Glad you found it helpful! Videos shouldn't ever replace the face-to-face classroom learning experience, however they are an excellent tool for reinforcing the material. Good luck on May 15th!
This is really helpful. I came 4 points short of a 4 on a mock exam, and this really helped me brush up on the parts that I had trouble with. Also, good luck to everyone else taking the exam!
That's awesome! Keep studying because you can totally get a 5 on this exam. Remember, most of the multiple choice questions relate back to one of the graphs. The questions often confuse students because of the wording and vocabulary. When you break down the longer questions line-by-line, it is a lot easier. If you know the basic models, you can figure out any answer. Good luck!
Follow me on Twitter @MrMedicoInfo I will be tweeting out a live review on Wednesday night (May 14), the night before the AP Macroeconomics and AP Microeconomics exams. I will answer all of your questions between 8 p.m. and 10 p.m. EST (might even begin earlier).
Adam, It is true that a recession occurs as a result of a decrease in AD, which decreases RGDP, and raises unemployment - this occurs in the short run. However, the bonus is referring to how the economy corrects itself in the long run. Here's how it works in the long run: If we fall into a recession, workers will eventually have to take wage cuts (inflation expectations fall). This causes SRAS to shift right (due to lower resource costs) to long-run equilibrium (full-employment level of output).
That can be a good thing for students since so many seem to struggle with the balanced budget multiplier. It still helps to demonstrate how spending is more powerful than taxation through the Keynesian model.
I am giving away FREE eBook copies of "No Bull Review Macro and Micro Top Ten Guide" for the AP Macroeconomics and AP Microeconomics exams. Text me your email address at (516) 900 - ECON and I will send you the link to the free download. (516) 900 - 3266
Starting at about 1:46, you have illegal math: ΔSpending x (1/mps) = ΔOutput. P-E-MD-AS says that's illegal addition: ΔSpending, before multiplication by 1/mps. It's the same for the tax and balanced budget "multipliers".
I have a question concerning the return of money to the Central Bank (FED). What is the nature of money the receive ? Scriptural money or paper money ? And what the central bank do with that money ? Destroy ? Reintroduce into the market ?
beruangmacan yeah....I see this structural unemployment for teachers incoming. All we have to do is sit at home and watch the lectures, and then come to school to take the tests....
Just thought I'd remind you that you're doing good things here..haha! 6 straight hours of AP testing doesn't sound like fun, but your material is very helpful and puts me at ease about it. :)
I have problem in the last section, the AS-AD model in the long run. Nominal wages fall AS shift up, PL Fall, ok. so what is the factors that increases GDP, and the factors that decreases unemployment in this case ?
+b11petsi When AS shifts to the right along the downward sloping AD curve, more production is happening (RGDP increases) at a lower price level. As output increases, employment rises as well --- More people are hired to produce the increased output.
I am confused about the bonus part. Why is it if in a recession, ultimately the RGDP will rise and unemployment fall? then recession is a good thing no?
The bonus is about classical economic thought and the belief in the economy's ability to self-correct in the long run. If the classical model worked perfectly, then there would be no need for active government policies in the short run. However, government policies are often done improperly and contain many shortcomings of their own.
Greate Rev but minor misinterpretations. As recession goes, prices fall, output falls, Unemployment rises (Okun Law) As Prices rise, inflation rises, Unemployment goes down (Ph curve.) Or not?
When a demand shock recession occurs, prices fall, output falls, and unemployment rises. And yes, Okun's Law states that there is essentially a 2% output gap for each percentage point of unemployment beyond the natural rate (or NAIRU). When aggregate demand shifts right, prices rise, output may increase depending where the economy was previously operating, and unemployment falls. The inverse relationship between inflation and unemployment is illustrated as movement along the short-run Phillips curve.
+cedricblanc1997 Yes, that's it. When the Fed (the US central bank) sells bonds, it effectively removes money from commercial banks. This means banks have less in their excess reserves and cannot lend as much to households and businesses. Think about the Fed selling bonds as taking money away from the banks --- the Fed keeps that money for itself. If the private banks can't use it, then households and businesses can't use it. Money supply shrinks.
Thanks a lot for the explanation :) By the way, the reserves in banks are generally only between 0-2 % right (at least for the ECB). Does a change in that percentage really affect banks a lot ?
during 3:50 im confused about demand increasing and interest rates increasing the on the left graph. I thought a decrease in demand caused money supply to decrease and interest rates to increase and therefore demand and interest rates are inversely related. Someone please explain this to me.
This is a Loanable Funds Market graph used for showing the effects of fiscal policy on real interest rates (crowding out effect). When government increases spending, it demands more loanable funds to finance its budget deficit. Money supply applies only to the Money Market graph and monetary policy.
