Kingsley's AP Macroeconomics Blog

Aggregate demand , or AD , shows the amount of real GDP that the private, public, and foreign sector collectively desire to purchase at each possible price level. In other words, it is the demand by consumers, businesses, government, and foreign countries. Changes in price level cause a move along the curve, not a shift of the curve. The relationship between the price level and the level of real GDP is inverse. The formula for aggregate demand is as follows: AD = C + Ig + G + Xn There are 3 reasons why aggregate demand is downward sloping , which are wealth effect , interest-rate effect , and foreign trade effect . Wealth Effect Higher prices reduce purchasing power of money This decreases the quantity of expenditures Lower price levels increase purchasing power and increase expenditures Interest-Rate Effect As price level increases, lenders need to charge higher interest rates to get a REAL return on their loans Higher interest rates discourage consumer spending and b...

A population is the number of people in a country. The labor force is the number of people in a country that are classified as either employed or unemployed. People who are employed : are able and willing to work must be 16 years of age or older must work at least one hour every two weeks People who are unemployed : are people who are 16 years of age or older that don't have a job Unemployment is the failure to use available resources, particularly labor, to produce desired goods and services. Underemployment is when you have the resources but aren't using them efficiently. The unemployment rate is found using the following formula: ((# of unemployed)/(total labor force)) x 100 Total labor force = (# of employed) + (# of unemployed) The ideal unemployment rate is between 4-5% There are certain people who are not in the labor force , who are: Students Prisoners Anyone in a mental institution Military People who are disabled  m...

Inflation is a general rise in the price level. An example of this would be an increase in gas prices in the same day. Deflation is a general decline in the price level. An example of this would be a decrease in gas prices in the same day. Disinflation is when the inflation rate itself declines. An example of this would be gas prices staying the same throughout the week. Real interest rate is the cost of borrowing money that is adjusted for inflation. The formula is as follows: real interest rate = nominal interest rate - expected inflation rate Nominal interest rate is the unadjusted cost of borrowing money. The formula is a follows: nominal interest rate = real interest rate + expected inflation rate Demand-pull inflation is caused by an excess of demand over output that pulls prices upward. It is triggered by an increase in aggregate (total) demand, which causes output and employment to rise, which causes the price level to rise. Cost-push inflatio...