progress check mcq

Money Demand

Money demand slopes downward, reflecting the inverse relationship between the nominal interest rate and the quantity of money demanded.

Money Supply

Money supply is vertical, determined by the central bank's monetary policy. Changes in the money supply shift the money supply curve.

Loanable Funds Market

The loanable funds market illustrates the interaction between borrowers and lenders to determine the real interest rate. ap macroeconomics unit 3 progress check mcq

Supply of Loanable Funds

The supply of loanable funds comes from savings and slopes upward, indicating that people are willing to save more at higher real interest rates.

Demand for Loanable Funds

The demand for loanable funds comes from investment and borrowing and slopes downward, reflecting that businesses are willing to borrow more at lower real interest rates.

Foreign Exchange Market

The foreign exchange market shows the interaction between the supply and demand for a currency to determine the exchange rate.

Supply of a Currency

The supply of a currency in the foreign exchange market slopes upward, indicating that more of the currency will be supplied at higher exchange rates.

Demand for a Currency

The demand for a currency slopes downward, reflecting that more of the currency will be demanded at lower exchange rates.

FAQs

What is the difference between nominal and real interest rates?

The nominal interest rate is the stated interest rate, while the real interest rate is the nominal interest rate adjusted for inflation.

How does government spending affect aggregate demand?

An increase in government spending directly increases aggregate demand.

What is the natural rate of unemployment?

The natural rate of unemployment is the unemployment rate that exists when the economy is at full employment, including frictional and structural unemployment.

What factors shift the money demand curve?

Changes in real GDP, the price level, and technology can shift the money demand curve.

What is the impact of inflation on the Phillips curve?

In the short run, higher inflation may lead to lower unemployment (movement along the SRPC). In the long run, there's no trade-off (LRPC is vertical).

Summary

This cheat sheet provides a concise overview of essential AP Macroeconomics graphs. Mastering these graphs and the concepts they represent is crucial for success on the AP exam. Remember to understand the underlying economic principles that drive the shifts and movements within each graph.