1. AP Macro Course Wrap-up

2. Review: Balance of Payments
Current Account (NX)
Export-Import & Investment Income
Financial Account
Foreign purchase of US assets – U.S. purchase of foreign assets
Official Reserves

3. Financial Account: Capital Flows
Foreign purchase of US assets – U.S. purchase of foreign assets
U.S.
Investor
European
Stock
Market
Capital (savings) Flows out of U.S.
U.S.
Gov’t
Bonds
China’s
Trade
Surplus
Capital (savings) Flows into U.S.

4. Classical Dichotomy
A Pre-Keynesian theory that separates nominal from real variables
Nominal variables measured in monetary units
Real variables measured in physical units
Classical economists look at real variables---ignore nominal
Assume monetary neutrality for classical dichotomy (think LRAS)
Keynesian economists reject this theory

5. Supply-Side Policy Gov’t incentives designed to shift the LRAS right
Note: When PPF shifts right => LRAS shifts right
The supply-side toolbox consists of:
Tax cuts to stimulate work, saving, and investment
Deregulation to reduce production cost/stimulate investment.
Expenditures on education training/research expands capacity to produce

6. Psychology & Economics
“risk taking” environment that
influences consumers & producers

7. Stagnation , Prosperity or Stagflation?
Stagnation = slow 2.0% growth,
real wages do not increase
Prosperity => 3-4% growth
with growing labor force
Stagflation = “supply shock”
Market begins to anticipate rising inflation
SRAS shifts left => RGDP↓ & Inflation ↑

8. Phillips Curves 1 Page Course Summary Money Market PPF Euros Loanable
LRPC
1 Page Course Summary
SRPC
Money
Market
Loanable
Funds
PPF
Consumption & Savings
Function
Euros