AP Macroeconomics Vocabulary Terms
Exam (Latest Update )
Questions & Answers 100% Correct -
(Grade A)
Maringal - correct answer the next unit or increment of an action
Maringal Benefit - correct answer the additional benefit received from the
consumption of the next unit of a good or service
Marginal Cost - correct answer the additional benefit received from the consumption
of the next unit of a good or service
Marginal Analysis - correct answer making decisions based upon weighing the
marginal benefits and costs of that action. The rational decision maker chooses an
action if the MB is greater than or equal to marginal cost
Production Possibilities - correct answer different quantities of goods that an economy
can produce with a given amount of scarce resources. Graphically, the trade-off
between the production of two goods is portrayed as a production possibility curve or
frontier (PPF)
,Production Possibility Frontier - correct answer a graphical illustration that shows the
maximum quantity of one good that can be produced, given the quantity of the other
good being produced
Law of Increasing Costs - correct answer the more of a good that is produced, the
greater the opportunity cost of producing the next unit of the good
Absolute Advantage - correct answer this exists if a producer can produce more of a
good than all other producers
Comparative Advantage - correct answer a producer has comparative advantage if he
can produce a good at lower opportunity cost than all other producers
Specialize - correct answer when firms focus their resources on production of goods
for which they have comparative advantage, they are said to be specializing
Productive Efficiency - correct answer Production of maximum output for a given level
of technology and resources. All points on the PPF are productively efficient
Allocative Efficiency - correct answer Production of the combination of goods and
services that provides the most net benefit to society. The optimal quantity of a good is
achieved when the MB = MC of the next unit. This only occurs at one point on the PPF
,Aggregate Spending (GDP) - correct answer The sum of all spending from four sectors
of the economy; GDP = Consumer Spending + Investment + Government Spending +
(Exports - Imports)
Aggregate Income - correct answer The sum of all income - Wages + Rents + Interest
+ Profit - earned by suppliers of resources in the economy. With some accounting
adjustments, aggregate spending equals aggregate income
Nominal GDP - correct answer the value of current production at the current prices.
Valuing 2003 production with 2003 prices creates nominal GDP in 2003
Real GDP - correct answer the value of current production, but using prices from a
fixed point in time. Valuing 2003 production at 2002 prices creates real GDP in 2003
and allows us to compare it back to 2002
Base Year - correct answer the year that serves as a reference point for constructing
a price index and comparing real values over time
, Price Index - correct answer a measure of the average level of prices in a market
basket for a given year, when compared to the prices in a reference (or base) year. You
can interpret the price index as the current price level as a percentage of the level in
the base year
Market Basket - correct answer a collection of goods and services used to represent
what is consumed in the economy
Price GDP Deflator - correct answer the price index that measures the average price
level of the goods and services that make up GDP
Real Rate of Interest - correct answer the percentage increase in purchasing power
that a borrower pays a lender
Expected (Anticipated Inflation) - correct answer the inflation expected in a future time
period. This expected inflation is added to the real interest rate to compensate for lost
purchasing power
Nominal Rate of Interest - correct answer the percentage increase in money that the
borrower pays the lender and is equal to the real rate plus the expected inflation
Exam (Latest Update )
Questions & Answers 100% Correct -
(Grade A)
Maringal - correct answer the next unit or increment of an action
Maringal Benefit - correct answer the additional benefit received from the
consumption of the next unit of a good or service
Marginal Cost - correct answer the additional benefit received from the consumption
of the next unit of a good or service
Marginal Analysis - correct answer making decisions based upon weighing the
marginal benefits and costs of that action. The rational decision maker chooses an
action if the MB is greater than or equal to marginal cost
Production Possibilities - correct answer different quantities of goods that an economy
can produce with a given amount of scarce resources. Graphically, the trade-off
between the production of two goods is portrayed as a production possibility curve or
frontier (PPF)
,Production Possibility Frontier - correct answer a graphical illustration that shows the
maximum quantity of one good that can be produced, given the quantity of the other
good being produced
Law of Increasing Costs - correct answer the more of a good that is produced, the
greater the opportunity cost of producing the next unit of the good
Absolute Advantage - correct answer this exists if a producer can produce more of a
good than all other producers
Comparative Advantage - correct answer a producer has comparative advantage if he
can produce a good at lower opportunity cost than all other producers
Specialize - correct answer when firms focus their resources on production of goods
for which they have comparative advantage, they are said to be specializing
Productive Efficiency - correct answer Production of maximum output for a given level
of technology and resources. All points on the PPF are productively efficient
Allocative Efficiency - correct answer Production of the combination of goods and
services that provides the most net benefit to society. The optimal quantity of a good is
achieved when the MB = MC of the next unit. This only occurs at one point on the PPF
,Aggregate Spending (GDP) - correct answer The sum of all spending from four sectors
of the economy; GDP = Consumer Spending + Investment + Government Spending +
(Exports - Imports)
Aggregate Income - correct answer The sum of all income - Wages + Rents + Interest
+ Profit - earned by suppliers of resources in the economy. With some accounting
adjustments, aggregate spending equals aggregate income
Nominal GDP - correct answer the value of current production at the current prices.
Valuing 2003 production with 2003 prices creates nominal GDP in 2003
Real GDP - correct answer the value of current production, but using prices from a
fixed point in time. Valuing 2003 production at 2002 prices creates real GDP in 2003
and allows us to compare it back to 2002
Base Year - correct answer the year that serves as a reference point for constructing
a price index and comparing real values over time
, Price Index - correct answer a measure of the average level of prices in a market
basket for a given year, when compared to the prices in a reference (or base) year. You
can interpret the price index as the current price level as a percentage of the level in
the base year
Market Basket - correct answer a collection of goods and services used to represent
what is consumed in the economy
Price GDP Deflator - correct answer the price index that measures the average price
level of the goods and services that make up GDP
Real Rate of Interest - correct answer the percentage increase in purchasing power
that a borrower pays a lender
Expected (Anticipated Inflation) - correct answer the inflation expected in a future time
period. This expected inflation is added to the real interest rate to compensate for lost
purchasing power
Nominal Rate of Interest - correct answer the percentage increase in money that the
borrower pays the lender and is equal to the real rate plus the expected inflation
