Long-Run Consequences of Policy

Name: AP Macroeconomics Unit 5: Long-Run Consequences of Policy
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20–30% of the exam3 lessons · 41 min

What this unit covers

The topics below follow the published Macro course framework for Unit 5. This unit is worth 20–30% of the exam, so budget your time against that rather than against how long the unit takes to teach.

Phillips curveDeficitsCrowding outEconomic growth

Lessons in this unit

The Phillips Curve14 min · 3 objectivesExplain the short-run trade-off between inflation and unemployment · Distinguish the short-run Phillips curve from the vertical long-run Phillips curve · Connect movements and shifts of the Phillips curve to the AD–AS model
Deficits, Debt & Crowding Out14 min · 3 objectivesDistinguish a budget deficit from the national debt · Explain how government borrowing can crowd out private investment · Analyze crowding out using the loanable funds market
Economic Growth13 min · 3 objectivesIdentify the sources of long-run economic growth · Explain how growth is shown as shifts of LRAS and the PPC · Analyze how investment in capital and productivity raises potential output

Formulas in Unit 5

Phillips curve ↔ AD–AS correspondence

AD ↑ ⇒ move up-left along SRPC (inflation ↑, unemployment ↓) · negative supply shock ⇒ SRPC shifts right

Demand changes are movements along the SRPC; supply shocks shift it. The LRPC sits vertically at the natural rate of unemployment.

Deficit, debt, and crowding out

Debt(this year) = Debt(last year) + Deficit(this year) · Gov’t borrowing ↑ ⇒ real interest rate ↑ ⇒ private investment ↓

The deficit is a yearly flow that adds to the debt stock. In loanable funds, government borrowing raises demand for funds, lifting the real rate and crowding out investment.

Growth in real GDP

Growth rate of real GDP = [(Real GDP_new − Real GDP_old) / Real GDP_old] × 100

Sustained positive growth in *real* GDP (and in real GDP per capita, which divides by population) reflects a rising standard of living.

What examiners penalize here

Pair the Phillips curve with AD–AS in your answers. A rightward AD shift = up-left move along the SRPC; a leftward SRAS shift (supply shock) = an outward shift of the SRPC. Consistency between the two models earns full credit.
To show crowding out on the exam, draw the **loanable funds market**: government borrowing shifts **demand right**, the **real interest rate rises**, and **investment falls**. Then connect lower investment to slower long-run growth via a smaller future capital stock.
When a question asks about **long-run growth**, reach for capacity-expanding causes — capital, labor, human capital, technology — and show them as **outward shifts of LRAS and the PPC**. Do not answer a growth question with a short-run AD story.

Practice Macro

Our practice bank is drawn from across the whole course rather than filtered to one unit, which is closer to how the exam asks anyway — it will not tell you which unit a question is testing.

38 practice questionsEvery one with a written explanation FRQ trainerWritten answers scored against the rubric Macro study guideAll units, weights and score data in one place All 6 Macro unitsThe full course

Questions about this unit

How much of the AP Macroeconomics exam is Unit 5?

Unit 5, Long-Run Consequences of Policy, is worth 20–30% of the Macro multiple-choice section according to the published course framework. Across all 6 units that makes it one of the heaviest units on the exam, and worth front-loading.

What topics are covered in Macro Unit 5?

Long-Run Consequences of Policy covers Phillips curve, Deficits, Crowding out and Economic growth.

How should I study Macro Unit 5?

Read the 3 lessons below first — about 40 minutes — then work practice questions on these topics. Finish with practice questions and read the explanation for every one you get right by elimination as well as the ones you miss.

All 6 units of AP Macroeconomics

Unit names, topics and exam weights follow the published College Board course framework for AP Macroeconomics. AP® is a trademark registered by the College Board, which does not endorse this site.