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AP Macro EconomicsExam Review

Key assumptions in Economics Basic Economic Vocabulary Factors of Production

◦ ◦ ◦ ◦

Fundamental Problem of Economics◦

Opportunity Costs TINSTAAFL

Scarcity & Opportunity Costs

Draw the graph

Efficient Inefficient Overextended

Production Possibilities Curve

Free Market Command Traditional Mixed

Economic Systems

Absolute advantage

Comparative advantage

Be able to work problems

Comparative Advantage

Law of Demand

Why does the law of demand exists?

Demand Schedule

T.R.I.P.E

Movement

Shift

Demand

Law of Supply

Why does the law of supply exist?

Supply Schedule

N.I.C.E.J.A.G.

Movement

Shift

Supply

Supply = Demand

Changes in equilibrium

Disequilibrium

What causes disequilibrium?

Supply & Demand Equilibrium

Buying and selling of currency Draw the graph Crowding Out Review power point from 2/3/10

Foreign Exchange

Factor Market Product Market Households Firms Government Physical Flow Monetary Flow

Circular Flow

Draw a business cycle◦ Peak◦ Trough◦ Recession◦ Expansion

How does it relate to the PPC?

Business Cycle

Full Employment Labor Force Unemployed Not in Labor Force Frictional Structural Cyclical Seasonal

Unemployment

Define inflation Define inflation rate Measure of cost of living

Inflation

Review power point from 2/16/10

Know how to calculate

CPI

Expenditure Approach◦ Consumption (C)◦ Government Spending (G)◦ Gross Investment (Ig)◦ Net Exports (X)

Income Approach◦ Rent (r)◦ Wages (w)◦ Interest (i)◦ Profit (p)

GDP

What is counted in GDP?

What is not counted in GDP?

Counted or Not Counted

What’s the difference?

Nominal vs Real GDP

How is it calculated? (Formula)

GDP Deflator

What is the difference in Real and Nominal interest rates?

Real vs. Nominal Interest Rates

DI 2 Choices

Formulas:◦ APC◦ APS◦ MPC◦ MPS

Consumption & Savings

Determinates of C & S

Savings & Borrowing Draw the graph What changes the demand for loanable

funds? What changes the supply of loanable funds? Explain Crowding Out.

Loanable Funds Market

What is investment? Explain Rates of Return Draw and explain the Investment Demand

Curve Shifts in Investment Demand (ID)

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Investment Demand

Double entry bookkeeping Debit Credit Current Account Capital/financial Account Official Reserves

Balance of Payments

Self Correcting Balance of Trade

$

$

X M

.: Xn

X M

.: Xn

Formulas:◦ Spending Multiplier

◦ Tax Multiplier

How does each multiplier affect GDP?

Know page 115 from Activity 21

Multipliers

Define Draw curve Why is it downward sloping?

◦ ◦ ◦

What makes AD shift?◦ ◦ ◦

Aggregate Demand

Define Draw curve Explain Short Run (SRAS) Explain Long Run (LRAS) What shifts SRAS?

◦ ◦ ◦

Aggregate Supply

Draw the model at equilibrium Explain and draw an economy in a

recessionary gap Explain and draw an economy in an

inflationary gap

Most important model in economics YOU MUST KNOW THIS!!!!

AS/AD Model