Macro

Fiscal Policy vs. Monetary Policy

Dimension	Fiscal Policy	Monetary Policy
Who controls it	Congress and the President	The Federal Reserve (Fed)
Main tools	Government spending (G) and taxes (T)	Open market operations, reserve requirement, discount rate
Speed	Slow:requires legislation and political agreement	Fast:Fed meets regularly and acts independently
Expansionary effect on interest rates	Rates rise (government borrows more, crowding out)	Rates fall (money supply increases)
Expansionary effect on investment	Falls:private investment crowded out	Rises:lower rates encourage borrowing
Expansionary effect on exchange rate	Dollar appreciates (higher rates attract foreign capital)	Dollar depreciates (lower rates repel foreign capital)
Expansionary effect on net exports	NX falls (stronger dollar)	NX rises (weaker dollar)
Subject to crowding out	Yes	No
Recessionary gap response	Increase G or cut T → AD shifts right → real GDP rises toward potential, unemployment falls, price level rises	Buy bonds (open market ops) → money supply ↑ → interest rates ↓ → investment ↑ → AD shifts right → real GDP rises toward potential

Macro

Expansionary vs. Contractionary Policy

Dimension	Expansionary	Contractionary
Goal	Fight a recession / recessionary gap	Fight inflation / inflationary gap
Fiscal tools	Increase G, cut T	Decrease G, raise T
Monetary tools	Buy bonds, lower reserve req., lower discount rate	Sell bonds, raise reserve req., raise discount rate
Money supply	Increases	Decreases
Interest rate	Falls (monetary) / Rises (fiscal)	Rises (monetary) / Falls (fiscal)
AD	Shifts right	Shifts left
Price level	Rises	Falls
Real GDP	Rises	Falls
Budget effect (fiscal)	Creates or worsens deficit	Creates or improves surplus

Macro

Demand-Pull vs. Cost-Push Inflation

Dimension	Demand-Pull	Cost-Push
Cause	AD increases	SRAS decreases
Graph	AD shifts right	SRAS shifts left
Price level	Rises	Rises
Real GDP	Rises (above potential)	Falls (below potential)
Unemployment	Falls	Rises
Also called	Inflationary gap	Stagflation
Policy response	Contractionary policy:straightforward	Difficult tradeoff: fixing inflation worsens unemployment and vice versa
Example causes	G rises, taxes cut, money supply expands, exports surge	Oil price spike, wage surge, supply chain breakdown

Macro

Recessionary Gap vs. Inflationary Gap

Dimension	Recessionary Gap	Inflationary Gap
Real GDP	Below potential (below LRAS)	Above potential (above LRAS)
Unemployment	Above the natural rate	Below the natural rate
Price level	Below long-run equilibrium	Above long-run equilibrium
Typical cause	AD shifted left:recession	AD shifted right:boom
Self-correction	SRAS shifts right as wages fall over time	SRAS shifts left as wages rise over time
Policy response	Expansionary fiscal or monetary policy	Contractionary fiscal or monetary policy

Macro

Money Market vs. Loanable Funds Market

Dimension	Money Market	Loanable Funds Market
Y-axis (price)	Nominal interest rate (i)	Real interest rate (r*)
X-axis (quantity)	Quantity of money (Qm)	Quantity of loanable funds (Q)
Supply curve shape	Vertical:Fed controls money supply	Upward sloping:savers respond to higher rates
Supply shifters	Fed policy: OMO, reserve requirement, discount rate	Private saving, government budget balance, foreign capital inflows
Demand shifters	Real GDP, price level (transactions demand)	Expected return on investment, government borrowing
Crowding out applies?	No	Yes:government borrowing shifts D right, raises r*, crowds out private investment
AP unit	Unit 4 (Monetary Policy)	Unit 4 / Unit 5 (Fiscal deficits)

Macro

Frictional vs. Structural vs. Cyclical Unemployment

Dimension	Frictional	Structural	Cyclical
Cause	Job searching between jobs	Skills mismatch with available jobs	Economy-wide recession
Part of natural rate?	Yes	Yes	No
Duration	Short-term	Long-term	Depends on recession severity
Example	New graduate searching for first job	Coal miner after plant closure or factory worker displaced by automation	Worker laid off during a recession
Policy response	Better job matching services, information	Worker retraining programs, education investment	Expansionary fiscal or monetary policy

Macro

Nominal vs. Real Values

Dimension	Nominal	Real
Definition	Not adjusted for inflation:measured at current prices	Adjusted for inflation:measured at constant base-year prices
GDP	Rises whenever output OR prices rise	Rises only when actual output increases
Interest rate	The rate advertised:what you see on a loan	Nominal rate minus the inflation rate
Wages	Dollar amount of your paycheck	Purchasing power of your paycheck
Used in which market	Money market (nominal interest rate on Y-axis)	Loanable funds market (real interest rate on Y-axis)
Can it be misleading?	Yes:rises with inflation even if nothing real changes	No:accurately measures actual output or purchasing power

