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AP EXAM REVIEW UNIT 3 NATIONAL INCOME AND PRICE DETERMINATION
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Marginal Propensity to consume A. Marginal = extra B. proportion of any change in income that is consumed C. MPC = change in consumption change in income Marginal Propensity to Save A. proportion of any change in income that is saved B. MPS = change in saving change in income C. MPC + MPS = 1
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Multiplier A.A small change in 1.Investment spending 2.Consumption 3.Net exports 4.Government purchases leads to an even bigger change in GDP B.Multiplier determines how large the change will be C.Multiplier = D.Multiplier = ___ 1___ 1 - MPC _ 1__ MPS http://www.youtube.com/watch?v=JQVfkH- 2G-I
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Remember this formula? Instead of X – M we used Xn The same formula works for AD AD = C + I + G + Xn When part of the formula changes the curve will shift
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Movement along the AD curve 1. caused by a change in price level 2. movements along a fixed aggregate demand curve represent changes in real GDP Aggregate Demand
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Shift in the curve or demand shock 1.Rightward shift shows increase in AD 2.Leftward shift shows decrease in AD Real GDP Shifts caused by a change in the determinants of AD a. Consumer spending - C b. Investment spending - Ig c. Government spending - G d. Net export spending - Xn
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A.Shows the level of real domestic output firms will produce at each price level B.AS curve is upward sloping showing a positive relationship between price and output C.Movement along the curve caused by a change in price SRAS Aggregate Supply
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Shift in the curve or Supply Shock a.Leftward shift – decrease in SRAS b.Rightward Shift – increase in SRAS c.Changes in factors other than price shift curve 1.Change in price of resources (input) 2.Change in wages (input) 3.Changes in productivity https://www.youtube.co m/watch?v=UwAQRnpV MzI&index=3&list=PLBC 35DEA1D1A98034
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Long Run Equilibrium 1.Where short run equilibrium and LRAS curve intersect 2.The economy self corrects
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Draw an AD/AS model showing the change indicated.
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