AP MACROECONOMICS EXAM
QUESTIONS AND ANSWERS
Macroeconomics iiUnit ii1: iiBasic iiEconomic iiConcepts ii- iiAnswers ii-
Positive iiEconomics ii- iiAnswers ii-describes iithe iiway iithings iiare ii
unemployment iirate iihit iia iithree iiyear iihigh
Normative iiEconomics ii- iiAnswers ii-the iiways iithings iishould iibe ii
the iifed iishould iilower iithe iifederal iifunds iirate
Economics ii- iiAnswers ii-the iistudy iiof iihow iito iiallocate iiscare iiresources iiamount
iicompeting iiends
Equilibrium iiin iia iicompetitive iimarket ii- iiAnswers ii-when iithe iiquantity iidemanded iiis
iiequal iito iithe iiquantity iisupplied iiof iithat iigood
Competitive iimarket ii- iiAnswers ii-Many iibuyers iiand iisellers
Identical iigoods iior iiservices
Substitute ii- iiAnswers ii-Two iigoods iiare iisubstitutes iiif iia iifall iiin iithe iiprice iiof iione iiof iithe
iigoods iimakes iiconsumers iiwilling iito iibuy iithe iiother
Complements ii- iiAnswers ii-Two iigood iiare iicomplements iiif iia iifall iiin iithe iiprice iiof iione
iigood iimakes iipeople iimore iiwilling iito iibuy iithe iiother iigood
Normal iiIncome ii- iiAnswers ii-When iia iirise iiin iiincome iiincreases iithe iidemand iifor iia
iigood
Inferior iifood ii- iiAnswers ii-
Inferior iiGood ii- iiAnswers ii-When iia iirise iiin iiincome iidecreases iithe iidemand iiof iithe
iigood. iiit iiis iiinferior iigood
Scarcity ii- iiAnswers ii-Individuals, iibusinesses, iiand iigovernments iihave iiunlimited iiwants
iibut iilimited iiresources.
,imputs iior iifactors iiof iiproduction
Consumer iiGoods iivs. iiCapital iiGoods ii( iiphysical iicapital) ii- iiAnswers ii-Consumer
iigoods- ii(ex: iipizza) iigoods iimade iifor iidirect iiconsumption
Capital iigoods- ii(ex: iirestaurant iioven) iigoods iimade iifor iiindirect iiconsumption. iiGoods
iithat iimake iiconsumer iigoods
_ iimanufactured iigoods iithat iian iibe iiused iiin iithe iiproduction iiprocess, iiincluding iitools,
iiequipment, iibuildings, iiand iimachinery ii( iithis iiis iioften iireferred iito iiphysical iicapital)
Labor iior iiHuman iiCapital ii- iiAnswers ii-the iiphysical iiand iimental iiefforts iiof iipeople,
iiincluding iihuman iicapital, iithe iiknowledge iiand iiskills iiacquired iithrough iitraining iiand
iiexperience
Entrepreneurship ii- iiAnswers ii-the iiability iito iiidentify, iiopportunities iiand iiorganizer
iiproduction, iithe iiwillingness iito iiaccept iirisk iiin iithe iipursuit iiof iireward
Natural iiresources iiand iiland ii- iiAnswers ii-any iiproductive iiresource iiexisting iiin iinature,
iiincluding iiwild iiplants, iimineral iideposits, iiwind, iiand iiwater
Trade iiOffs ii- iiAnswers ii-ALL iipossible iioptions iigiven iiup iiwhen iiyou iimake iia iichoice
Choice ii- iiAnswers ii-
Opportunity iiCost ii- iiAnswers ii-The iiONE iibest iioption iigiven iiup iiwhen iiyou iimake iia
iichoice iiincluding iithe iimoney, iitime, iiand iiforgone iiopportunities
Most iidesirable iiAlternative ii.
Communism ii- iiAnswers ii-the iigovernment iiowns iiall iithe iiresources iiin iisociety ii
designed iito iiminimize iiimbalance iiin iiwealth iivia iithe iicollective iiownership iiof iiproperty ii
divide iithe iiavailable iiwealth iifor iiequal iiadvantage iiamong iicitizens ii
lack iiof iiincentives iifor iiextra iieffort, iirisk iitaking, iiand iiinnovation ii
the iicentral iigovernment iiin iiallocating iiresources iiand iisetting iiproduction iilevels iimakes
iithis iisystem iiparticularly iivulnerable iito iicorruption
Socialism ii- iiAnswers ii-system iiwhere iithe iigovernment iimaintains iicontrol iiof iispecific
iiresources iior iimarkets iiin iisociety, iisuch iias iienergy, iieducation iior iihealthcare. ii
goal iiof iifair iidistribution iiand iithe iipitfall iiof iiinadequate iiincentives ii
wages iiare iinegotiated iibetween iitrade iiunions iiand iimanagers ii
a iisingle iipolitical iiparty iidoes iinot iirule iithe iieconomy
Capitalism ii- iiAnswers ii-individuals iiand iiprivate iifirms iiown iithe iiresources iiin iisociety ii
, private iiindividuals iicontrol iithe iifactors iiof iiproduction iiand iioperate iithem iiin iipursuit iiof
iiprofit ii
wages iiare iinegotiated iibetween iimanagers iiand iiemployees iior iitheir iiunion ii
the iimarket iiforces iiof iisupply iiand iidemand iilargely iidetermined iithe iiallocation iiof iiscare
iiresources ii
Government iimay iiregulate iibusinesses iiand iiprovide iitax iisupported iisocial iibenefits
3 iieconomic iisystems ii- iiAnswers ii-1. iiCentrally-Planned ii(Command) iiEconomy
2. iiFree iiMarket iiEconomy
3. iiMixed iiEconomy
Centrally iiPlanned iiEconomics ii- iiAnswers ii-An iieconomic iisystem iiwhere iithe
iigovernment iiowns iithe iiresources iiand iidecides iiwhat iito iimake, iihow iito iimake iiit, iiand
iiwho iigets iiit. iiTotal iigovernment iicontrol iiof iithe iieconomy
Free iiMarket iiEconomics ii- iiAnswers ii-Economic iisystem iiwhere iiindividual iicitizens iiown
iithe iiresources iiand iidecides iiwhat iito iimake, iihow iito iimake iiit, iiand iiwho iigets iiit. iiLittle
iior iino iigovernment iiinvolvement iiin iithe iieconomy
Mixed iiEconomies ii- iiAnswers ii-Almost iiall iieconomies iiare iia iimixture iiof iithe iiabove
iisystems.
