AP MACROECONOMICS STUDY GUIDE TEST
QUESTIONS AND CORRECT ANSWERS
SUCCESS RESOURCE
●● aggregate supply curve
Answer: a curve defining the relationship between real production and
price level.
●● business cycles
Answer: fluctuations in real GDP around the trend value; also called
economic fluctuations.
●● consumer surplus
Answer: the difference between the maximum price a consume is (or
would be) willing to pay and the price he or she actually pays.
●● cost-push inflation
Answer: inflation created when an increase in the costs of production
(wages or raw materials) shifts the short-run aggregate supply (AS)
curve to the left; tends to push prices up while reducing the level of real
GDP at the same time (stagflation).
●● cyclical unemployment
,Answer: unemployment that reflects changes in the business cycle; the
difference between the official unemployment rate & the natural rate of
unemployment.
●● demand-pull inflation
Answer: inflation that follows from an increase in aggregate demand,
which will cause equilibrium real GDP (Y) to increase and the
equilibrium price level (P) to increase.
●● depreciation
Answer: when the price of one currency falls relative to another
currency, the first currency has depreciated relative to the other one.
●● depression
Answer: period in which a recession becomes prolonged and deep,
involving high unemployment.
●● elastic
Answer: significantly responsive to a change in price.
●● exchange rate
Answer: the price of a domestic currency in terms of a foreign currency.
●● expansion
, Answer: period in which the economy moves from a trough to a peak
and a real GDP is increasing; also called a boom.
●● expansionary fiscal policy
Answer: enacted when the government deliberately increases its deficit
to stimulate the economy; the government increases its spending
(increases G), cuts taxes (decreases T), or both, and stimulates the
economy by expanding aggregate demand (AD).
●● expansionary monetary policy
Answer: monetary policy methods by which the Fed aims to increase the
money supply and lower interest rates, thereby creating an increase in
output; in pursuit of expansionary policy goals, the Fed can lower the
required reserve ratio, lower the discount rate, or purchase government
securities on the open market.
●● expenditure approach
Answer: a way of measuring the GDP by adding up all spending on final
goods and services during a given year.
●● fiscal policy
Answer: changes, adjustments, and strategies that the governments
implements in spending or taxation to achieve particular economic
goals.
QUESTIONS AND CORRECT ANSWERS
SUCCESS RESOURCE
●● aggregate supply curve
Answer: a curve defining the relationship between real production and
price level.
●● business cycles
Answer: fluctuations in real GDP around the trend value; also called
economic fluctuations.
●● consumer surplus
Answer: the difference between the maximum price a consume is (or
would be) willing to pay and the price he or she actually pays.
●● cost-push inflation
Answer: inflation created when an increase in the costs of production
(wages or raw materials) shifts the short-run aggregate supply (AS)
curve to the left; tends to push prices up while reducing the level of real
GDP at the same time (stagflation).
●● cyclical unemployment
,Answer: unemployment that reflects changes in the business cycle; the
difference between the official unemployment rate & the natural rate of
unemployment.
●● demand-pull inflation
Answer: inflation that follows from an increase in aggregate demand,
which will cause equilibrium real GDP (Y) to increase and the
equilibrium price level (P) to increase.
●● depreciation
Answer: when the price of one currency falls relative to another
currency, the first currency has depreciated relative to the other one.
●● depression
Answer: period in which a recession becomes prolonged and deep,
involving high unemployment.
●● elastic
Answer: significantly responsive to a change in price.
●● exchange rate
Answer: the price of a domestic currency in terms of a foreign currency.
●● expansion
, Answer: period in which the economy moves from a trough to a peak
and a real GDP is increasing; also called a boom.
●● expansionary fiscal policy
Answer: enacted when the government deliberately increases its deficit
to stimulate the economy; the government increases its spending
(increases G), cuts taxes (decreases T), or both, and stimulates the
economy by expanding aggregate demand (AD).
●● expansionary monetary policy
Answer: monetary policy methods by which the Fed aims to increase the
money supply and lower interest rates, thereby creating an increase in
output; in pursuit of expansionary policy goals, the Fed can lower the
required reserve ratio, lower the discount rate, or purchase government
securities on the open market.
●● expenditure approach
Answer: a way of measuring the GDP by adding up all spending on final
goods and services during a given year.
●● fiscal policy
Answer: changes, adjustments, and strategies that the governments
implements in spending or taxation to achieve particular economic
goals.
