AP Macroeconomics Exam Review

Introduction

Quick review of macroeconomics concepts for AP exam.
Focus on summarizing key points without detailed explanations.
For more in-depth review, start with macroeconomics summary review videos.
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Scarcity: Limited resources can't satisfy unlimited wants; results in opportunity cost.
Factors of Production: Land, labor, capital, entrepreneurship.
Economic Systems:
- Market Economies: Private property rights, prices allocate resources.
- Command Economies: Government allocates resources.
Opportunity Cost: Value of the next best alternative.
Production Possibilities Curve (PPC): Shows combinations of goods produced with fixed resources.
- Linear PPC: Constant opportunity costs.
- Bowed Out PPC: Increasing opportunity costs.
- Economic Growth: Outward shift of PPC.
Absolute vs. Comparative Advantage:
- Absolute: More production with fewer resources.
- Comparative: Lower opportunity cost.

Circular Flow Diagram: Interaction between households, businesses, and government.
Gross Domestic Product (GDP): Total value of final goods produced in a year.
- Value Added, Income, and Output Expenditure approaches.
- Per Capita GDP: GDP divided by population; imperfect measure of living standards.
Unemployment:
- Types: Frictional, Structural, Cyclical.
- Calculating Unemployment Rate.
Inflation: General price increase; measured by CPI and GDP deflator.
- Nominal vs. Real GDP.
Business Cycle: Expansion, contraction, recession, inflationary/recessionary gaps.

Income and Spending: Disposable income, marginal propensity to consume (MPC), and save (MPS).
Multipliers: Spending and tax multipliers.
Aggregate Demand (AD) Curve: Downward sloping; shifts due to consumption, investment, government spending, net exports.
Aggregate Supply (AS) Curves:
- Short-run: Upward sloping due to sticky wages.
- Long-run: Vertical at Full Employment (YF).
Fiscal Policy: Government spending/taxing to influence economy; expansionary vs. contractionary.
Automatic Stabilizers: Tax and transfer payments adjusting with the business cycle.

Money Functions: Medium of exchange, unit of account, store of value.
Money Supply: Monetary base, M1, M2.
Interest Rates: Real vs. nominal (Fisher Formula).
Bank Balance Sheets: Assets and liabilities, reserve requirements.
Money Multiplier: Effect of reserves on money creation.
Monetary Policy:
- Scarce Reserve: Open market operations, discount rates, reserve requirements.
- Ample Reserve: Interest on reserves, administered rates.

Monetary and Fiscal Policy Interaction: Effects on AD, interest rates, price levels.
Budget Deficit and National Debt: Impact on interest rates, investment, and economic growth.
Economic Growth: Potential GDP, productivity, capital per worker, technology.
Phillips Curve: Short-run inverse relationship between inflation and unemployment, long-run natural rate.