No, simply putting more money into an industry does not make more people want to buy it. For example, if the government spent $2 billion funding the chocolate covered pickles industry, would demand for those pickles go up? No, because just because something is cheaper and better than it had been in the past (paid for by government) doesn't make more people want to buy it. Demand is not supposed to reflect prices, prices are supposed to reflect demand
I'm not sure that people who receive fixed payments on CDs are losers necessarily, compare that to a flex interest rate of savings accounts that automatically dropped the return rate to 0% yes customer lost that couldn't invest their money when they could under a reasonable interest rate. I would say Banks also lost during the Pandemic because they have to continue to pay interest to people on CDs and GICs account regardless of the length of lockdowns. Winners and losers is a relative term to the particular situation that you might be in.
A shift of the entire AD curve one way leads to MOVEMENT ALONG the Phillips curve in the opposite direction. A shift of the entire AS curve one way will SHIFT the entire Phillips curve in the opposite direction.
Wait this makes no sense to me. You said that during recession unemployment decreases???? and during inflation unemployment increases??? okey i saw the response to Adam about a similar question.... if that's what happens during recession in the long run, then why do we even need the gov't to fix stuff.... still makes no sense to me...gaaaa
The last concept he's explaining is called supply side economics (supported by conservatives who believe in laissez faire or that the government should keep its hands off the economy because eventually the economy will fix itself (self-correcting)). They believe that during a recession, workers will get laid off, some time will pass, workers will accept lower wages, input prices will go down and therefore aggregate supply will shift to the right (PL decreases & RGDP increases ). The AS shifting to the right will lead to low unemployment, and therefore the economy will correct itself without government involvement. The opposite will happen during an inflation. Hope this helps.
He says "During a recession, the Fed should PURSUE an EXPANSIONARY FISCAL POLICY which would LEAD TO: increase in aggregate demand, increase in price level, increase in output, and decrease in unemployment." During recession, there is high unemployment, and the gov should expand to fix the problem, and THEREFORE reduce unemployment. secondly: "During inflation, the Fed should PURSUE a CONTRACTIONARY FISCAL POLICY which would LEAD TO: decrease in aggregate demand and increase in unemployment."
ohhhhhh now that makes sense... for some reason I didn't hear the policy part.... thanks so much!!! Now I don't feel like that I was missing out on some key concept or something. YAY ^_^ thanks again
The first concept is inherrently faulted. - The statement that increased government spending will increase demand is in errror for a number of reasons.: Firstly it is based on an assumption that the government has a capacity to pay for increased spending without taking away the purchasing power of the private sector. There is no valid reason at all to believe this since the government is not some entity divorced from the market of any economy. It must compete with the private sector for resources whenever it acts to spend. This is bcauseas soon as it acts it has enetered a simple demand supply situation in the market The second reason is that it has no purchasing power seperate fro the economy. It's purchasing power comes from taxing, borrowing or deficit spending or a combination of all three. When it operates to do any of those things it does not operate alone isolated from the reciprocal effects of it's actions like is depicted in the diagram. Unfortunately the diagrams that represent shifts in demand are only conceptual theories put on a whiteboard to depict a concept itself. In reality there is no seperation of actions since every action of government has a reciprocal action. Just like a force on an object in physics has a resultant reciprocal action. There are practical demostartion that can illustrate these effects and destroy the whole ill conceived idea that the demand supply curve can be somehow put aside in order for this concept to be true.
+Hugh Jones Yes the government could theoretically increase demand if there is a glut. But the situation is never that simple. Firstly the governrnent has to know what is in a real glut in the particular industry in which that glut may appear. To do that they need specialist knowledge to allocate resources to that industry and make an accurate decision based on that specialist knowledge as well as make the decision to put aside competing industries demands who also believe they are the situation of a 'Glut of demand '. Don't forget there are over 10 million differing prices and demand supply curves for goods on sale in a modern country. Just go to your local large supermarket and you will observe over 10 to 15 thousand different products on the shelves from many suppliers and segments of the food and related industries who may be in glut for some products and not so in others.. That's a bun fight and that bun fight is extremely unlikely to be correctly or accurately determined by politicians who have always their own personal agendas unrelated to efficiency and more related to politics of the day. It is a cumbersome and slow process to determine who is in a glut and who is not. The Soviets found this out in the early 1920's with their farming reforms and later with their manufacturing reforms. That is why the Soviet Union was so far behind the efficiencies of the western world in almost every field of all industry and farming practices. The 'kick start' is not something that is proven and is just an unproven theory on it's own. The very term "aggregate demand" is just a term that exists in theory alone. No such beast as "aggregate demand" actually exists since there is no aggregate and demand rised and falls every day across industries or within regions. It is a one size fits all approach which ignores the complexity of markets.
