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...

Gross domestic product , or GDP , is the total market value of all final goods and services produced within a country's borders within a given year. Gross national product , or GNP , is a measure of what citizens produce and whether they produce these items within a country's borders. There are four sections of GDP. To calculate GDP, we use the following formula: GDP = C + I g + G + X n The " C " stands for personal consumption expenditures , which are finished goods or services. 67% of the economy is spent on this section. The " I g " stands for gross private domestic investment . 17% of the economy is spent on this section. There are four categories within this section: factory equipment maintenance new factory equipment construction of housing unsold inventories or products built in a year The " G " stands for government purchases of goods and services . 20% of the economy is spent on this section. The " X ...

Circular flow models show the flow of money, goods and services, and factors of production through the economy. There are three parts: A household is a person or group of people who share an income. They own the factors of production. Firms are organizations that produce goods and services for sale. They produce goods by taking inputs (factors of production) and turning them into outputs (finished products). The government is the provider of public goods and services. They are also the demanders of both private and public goods as well as factors of production. Within a circular flow model, there are two types of markets: Product markets are where goods and services are bought and sold. Factor markets , or resource markets , are where factors of production and resources are bought and sold. For additional information, refer to this video from Khan Academy as well as this article from ThoughtCo.: Circular flow of income and expenditures :  https://www.khanacade...

Business cycles are a fluctuation in economic activity that an economy experiences over a period of time. They have four main sections: Expansion is a period of economic upturn when output and employment are rising. The peak is the highest point of real GDP. It is near or at full employment. A contraction , also known as a recession , is where real GDP decreases for at least six months. A trough is the lowest point of real GDP. It has the least amount of spending and the highest unemployment. Some important information to remember: One cycle is from trough to trough An average cycle is five to seven years Recessions last about fourteen months Peaks and troughs are meaningless because we never know we're in one until it's over A trough means the end of a recession If a recession loses more than 10% of real GDP, then it's a depression For more information,  please refer to these videos on Khan Academy: The business cycle :  https://www.khanacademy....

This is how a supply and demand curve looks: Things to note: "Demand to sand, supply to the sky" The equilibrium point is where the supply and demand curves meet on the graph; means that the quantity demanded equals the quantity supplied On a supply and demand graph, we can have a price ceiling or a price floor: A price ceiling is the legal maximum price meant to help buyers. It keeps the prices from getting too high (this prevents price gouging). An example of this would be rent control. Consequences of enforcing a price ceiling include: Lower prices for some consumers Shortage Long lines for buyers Illegal sales above the equilibrium price A price floor is the legal minimum price meant to help sellers. An example would be minimum wage. Consequences of enforcing a price floor include: Higher product price (helps the seller) Surplus High taxes or higher government debt if the government buys the surplus Waste For more i...