AP Macroeconomics Study Set exam 2024
Expansionary Fiscal Policy - 1. Current output < Full output
2. Taxes decrease, Government spending increases, or Transfer Payments increase
3. Disposable Income increases
4. Consumption increases
5. Aggregate Demand increases
6. Output, Income, and Employment increase
7. Current output = Full output
Crowding Out - 0. Government spending increases, Transfer payments increase, or
Taxes decrease
1. Government spending increases (deficit spending)
2. Consumption increases
3. Demand for loanable funds increases
4. Real interest rate increases
5. Rate of growth of Gross Investment decreases
6. Lessens economic growth (crowding out) [PPC increases less] {Long run
aggregate supply increases less}
Contractionary Fiscal Policy - 1. Current output > Full output
2. Taxes increase, Government spending decreases, or Transfer Payments decrease
,AP Macroeconomics Study Set exam 2024
3. Disposable Income decreases
4. Consumption decreases
5. Aggregate Demand decreases
6. Output, Income, and Employment decrease
7. Current output = Full output
Net Exports Effect - 1. Government spending increase, Transfer Payments increase,
or Taxes decrease
2. Government deficit increases
3. Demand for loanable funds increases
4. Real interest rate increases
5. US Bonds are more attractive
6. Demand for US dollar increases
7. Dollar appreciates
8. International value of dollar increases
9. US goods relatively more expensive
10. Exports decrease, Imports increase, and Net exports decrease
Real balances effect - 1. Price level decreases
,AP Macroeconomics Study Set exam 2024
2. Purchasing power of fixed wealth increases
3. Consumer spending increases
4. Movement along AD curve
5. Output increases
Foreign purchases effect - 1. Price level decreases
2. Relative price of US goods decreases
3. US exports increase
4. US imports decrease
5. Aggregate demand increases (movement along AD)
Interest rate effect - 1. US Price level increases
2. US borrowing increases
3. Demand for money increases
4. Nominal interest rate increases
5. Gross investment decreases
6. US Aggregate demand decreases (along AD curve)
Tax systems - 1. Progressive- as income rises, marginal tax rate rises
, AP Macroeconomics Study Set exam 2024
2. Proportional- regardless of income, tax rate is the same
3. Regressive- as income rises, marginal tax rate falls (as a percent of income)
[sales tax]
Four Determinants of Consumption and Saving - Wealth, Borrowing, Expectations,
and Real Interest Rates
Wealth - Determinant of Consumption and Saving that is the real value of all
financial assets, directly related to consumption
Borrowing - Determinant of consumption and saving that allows for more
consumption at the expense of less future consumption, directly related to
consumption
Expectations - Determinant of consumption and saving in which if households
expect higher prices tomorrow, they'll buy more now and if they expect a
recession they'll save more. Directly related to consumption
Real Interest Rate - Determinant of consumption and saving in which more loans
are likely to be taken for consumption and less money is likely to be saved due to
lower interest payments. Directly related to consumption
Expansionary Fiscal Policy - 1. Current output < Full output
2. Taxes decrease, Government spending increases, or Transfer Payments increase
3. Disposable Income increases
4. Consumption increases
5. Aggregate Demand increases
6. Output, Income, and Employment increase
7. Current output = Full output
Crowding Out - 0. Government spending increases, Transfer payments increase, or
Taxes decrease
1. Government spending increases (deficit spending)
2. Consumption increases
3. Demand for loanable funds increases
4. Real interest rate increases
5. Rate of growth of Gross Investment decreases
6. Lessens economic growth (crowding out) [PPC increases less] {Long run
aggregate supply increases less}
Contractionary Fiscal Policy - 1. Current output > Full output
2. Taxes increase, Government spending decreases, or Transfer Payments decrease
,AP Macroeconomics Study Set exam 2024
3. Disposable Income decreases
4. Consumption decreases
5. Aggregate Demand decreases
6. Output, Income, and Employment decrease
7. Current output = Full output
Net Exports Effect - 1. Government spending increase, Transfer Payments increase,
or Taxes decrease
2. Government deficit increases
3. Demand for loanable funds increases
4. Real interest rate increases
5. US Bonds are more attractive
6. Demand for US dollar increases
7. Dollar appreciates
8. International value of dollar increases
9. US goods relatively more expensive
10. Exports decrease, Imports increase, and Net exports decrease
Real balances effect - 1. Price level decreases
,AP Macroeconomics Study Set exam 2024
2. Purchasing power of fixed wealth increases
3. Consumer spending increases
4. Movement along AD curve
5. Output increases
Foreign purchases effect - 1. Price level decreases
2. Relative price of US goods decreases
3. US exports increase
4. US imports decrease
5. Aggregate demand increases (movement along AD)
Interest rate effect - 1. US Price level increases
2. US borrowing increases
3. Demand for money increases
4. Nominal interest rate increases
5. Gross investment decreases
6. US Aggregate demand decreases (along AD curve)
Tax systems - 1. Progressive- as income rises, marginal tax rate rises
, AP Macroeconomics Study Set exam 2024
2. Proportional- regardless of income, tax rate is the same
3. Regressive- as income rises, marginal tax rate falls (as a percent of income)
[sales tax]
Four Determinants of Consumption and Saving - Wealth, Borrowing, Expectations,
and Real Interest Rates
Wealth - Determinant of Consumption and Saving that is the real value of all
financial assets, directly related to consumption
Borrowing - Determinant of consumption and saving that allows for more
consumption at the expense of less future consumption, directly related to
consumption
Expectations - Determinant of consumption and saving in which if households
expect higher prices tomorrow, they'll buy more now and if they expect a
recession they'll save more. Directly related to consumption
Real Interest Rate - Determinant of consumption and saving in which more loans
are likely to be taken for consumption and less money is likely to be saved due to
lower interest payments. Directly related to consumption
