National Income and Price Determination Overview — AP Macroeconomics
1. Unit at a Glance
This unit builds on your understanding of business cycles from Unit 2 to construct a complete model of how the overall economy works. We build the model incrementally: starting with its core components (aggregate demand, short-run aggregate supply, long-run aggregate supply) before exploring how shifts in these curves change equilibrium outcomes.
Next we cover how the economy self-adjusts to shocks over the long run, then turn to how government fiscal policy can be used to speed up recovery from business cycles, ending with key concepts that shape policy effectiveness: the multiplier effect and crowding out.
Common Pitfalls
Why: Misidentifying which curve shifts for a given shock leads to entirely incorrect analysis of outcomes
Why: Automatic stabilizers reduce output gap size automatically, changing the required scale of new policy
Why: Both effects occur simultaneously, so the net impact depends on their relative size