What happens after the policy lever gets pulled. Money growth and inflation in the long run, the short-run vs. long-run Phillips curve, government deficits and the national debt, and the determinants of long-run economic growth.
Seven topics from the College Board CED, in order.
Topic 5.1
Fiscal & Monetary Policy Actions in the Short Run
How combinations of fiscal and monetary policy shift aggregate demand to close gaps, and how interest rates respond.
Topic 5.2
The Phillips Curve
The short-run inverse relationship between inflation and unemployment — and why the long-run Phillips curve is vertical at the natural rate once expectations adjust.
Topic 5.3
Money Growth & Inflation
The quantity theory of money and why, in the long run, excessive money growth shows up as inflation rather than higher real output.
Topic 5.4
Government Deficits & the National Debt
The difference between an annual budget deficit and the accumulated national debt, and how deficits compound into debt over time.
Topic 5.5
Crowding Out
How sustained government borrowing affects the loanable funds market, interest rates, and long-run private investment.
Topic 5.6
Economic Growth
The determinants of long-run growth — productivity, human capital, physical capital, and technology — shown as shifts of the PPC and LRAS.
Topic 5.7
Public Policy & Economic Growth
How government policies — investment in education and infrastructure, incentives for saving and innovation — can encourage or discourage long-run growth.
About Unit 5
Unit 5 asks the question every other unit sets up but doesn't fully answer: what happens after the short run? You'll learn why money growth that outpaces real output growth shows up as inflation rather than lasting gains in output, why the inflation-unemployment trade-off from the Phillips curve vanishes once people adjust their expectations, and how today's budget deficits accumulate into tomorrow's national debt — with real consequences for interest rates, investment, and growth.
This unit is roughly 20–30% of the AP Macro exam — tied with Unit 3 for the most heavily weighted unit — and takes about 18–22 class periods. It pulls together ideas from Units 2, 3, and 4 into a long-run view, so a strong foundation in those units makes Unit 5 much more manageable.
Three ideas anchor Unit 5 and recur across the whole course — this unit is the core of the College Board's Macroeconomic Policies (POL) Big Idea:
Key Idea 1
In the long run, money growth becomes inflation, not output
Key Idea 2
Expectations erase short-run trade-offs over time
Key Idea 3
Today's deficits are tomorrow's constraints on growth