Macroeconomics Study Library.

Scarcity, opportunity cost, and trade-offs · Production Possibilities Curve (PPC): efficiency (points on PPC), inefficiency (inside PPC), unattainability (outside PPC), economic growth (outward shift) · Shape of PPC: straight-line (constant opportunity cost) vs. bowed-out (increasing opportunity cost) · Comparative advantage and gains from specialization and trade · Demand and supply fundamentals; market equilibrium · Absolute vs. comparative advantage in trade · Benefits of specialization and exchange

Gross Domestic Product (GDP): expenditure approach ($C + I + G + NX$), income approach · Real GDP vs. nominal GDP; GDP deflator calculation: $\text{GDP Deflator} = \frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$ · Unemployment rate calculation: $u = \frac{\text{Unemployed}}{\text{Labor Force}} \times 100$ · Types of unemployment: frictional (between jobs), structural (skills mismatch), cyclical (recession-caused), seasonal · Natural rate of unemployment (NRU) and full employment (NRU ≠ 0%) · Consumer Price Index (CPI) and inflation rate calculation: $\pi = \frac{\text{CPI}_t - \text{CPI}_{t-1}}{\text{CPI}_{t-1}} \times 100$ · Business cycle: expansion, peak, contraction (recession), trough · Real vs. nominal interest rates: Fisher equation $r \approx i - \pi$

Aggregate Demand (AD): components ($C + I + G + NX$) and shifters (wealth, expectations, interest rates, net exports) · Short-Run Aggregate Supply (SRAS): determinants (input prices, wages, productivity) and shifters · Long-Run Aggregate Supply (LRAS): vertical at full-employment output ($Y_{fe}$) · AD-AS model: short-run and long-run equilibrium; recessionary gap ($Y < Y_{fe}$) and inflationary gap ($Y > Y_{fe}$) · Multiplier effect: spending multiplier $= \frac{1}{1 - MPC} = \frac{1}{MPS}$ · Tax multiplier $= \frac{-MPC}{MPS}$ · Fiscal policy: expansionary (increase $G$, cut taxes) vs. contractionary · Automatic stabilizers: progressive taxes, transfer payments · Crowding out: government borrowing raises interest rates, reducing private investment

Money: functions (medium of exchange, store of value, unit of account), types (M1 = cash + demand deposits; M2 = M1 + savings + money market) · Money creation through fractional reserve banking · Money multiplier: $m = \frac{1}{\text{reserve requirement}}$ · Money market: money supply (vertical — set by Fed) and money demand (downward-sloping); nominal interest rate determination · Loanable funds market: real interest rate determination; saving supply (upward-sloping) and investment demand (downward-sloping) · Federal Reserve tools: open market operations (primary tool), discount rate, reserve requirement, interest on reserves · Expansionary monetary policy: buy bonds → bank reserves increase → money supply increases → interest rates fall → investment increases · Contractionary monetary policy: sell bonds → reverse chain

Short-run Phillips Curve (SRPC): inverse relationship between inflation and unemployment · Long-run Phillips Curve (LRPC): vertical at NAIRU (Non-Accelerating Inflation Rate of Unemployment) · Adaptive expectations and SRPC shifts · Stagflation and supply-side shocks: SRPC shifts left (outward — more inflation at each unemployment rate) · Effects of fiscal and monetary policy on AD and the Phillips Curve · Quantity theory of money: $MV = PQ$ (where $M$ = money supply, $V$ = velocity, $P$ = price level, $Q$ = real output) · Long-run economic growth: capital accumulation, technological change, human capital, productivity · Supply-side policies: tax cuts to incentivize production, deregulation, investment in infrastructure and education

Balance of payments: current account (trade in goods/services, income, transfers) vs. capital/financial account (investment flows); balance of payments identity: current account + capital account = 0 · Foreign exchange (forex) markets: exchange rate determination, currency appreciation (value rises, exports more expensive, imports cheaper) and depreciation (reverse) · Currency changes and effects on net exports and aggregate demand · International capital flows and interest rate parity · Trade barriers: tariffs, quotas, and their effects on domestic producers, consumers, and deadweight loss · Free trade benefits: comparative advantage, lower consumer prices, increased efficiency · Fixed vs. floating exchange rate regimes