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AP Macroeconomics Exam Review Questions and Answers
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AP Macroeconomics Exam Review Questions and Answers
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AP Macroeconomics Exam ReviewQuestions and Answers
Movement iion iiShort-Run iiPhillips iiCurve ii- iiAnswers ii-Shift iiin iiAD ii(graph iimovement iiis
iiin iiopposite iidirection)
Shift iiof iiShort-Run iiPhillips iiCurve ii- iiAnswers ii-Shift iiin iiSRAS ii(shift iiis iiin iiopposite
iidirection)
Factors iiof iiProduction ii- iiAnswers ii-1. iiLand
2. iiLabor
3. iiCapital
4. iiTechnology
Shifters iiof iiDemand iifor iiLoanable iiFunds ii- iiAnswers ii-1. iiIncentive iito iiInvest
2. iiContractionary iiFiscal iiPolicy ii(to iithe iiright)
Shifters iiof iiSupply iiof iiLoanable iiFunds ii- iiAnswers ii-1. iiIncentive iito iiSave
2. iiMonetary iiPolicy
3. iiExpansionary iiFiscal iiPolicy ii(to iithe iileft)
Shifters iiof iiMoney iiSupply ii- iiAnswers ii-Monetary iiPolicy
Federal iiReserve iiBank
Shifters iiof iiMoney iiDemand ii- iiAnswers ii-1. iiPrice iiLevel
2. iiIncome
3. iiFiscal iiPolicy
Shifters iiof iiLong-Run iiAggregate iiSupply ii- iiAnswers ii-Factors iiof iiProduction
Shifters iiof iiShort-Run iiAggregate iiSupply ii- iiAnswers ii-1. iiFactors iiof iiProduction
ii(LRAS)
2. iiInput iiCosts
3. iiSupply iiShock
Shifters iiof iiAggregate iiDemand ii- iiAnswers ii-1. iiGDP ii(or iiits iicomponents)
2. iiMonetary iiPolicy
3. iiFiscal iiPolicy
PPC iiGraph ii- iiAnswers ii-Illustrates iithe iiproduction iipossibilities iiof ii2 iiproducts iibased
iion iiamount iiof iiresources iiavailable
,Demand iiand iiSupply iiGraph ii- iiAnswers ii-
Business iiCycle ii- iiAnswers ii-
AD/AS iiGraph ii- iiAnswers ii-
Money iiMarket iiGraph ii- iiAnswers ii-
Loanable iiFunds iiGraph ii- iiAnswers ii-
GDP ii= iiC ii+ iiI ii+ iiG ii+ iiXn ii- iiAnswers ii-The iiexpenditure iiapproach iito iimeasuring iiGDP
iicorrelates iiwell iiwith iiaggregate iidemand ii(AD)
GDP ii= iiW ii+ iiI ii+ iiR ii+ iiP ii- iiAnswers ii-The iiincome iiapproach iito iimeasuring iiGDP
iicorrelates iiwell iiwith iiaggregate iisupply
Calculating iiNominal iiGDP ii- iiAnswers ii-The iiquantity iiof iivarious iigoods iiproduced iiin iia
iination iitimes iitheir iicurrent iiprices, iiadded iitogether.
GDP iiDeflator ii- iiAnswers ii-Price iiindex iiused iito iimeasure iiinflation
Inflation iiRate iivia iithe iiCPI ii- iiAnswers ii-(This iiyear's iiCPI ii- iiLast iiyear's iiCPI)/(Last
iiyear's iiCPI) iix ii100. ii
The iiinflation iirate iiis iithe iipercentage iichange iiin iithe iiCPI iifrom iione iiperiod iito iithe
iinext.
Real iiInterest iiRate ii- iiAnswers ii-the iiinterest iirate iicorrected iifor iithe iieffects iiof iiinflation;
Unemployment iiRate ii- iiAnswers ii-16 iior iiolder, iiactively iiseeking iiemployment.
Money iiMultiplier ii- iiAnswers ii-1/RR iiwhere iiRR iiequals iithe iirequired iireserve iiratio.
iiApplication: iian iiinitial iiinjection iiof ii$1,000 iiof iinew iimoney iiinto iia iibanking iisystem iiwith
iia iireserve iiratio iiof ii0.1 iiwill iigenerate iiup iito ii$1,000 iix ii(10) ii= ii$10,000 iiin iitotal iimoney.
Quantity iiTheory iiOf iiMoney ii- iiAnswers ii-MV ii= iiPQ ii= iiY. iiA iimonetarist's iiview iithat
iiexplains iihow iichanges iiin iithe iimoney iisupply ii(M) iiwill iiaffect iithe iiprice iilevel ii(P)
iiand/or iireal iioutput iiassuming iithe iivelocity iiof iimoney ii(V) iiis iifixed iiin iithe iishort iirun.
