AP Macroeconomics Exam 2025

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AP Macroeconomics Exam 2025
Movement on Short-Run Phillips Curve - Correct Ans-Shift in AD (graph movement is in
opposite direction)

Shift of Short-Run Phillips Curve - Correct Ans-Shift in SRAS (shift is in opposite
direction)

Shift of Long-Run Phillips Curve - Correct Ans-Factors of Production/Shift in LRAS (shift
is in opposite direction)

Factors of Production - Correct Ans-
1. Land
2. Labor
3. Capital
4. Technology
5. Sometimes Foreign Trade

Shifters of Demand for Loanable Funds - Correct Ans-1. Incentive to Invest
2. Contractionary Fiscal Policy (to the right)

Shifters of Supply of Loanable Funds - Correct Ans-1. Incentive to Save
2. Monetary Policy
3. Expansionary Fiscal Policy (to the left)

Shifters of Money Supply - Correct Ans-Monetary Policy

Shifters of Money Demand - Correct Ans-1. Price Level
2. Income
3. Fiscal Policy

Shifters of Long-Run Aggregate Supply - Correct Ans-Factors of Production

Shifters of Short-Run Aggregate Supply - Correct Ans-1. Factors of Production (LRAS)
2. Input Costs
3. Supply Shock

Shifters of Aggregate Demand - Correct Ans-1. GDP (or its components)
2. Monetary Policy
3. Fiscal Policy

PPC Graph - Correct Ans-

Demand and Supply Graph - Correct Ans-

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Business Cycle - Correct Ans-

Short Run AD/AS Graph - Correct Ans-

Money Market Graph - Correct Ans-

Loanable Funds Graph - Correct Ans-

Investment Demand Graph - Correct Ans-

Foreign Exchange Graph - Correct Ans-

Phillips Curve - Correct Ans-

GDP = C + I + G + Xn - Correct Ans-The expenditure approach to measuring GD
correlates well with aggregate demand (AD)

GDP = W + I + R + P - Correct Ans-The income approach to measuring GDP correlates
well with aggregate supply

Calculating Nominal GDP - Correct Ans-The quantity of various goods produced in a
nation times their current prices, added together.

GDP Deflator - Correct Ans-A price index used to adjust nominal GDP to arrive at real
GDP. Called the "deflator" because nominal GDP will usually overstate the value of a
nation's output if there has been inflation. The Consumer Price Index (CPI) is another
commonly used price index.

GDP Growth Rate: - Correct Ans-( Current year's GDP - Last year's GDP)/ (Last year's
GDP) x 100. The GDP growth rate is a percentage change in a nation's real output
between one year and the next.

The Inflation Rate via the CPI - Correct Ans-(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 - Correct Ans-the interest rate corrected for the effects of inflation;
Nominal interest rate - inflation rate

Unemployment Rate - Correct Ans-(Number of unemployed/Number in the labor force)
x 100. The labor force includes all non-institutionalized people of working age who are
employed or seeking employment.




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Money Multiplier - Correct Ans-1/RRR where RRR 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 - Correct Ans-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 - Correct Ans-The fraction of an increase in disposable income that is
spent (MPC) plus the fraction that is saved (MPS) must equal 1.

Spending Multiplier - Correct Ans-= 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 - Correct Ans-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 - Correct Ans-A country or individual has an absolute advantage in
the production of a good when the country can produce the good using fewer resources
(inputs) than another country or individual.

Appreciation - Correct Ans-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 - Correct Ans-Measures all the monetary exchanges between
one nation and all other nations. Includes the current account and the capital account.

Bonds - Correct Ans-A certificate of debt issued by a company or government to an
investor.

Budget Deficit - Correct Ans-When a government spends more than it collects in tax
revenues in a given year.

Capital - Correct Ans-Human-made resources (machinery and equipment) used to
produce goods and services; goods that do not directly satisfy human wants.
Sometimes separated into human capital (education, know-how) and physical (tools you
can touch and operate).

Capital Account (AKA Financial Account) - Correct Ans-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.

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