Micro

Market Structures

Dimension	Perfect Competition	Monopolistic Competition	Oligopoly	Monopoly
Number of firms	Many	Many	Few (2–10)	One
Product type	Identical (homogeneous)	Differentiated	Identical or differentiated	Unique, no close substitutes
Price control	None:price taker	Some	Significant	Full:price maker
Entry/exit	Free, no barriers	Free, no barriers	Significant barriers	Very high barriers
Long-run economic profit	Zero	Zero	Possible (positive)	Positive
P vs. MC	P = MC (efficient)	P > MC	P > MC	P > MC
P vs. ATC (long run)	P = ATC	P = ATC	P can exceed ATC	P > ATC
Deadweight loss	None	Some	Some	Yes, significant
Examples	Wheat, corn, soybeans	Restaurants, clothing brands, coffee shops	Airlines, cell carriers, automakers	Local utility company

Micro

Elastic vs. Inelastic Demand

Dimension	Elastic ( |Ed| > 1 )	Inelastic ( |Ed| < 1 )
Quantity response	Large:consumers are sensitive to price	Small:consumers are insensitive to price
Revenue when price rises	Decreases	Increases
Revenue when price falls	Increases	Decreases
Demand curve	Relatively flat (flatter slope)	Relatively steep (steeper slope)
Tax burden	Falls more on producers	Falls more on consumers
Examples	Luxury goods, vacations, goods with many substitutes	Necessities: insulin, gasoline, salt, cigarettes

Micro

Normal Good vs. Inferior Good

Dimension	Normal Good	Inferior Good
Income effect	Demand rises as income rises	Demand falls as income rises
Income elasticity	Positive	Negative
Demand when income falls	Shifts left (demand falls)	Shifts right (demand rises)
Examples	Restaurant meals, new cars, vacations, brand-name clothing	Instant noodles, bus rides, used cars, generic brands
Assumption	Most goods are assumed normal unless stated otherwise	Must be explicitly indicated in the question

Micro

Substitutes vs. Complements

Dimension	Substitutes	Complements
Cross-price elasticity	Positive	Negative
When price of Good X rises	Demand for Y rises (consumers switch)	Demand for Y falls (both bought together)
When price of Good X falls	Demand for Y falls	Demand for Y rises
Relationship	Can replace each other:one instead of the other	Used together:one alongside the other
Examples	Butter/margarine, Coke/Pepsi, coffee/tea	Coffee/cream, cars/gasoline, printers/ink cartridges

Micro

Positive vs. Negative Externality

Dimension	Positive Externality	Negative Externality
Effect on third parties	Benefit (spillover benefit)	Cost (spillover cost)
Social vs. private	MSB > MPB	MSC > MPC
Market outcome	Underproduction:Q too low	Overproduction:Q too high
Government correction	Per-unit subsidy (shifts supply right or demand right)	Per-unit Pigouvian tax (shifts supply left, raises cost)
Socially optimal Q	Higher than market equilibrium Q	Lower than market equilibrium Q
Examples	Education, vaccination, research and development	Factory pollution, cigarettes, loud parties

Micro

Price Floor vs. Price Ceiling

Dimension	Price Floor	Price Ceiling
Set relative to equilibrium	Above equilibrium price	Below equilibrium price
Result	Surplus:Qs > Qd	Shortage:Qd > Qs
Who it helps	Sellers:receive a higher price	Buyers:pay a lower price
Deadweight loss	Yes	Yes
Binding when	Set above the equilibrium price	Set below the equilibrium price
Examples	Minimum wage, agricultural price supports	Rent control, emergency gas price caps

Micro

Consumer Surplus vs. Producer Surplus

Dimension	Consumer Surplus	Producer Surplus
Definition	Willingness to pay minus price actually paid	Price received minus minimum willing to accept
Who receives it	Buyers (consumers)	Sellers (producers)
Location on graph	Above the price line, below the demand curve	Below the price line, above the supply curve
Reduced by	Price rising above equilibrium	Price falling below equilibrium
Together they equal	Total surplus:the measure of market efficiency
Lost by market failure	Deadweight loss:the triangle of lost total surplus from monopoly, price controls, or externalities

Micro

Economic Profit vs. Accounting Profit

Dimension	Accounting Profit	Economic Profit
Includes explicit costs	Yes	Yes
Includes implicit costs	No	Yes
Formula	Revenue − Explicit costs	Revenue − Explicit costs − Implicit costs
Which is larger?	Always ≥ economic profit	Always ≤ accounting profit
= 0 signals	A small real loss (implicit costs ignored)	Normal profit:firm is earning its opportunity cost, stays in industry
Long-run competitive equilibrium	Accounting profit > 0	Economic profit = 0

Both Courses

Absolute Advantage vs. Comparative Advantage

Dimension	Absolute Advantage	Comparative Advantage
Definition	Can produce more output with the same resources	Can produce at a lower opportunity cost
Determines trade?	No	Yes:this is what drives specialization
Can one party have both for all goods?	Yes	No:logically impossible for all goods
Based on	Productivity and output efficiency	Opportunity cost only
Key insight	Even if one country is better at producing everything, both countries gain from trade by specializing in their comparative advantage.