MPC ii+ iiMPS ii= ii1 ii- iiAnswers ii-The iifraction iiof iian iiincrease iiin iidisposable iiincome
iithat iiis iispent ii(MPC) iiplus iithe iifraction iithat iiis iisaved ii(MPS) iimust iiequal ii1.
Spending iiMultiplier ii- iiAnswers ii-= ii1/(1-MPC) iior ii1/MPS. iiThis iitells iiyou iihow iimuch
iitotal iispending iian iiinitial iiinterjection iiof iispending iiin iithe iieconomy iiwill iigenerate. iiFor
iiexample, iiif iithe iiMPC ii= ii.8 iiand iithe iigovernment iispends ii$100 iimillion, iithen iithe iitotal
iiincrease iiin iispending iiin iithe iieconomy ii= ii$100 iix ii5 ii= ii$500 iimillion.
, Tax iiMultiplier ii= iiMPC/MPS iiX iiTax iidecrease ii- iiAnswers ii-This iitells iiyou iihow iimuch
iitotal iispending iiwill iiresult iifrom iian iiinitial iichange iiin iithe iilevel iiof iitaxation. iiIt iiis
iinegative iibecause iiwhen iitaxes iidecrease, iispending iiincreases, iiand iivice iiversa. iiThe
iitax iimultiplier iiwill iialways iibe iismaller iithan iithe iispending iimultiplier.
Absolute iiAdvantage ii- iiAnswers ii-Produces iimore iithan iithe iiother iiguy iior iiwhen iithe
iicountry/individual iican iiproduce iithe iigood iiusing iifewer iiresources ii(inputs) iithan
iianother iicountry/individual.
Appreciation ii- iiAnswers ii-An iiincrease iiin iithe iivalue iiof iione iicurrency iirelative iito
iianother, iiresulting iifrom iian iiincrease iiin iidemand iifor iior iia iidecrease iiin iisupply iiof iithe
iicurrency iion iithe iiforeign iiexchange iimarket.
Balance iiOf iiPayments ii- iiAnswers ii-Measures iiall iithe iimonetary iiexchanges iibetween
iione iination iiand iiall iiother iinations. iiIncludes iithe iicurrent iiaccount iiand iithe iicapital
iiaccount.
Bonds ii- iiAnswers ii-A iicertificate iiof iidebt iiissued iiby iia iicompany iior iigovernment iito iian
iiinvestor.
Budget iiDeficit ii- iiAnswers ii-When iia iigovernment iispends iimore iithan iiit iicollects iiin iitax
iirevenues iiin iia iigiven iiyear.
Physical iiCapital ii- iiAnswers ii-Human-made iiresources ii(machinery iiand iiequipment)
iiused iito iiproduce iigoods iiand iiservices;
Capital iiAccount ii(AKA iiFinancial iiAccount) ii- iiAnswers ii-Measures iithe iiflow iiof iifunds
iifor iiinvestment iiin iireal iiassets ii(such iias iifactories iior iioffice iibuildings) iior iifinancial
iiassets ii(such iias iistocks iiand iibonds) iibetween iia iination iiand iithe iirest iiof iithe iiworld.
Ceteris iiParibus ii- iiAnswers ii-"Other iithings iibeing iiequal"; iiused iias iia iireminder iithat iiall
iivariables iiother iithan iithe iiones iibeing iistudied iiare iiassumed iito iibe iiconstant.
Circular iiFlow iiDiagram ii- iiAnswers ii-A iimodel iiof iithe iimacroeconomy iithat iishows iithe
iiinterconnectedness iiof iibusinesses, iihouseholds, iigovernment, iibanks, iiand iithe iiforeign
iisectors. iiMoney iiflows iiin iia iicircular iidirection, iiand iigoods, iiservices, iiand iiresources
iiflow iiin iithe iiopposite iicircular iidirection.
Classical iiEconomic iiTheory ii- iiAnswers ii-The iiview iithat iian iieconomy iiwill iiself-correct
iifrom iiperiods iiof iieconomic iishock iiif iileft iialone. iiAKA ii"laissez-faire"
Comparative iiAdvantage ii- iiAnswers ii-When iian iiindividual, iia iifirm, iior iia iination iiis iiable
iito iiproduce iia iiparticular iiproduct iiat iia iilower iiopportunity iicost iithan iianother iiindividual,
iifirm, iior iination. iiComparative iiadvantage iiis iithe iibasis iion iiwhich iinations iitrade iiwith
iione iianother.
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