AP Macroeconomics Test Exam Questions Verified Solutions Current Update (A+ Pass)
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AP Macroeconomics
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AP Macroeconomics
AP Macroeconomics Test Exam Questions Verified Solutions Current Update (A+ Pass)
Economy - Answers - A system that coordinates choices about production with choices of consumption, then distributes the goods and services to people who want them
- Market economy
- Command economy
Incentives...
AP Macroeconomics Test Exam
Questions Verified Solutions
Current Update (A+ Pass)
Economy - Answers -✔✔ A system that coordinates choices about production with
choices of consumption, then distributes the goods and services to people who want
them
- Market economy
- Command economy
Incentives - Answers -✔✔ Encourages people to produce things to their best possible
use
- High prices and profits -> more needed goods and less shortages
(ex. Property rights)
Property rights - Answers -✔✔ Ownerships that grant the right to trade goods and
services
Marginal analysis - Answers -✔✔ The study of the costs and benefits of doing a little bit
more vs. less of an activity
- Made through marginal decisions (analyzing trade-off)
**MPC+MPS=1
Factors of production - Answers -✔✔ - Land -> rent
- Labor -> wages
- Capital -> interest
- Entrepreneurship -> profit
Factors of production: Land - Answers -✔✔ Natural material
- Timber, water
Factors of production: Labor - Answers -✔✔ The effort of workers
Factors of production: Capital - Answers -✔✔ Human capital- Education and skill-set
Physical capital- Machinery and buildings
Factors of production: Entrepreneurship - Answers -✔✔ Innovation, risk-taking,
organization of resources
Opportunity cost - Answers -✔✔ What you must give up in order to get something
**Equal to PPC, bowed out= increasing cost
Microeconomics - Answers -✔✔ Examines individual behavior, choices, and
consequences
(ex. what determines the number of iPhones to export to France)
Positive economics - Answers -✔✔ Descriptive
- How the economy actually works (definite right and wrong answers)
Normative economics - Answers -✔✔ Predictive
- How the economy should work
Business cycle - Answers -✔✔ Up and downturns in a macroeconomy
- Depression, recession, trough, peak
- Avg. 5 years 7 months
Depression - Answers -✔✔ Deep and prolonged economic downturn
Recession - Answers -✔✔ Output and unemployment are falling
- Less prolonged than a depression
Expansion - Answers -✔✔ Recovery of the recession
- At least 2 quarters of positive economic growth
Employment - Answers -✔✔ Total number of people currently working for pay
- Part time included
Unemployment - Answers -✔✔ Those currently seeking work (not employed)
- Not natural/cyclical unemployment
- Discouraged workers
- Desired 4-5% steady level
Unemployment rate - Answers -✔✔ Percentage of the labor force unemployed
- (Unemployed/labor force)*100= unemployment rate
- Relative indicator of labor market, can over and understate
**Inverse relationship with output
**Changes in labor force characteristics, labor market institutions, and government
policy
Output - Answers -✔✔ Quantity of goods and services produces
**Inverse relationship with unemployment rate
Aggregate output - Answers -✔✔ Total production of goods and services over a year
,**Follows expansion and recession patterns
Price stability - Answers -✔✔ Price level changes slowly or not at all
Deflation - Answers -✔✔ Falling overall price level
- Makes investments/assets attractive
- Can deepen a recession
Economic growth - Answers -✔✔ Increase in the maximum output of an economy
- Sustained rise in aggregate output -> higher wages and living standard
- GDP-depreciation values= National domestic product
**Caused by increases in capital and technology (productivity -> long-run growth)
- Desired 2-3% increase per year
**GDP-depreciation values= national domestic product
Trade-off - Answers -✔✔ Shows the maximum of one good that can be produced for
each possible quantity of another good
- PPC curve
What makes an economy efficient? - Answers -✔✔ No missed opportunities
- Running on a production point of the PPC= efficient in production
- Successful allocation of resources for consumers= efficient in allocation
How do we benefit from trade? - Answers -✔✔ Specialization is more efficient
- Provides a comparative advantage
- Mutual gains
Comparative advantage - Answers -✔✔ Lower opportunity cost of production is lower
for x than y
Input comparative advantage - Answers -✔✔ Lowest amount of resources to make 1
unit
Absolute advantage - Answers -✔✔ Ability to produce more output within a given
amount of output overall
- Requires similar resources (makes most or fastest)
Market - Answers -✔✔ A group of producers and consumers exchanging
- Many buyers and sellers of the same good creates a competitive market
, Demand curve - Answers -✔✔ Graphical representation of a demand schedule
- Increase (rightward), decrease (leftward)
**Increase PL -> decrease quantity demanded (law of demand)
**Changes in price of related G/D, income, taste, expectations, and number of
consumers
Substitute - Answers -✔✔ Rises can make the consumer want more of the substitute
(ex. coffee and tea)
Complements - Answers -✔✔ Demand goes up together
(ex. coffee and croissants)
Normal goods - Answers -✔✔ Demand increases when income rises
Inferior goods - Answers -✔✔ Demand decreases when income rises
Supply curve - Answers -✔✔ Shows the relationship between quantity supplied and
price
- Increase (rightward), decrease (leftward)
**Increase PL -> increase quantity supplied (law of supply)
**Changes in input prices, related G/S, technology, expectations, and number of
producers
Quantity supplied - Answers -✔✔ How much of a G/S producers are willing to sell at a
given price
Equilibrium - Answers -✔✔ No individual would be better off doing something different
- Equilibrium price (demand=supply) OR market clearing price
Market price - Answers -✔✔ Generally uniform price for a G/S consumers are willing to
pay
Shifts in Supply and Demand curves - Answers -✔✔ - Increase D G/S -> increase
equilibrium
- Increase S G/S -> decrease equilibrium
- Increase D -> decrease S -> eq. price rises, eq. quantity ambiguous (vice versa)
- Both increase -> eq. quantity rises, eq. price ambiguous
**Inverse relationship
Price ceiling - Answers -✔✔ Upper limit on a price
- Lack of incentive to provide more for lower
- Inefficient allocation
- Wasted resources
- Low quality
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