AP Macroeconomics Exam Review UPDATED ACTUAL Questions and CORRECT Answers

AP Macroeconomics Exam Review
UPDATED ACTUAL Questions and
CORRECT Answers
Movement on Short-Run Phillips Curve - CORRECT ANSWER - Shift in AD (graph
movement is in opposite direction)


Shift of Short-Run Phillips Curve - CORRECT ANSWER - Shift in SRAS (shift is in
opposite direction)


Factors of Production - CORRECT ANSWER - 1. Land
2. Labor
3. Capital
4. Technology


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


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


Shifters of Money Supply - CORRECT ANSWER - Monetary Policy
Federal Reserve Bank


Shifters of Money Demand - CORRECT ANSWER - 1. Price Level
2. Income
3. Fiscal Policy

,Shifters of Long-Run Aggregate Supply - CORRECT ANSWER - Increase in Factors of
Production


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


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


PPC Graph - CORRECT ANSWER - Illustrates the production possibilities of 2 products
based on amount of resources available


Demand and Supply Graph - CORRECT ANSWER -



Business Cycle - CORRECT ANSWER -



AD/AS Graph - CORRECT ANSWER -



Money Market Graph - CORRECT ANSWER -



Loanable Funds Graph - CORRECT ANSWER -



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

, GDP = W + I + R + P - CORRECT ANSWER - The income approach to measuring GDP
correlates well with aggregate supply


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


GDP Deflator - CORRECT ANSWER - Price index used to measure inflation



Inflation Rate via the CPI - CORRECT ANSWER - (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 ANSWER - the interest rate corrected for the effects of
inflation;


Unemployment Rate - CORRECT ANSWER - 16 or older, actively seeking employment.



Money Multiplier - CORRECT ANSWER - 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 - CORRECT ANSWER - 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 ANSWER - 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 ANSWER - = 1/(1-MPC) or 1/MPS. This tells you how
much total spending an initial interjection of spending in the economy will generate. For