AP Macroeconomics
Unit Five Review Guide
Module 28
Concepts to Know –
Opportunity cost of holding money (what do you give up when you hold money?)
Short term interest rates
Money Demand Curve (what is it? Shifts?)
Target federal funds rate (what is it? How do we get it?)
Money Supply Curve (what is it? Shifts?)
Liquidity Preference Model
Skills/Graphs/Equations –
Liquidity Preference Model – draw it, show shifts and how they affect interest rates
Module 29
Concepts to Know –
Loanable Funds Market
Nominal/real interest rate
Rate of Return
Supply/Demand of Loanable Funds (graph? Shifts?)
Crowding Out
Inflation and interest rate / Fisher Effect
Short Run relationship between LPM & LFM and effect on the interest rate
Long Run relationship between LPM & LFM and the effect on the interest rate
Skills/Graphs/Equations –
Loanable Funds Market
Rate of Return
Fisher Effect (Calculate real interest rate, graph change)
Module 30
Concepts to Know –
Budget Balance equation
Deficit/Surplus
Cyclically adjusted budget balance
Fiscal years
Government Debt
Public debt
Debt-GDP ratio
Implicit Liabilities
Skills/Graphs/Equations –
Cyclically adjusted budget balance
Debt-GDP ratio
Module 31
Concepts to Know –
Target Federal Funds Rate (repeat from M28)
Monetary Policy and how it affects the interest rate
Effect of Monetary Policy on aggregate demand (expansionary/contractionary)
Taylor Rule for monetary policy
Inflation targeting
Skills/Graphs/Equations –
Graph monetary policy’s effect on LMP and subsequent effect on AS/AD graph
Taylor Rule
Module 32
Concepts to Know –
Short Run versus Long Run effects of increase in money supply
Monetary Neutrality
Long run changes to interest rate (money demand shift)
Skills/Graphs/Equations –
Graph SR/LR effect of increase in money supply on AS/AD
Graph LR effect of increase in money supply on LPM
Module 33
Concepts to Know –
Cause of inflation (driving up of aggregate price levels – how does this happen)
Classical Model of the Price Level
Nominal versus real quantity of money (M versus M/P)
Inflation Tax/seignorage
Hyperinflation
Moderate Inflation (cost-push, demand-pull)
Output gap & Unemployment
Skills/Graphs/Equations –
Classical Model of Price Level
Calculate inflation tax
Graph cost-push/demand-pull situations on an AS/AD graph
Label unemployment scenarios with output gaps
Module 34
Concepts to Know –
Relationship between inflation and unemployment
Short run Phillips Curve graph
Long run Phillips Curve graph
Expected inflation rate & supply shocks effect on SRPC
Accelerating inflation
Natural rate hypothesis
NAIRU
Disinflation
Deflation
Debt deflation
Fisher Effect with disinflation
Zero bound interest rate
Liquidity trap
Skills/Graphs/EquationsDraw SRPC/LRPC (label, show accelerating inflation)
Fisher Effect
Modules 35/36
Concepts to Know –
Classical macroeconomics
Keynesian macroeconomics
Monetarism
Modern consensus
Fiscal Policy with fixed Money Supply
Quantity Theory of Money
Velocity equation
Natural rate hypothesis (revisited from M34)
New Classical/New Keynesian economics
Skills/Graphs/Equations –
Velocity of Money