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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)
◦ ◦ ◦ ◦ ◦
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