AP Macroeconomics Review Test Exam Questions Verified Solutions Current Update (A+ Pass)
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AP Macroeconomics
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AP Macroeconomics
AP Macroeconomics Review Test Exam Questions Verified Solutions Current Update (A+ Pass)
Movement on Short-Run Phillips Curve - Answers - Shift in AD (graph movement is in opposite direction)
Shift of Short-Run Phillips Curve - Answers - Shift in SRAS (shift is in opposite direction)
Facto...
AP Macroeconomics Review Test Exam
Questions Verified Solutions Current
Update (A+ Pass)
Movement on Short-Run Phillips Curve - Answers -✔✔ Shift in AD (graph movement is
in opposite direction)
Shift of Short-Run Phillips Curve - Answers -✔✔ Shift in SRAS (shift is in opposite
direction)
Factors of Production - Answers -✔✔ 1. Land
2. Labor
3. Capital
4. Technology
Shifters of Demand for Loanable Funds - Answers -✔✔ 1. Incentive to Invest
2. Contractionary Fiscal Policy (to the right)
Shifters of Supply of Loanable Funds - Answers -✔✔ 1. Incentive to Save
2. Monetary Policy
3. Expansionary Fiscal Policy (to the left)
Shifters of Money Supply - Answers -✔✔ Monetary Policy
Federal Reserve Bank
Shifters of Money Demand - Answers -✔✔ 1. Price Level
2. Income
3. Fiscal Policy
Shifters of Long-Run Aggregate Supply - Answers -✔✔ Increase in Factors of
Production
Shifters of Short-Run Aggregate Supply - Answers -✔✔ 1. Factors of Production
(LRAS)
2. Input Costs
3. Supply Shock
Shifters of Aggregate Demand - Answers -✔✔ 1. GDP (or its components)
2. Monetary Policy
3. Fiscal Policy
,PPC Graph - Answers -✔✔ Illustrates the production possibilities of 2 products based
on amount of resources available
Demand and Supply Graph - Answers -✔✔
Business Cycle - Answers -✔✔
AD/AS Graph - Answers -✔✔
Money Market Graph - Answers -✔✔
Loanable Funds Graph - Answers -✔✔
GDP = C + I + G + Xn - Answers -✔✔ The expenditure approach to measuring GDP
correlates well with aggregate demand (AD)
GDP = W + I + R + P - Answers -✔✔ The income approach to measuring GDP
correlates well with aggregate supply
Calculating Nominal GDP - Answers -✔✔ The quantity of various goods produced in a
nation times their current prices, added together.
GDP Deflator - Answers -✔✔ Price index used to measure inflation
Inflation Rate via the CPI - Answers -✔✔ (This year's CPI - Last year's CPI)/(Last
year's CPI) x 100.
The inflation rate is the percentage change in the CPI from one period to the next.
Real Interest Rate - Answers -✔✔ the interest rate corrected for the effects of inflation;
Money Multiplier - Answers -✔✔ 1/RR where RR equals the required reserve ratio.
Application: an initial injection of $1,000 of new money into a banking system with a
reserve ratio of 0.1 will generate up to $1,000 x (10) = $10,000 in total money.
Quantity Theory Of Money - Answers -✔✔ MV = PQ = Y. A monetarist's view that
explains how changes in the money supply (M) will affect the price level (P) and/or real
output assuming the velocity of money (V) is fixed in the short run.
MPC + MPS = 1 - Answers -✔✔ The fraction of an increase in disposable income that
is spent (MPC) plus the fraction that is saved (MPS) must equal 1.
, Spending Multiplier - Answers -✔✔ = 1/(1-MPC) or 1/MPS. This tells you how much
total spending an initial interjection of spending in the economy will generate. For
example, if the MPC = .8 and the government spends $100 million, then the total
increase in spending in the economy = $100 x 5 = $500 million.
Tax Multiplier = MPC/MPS X Tax decrease - Answers -✔✔ This tells you how much
total spending will result from an initial change in the level of taxation. It is negative
because when taxes decrease, spending increases, and vice versa. The tax multiplier
will always be smaller than the spending multiplier.
Absolute Advantage - Answers -✔✔ Produces more than the other guy or when the
country/individual can produce the good using fewer resources (inputs) than another
country/individual.
Appreciation - Answers -✔✔ An increase in the value of one currency relative to
another, resulting from an increase in demand for or a decrease in supply of the
currency on the foreign exchange market.
Balance Of Payments - Answers -✔✔ Measures all the monetary exchanges between
one nation and all other nations. Includes the current account and the capital account.
Bonds - Answers -✔✔ A certificate of debt issued by a company or government to an
investor.
Budget Deficit - Answers -✔✔ When a government spends more than it collects in tax
revenues in a given year.
Physical Capital - Answers -✔✔ Human-made resources (machinery and equipment)
used to produce goods and services;
Capital Account (AKA Financial Account) - Answers -✔✔ Measures the flow of funds
for investment in real assets (such as factories or office buildings) or financial assets
(such as stocks and bonds) between a nation and the rest of the world.
Ceteris Paribus - Answers -✔✔ "Other things being equal"; used as a reminder that all
variables other than the ones being studied are assumed to be constant.
Circular Flow Diagram - Answers -✔✔ A model of the macroeconomy that shows the
interconnectedness of businesses, households, government, banks, and the foreign
sectors. Money flows in a circular direction, and goods, services, and resources flow in
the opposite circular direction.
Classical Economic Theory - Answers -✔✔ The view that an economy will self-correct
from periods of economic shock if left alone. AKA "laissez-faire"
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