AP Macro - Unit 3

What is Aggregate Demand(AD)?

• Aggregate Demand (AD) is the total demand for goods and services in an economy at a given price level (sum of all demand curves)

• Aggregate Demand (AD) is the amount of money the government spends on public services (product of all demand curves).

• Aggregate Demand (AD) refers to the total income earned by households in a year.
• Aggregate Demand (AD) is the total supply of goods and services in an economy.

What is Short Run Aggregate Supply(SRAS)?

• SRAS is the total supply of goods and services in an economy at varying price levels in the short run, where some costs are fixed (sum of all supply curves).

• SRAS only includes goods that are produced in the agricultural sector (difference of all supply curves and all demand curves in the USA).

• SRAS is the long-term supply of goods and services at fixed prices.
• SRAS represents the total demand for goods and services in an economy.

What is the Balanced Budget Multiplier?

• The Balanced Budget Multiplier is equal to -1.
• The Balanced Budget Multiplier is when government spending and tax revenues change in the different direction, by the same amount, at coordinated times

• The Balanced Budget Multiplier is when government spending and tax revenues change in the same direction, by the same amount, at the same time

• The Balanced Budget Multiplier is equal to 0.

What is the formula for the Balanced Budget Multiplier?

• 2
• -1
• 1
• 0

What is an example of automatic stabilizers in action?

• Increased unemployment = increase in transfer payments = increase in C = increase in AD = increase in GDP

• Increased unemployment = increase in volunteers = increase in G = increase in SRAS = decrease in GDP

• Increased government spending during a recession.
• Tax cuts during an economic boom.

What is the automatic stablizier?

• An automatic stabilizer is fiscal policy action that is automatically triggered by the state of economy

• A type of monetary policy that adjusts interest rates.
• A method for predicting future economic conditions.
• A tool that only increases taxes during a recession.

What is the relationship between the spending and tax multipliers?

• Spending Multiplier = Tax Multiplier / 2

• Spending Multiplier = Tax Multiplier

• Spending Multiplier = Tax Multiplier - 1

• Spending Multiplier = Tax Multiplier + 1.

What is the tax multiplier?

• The tax multiplier is the total amount of taxes collected.
• The tax multiplier is the factor by which price level changes when the government changes spending

• The tax multiplier is the factor by which real GDP changes when the government changes taxes

• The tax multiplier is the difference between income and expenses.

What is the formula for the tax multiplier?

• Tax Multiplier = MPC / (1 + MPC)
• Tax Multiplier = -MPC / MPC
• Tax Multiplier =

  -(MPC/MPS)

• Tax Multiplier = (1 - MPC) / MPC

What is the spending multiplier?

• The spending multiplier is the factor that real GDP will change by when the government increases or decreases spending

• The spending multiplier is the factor that price level will change by when the government increases or decreases taxes

• The spending multiplier is the total amount spent in an economy.
• The spending multiplier is calculated as MPC + MPS.