Production iiPossibility iiCurve ii- iiAnswers ii-
Constant iiOpportunity iiCost ii- iiAnswers ii-Resources iiare iieasily iiadaptable iibetween
iiboth iiproducts.
Increasing iiOpportunity iiCost ii- iiAnswers ii-Resources iiare iinot iieasily iiadaptable
iibetween iiboth iiproducts
Investment ii- iiAnswers ii-Investment iiis iibusiness iispending iion iicapital ii(tools iiand
iimachinery) iithat iimakes iibusinesses iimore iiproductive
Capital iiStock ii- iiAnswers ii-Capital iistock iiis iithe iiamount iiof iicapital iibusinesses iihave.
The iimore iicapital iistock, iithe iimore iioutput iithey iican iimake
Three iiShifters iiof iiPPC ii- iiAnswers ii-1. iiChange iiin iiresource iiquantity iior iiquality
2. iiChange iiin iiTechnology
Change iiin iiTrade ii(Doesn't iichange iithe iiamount iithey iican iiproduce, iibut iiit iidoes
iichange iithe iiamount iithey iican iiconsume)
Comparative iiAdvantage ii- iiAnswers ii-A iination iishould iispecialize iiin iiproducing iigoods
iiin iiwhich iiit iihas iia iicomparative iiadvantage: iiability iito iiproduce iithe iigood iiat iia iilower
iiopportunity iicost ii(a iismaller iiloss iiin iiterms iiof iithe iiproduction iiof iianother iigood)
QUESTIONS AND ANSWERS
Macroeconomics iiUnit ii1: iiBasic iiEconomic iiConcepts ii- iiAnswers ii-
Positive iiEconomics ii- iiAnswers ii-describes iithe iiway iithings iiare ii
unemployment iirate iihit iia iithree iiyear iihigh
Normative iiEconomics ii- iiAnswers ii-the iiways iithings iishould iibe ii
the iifed iishould iilower iithe iifederal iifunds iirate
Economics ii- iiAnswers ii-the iistudy iiof iihow iito iiallocate iiscare iiresources iiamount
iicompeting iiends
Equilibrium iiin iia iicompetitive iimarket ii- iiAnswers ii-when iithe iiquantity iidemanded iiis
iiequal iito iithe iiquantity iisupplied iiof iithat iigood
Competitive iimarket ii- iiAnswers ii-Many iibuyers iiand iisellers
Identical iigoods iior iiservices
Substitute ii- iiAnswers ii-Two iigoods iiare iisubstitutes iiif iia iifall iiin iithe iiprice iiof iione iiof iithe
iigoods iimakes iiconsumers iiwilling iito iibuy iithe iiother
Complements ii- iiAnswers ii-Two iigood iiare iicomplements iiif iia iifall iiin iithe iiprice iiof iione
iigood iimakes iipeople iimore iiwilling iito iibuy iithe iiother iigood
Normal iiIncome ii- iiAnswers ii-When iia iirise iiin iiincome iiincreases iithe iidemand iifor iia
iigood
Inferior iifood ii- iiAnswers ii-
Inferior iiGood ii- iiAnswers ii-When iia iirise iiin iiincome iidecreases iithe iidemand iiof iithe
iigood. iiit iiis iiinferior iigood
Scarcity ii- iiAnswers ii-Individuals, iibusinesses, iiand iigovernments iihave iiunlimited iiwants
iibut iilimited iiresources.
,imputs iior iifactors iiof iiproduction
Consumer iiGoods iivs. iiCapital iiGoods ii( iiphysical iicapital) ii- iiAnswers ii-Consumer
iigoods- ii(ex: iipizza) iigoods iimade iifor iidirect iiconsumption
Capital iigoods- ii(ex: iirestaurant iioven) iigoods iimade iifor iiindirect iiconsumption. iiGoods
iithat iimake iiconsumer iigoods
_ iimanufactured iigoods iithat iian iibe iiused iiin iithe iiproduction iiprocess, iiincluding iitools,
iiequipment, iibuildings, iiand iimachinery ii( iithis iiis iioften iireferred iito iiphysical iicapital)
Labor iior iiHuman iiCapital ii- iiAnswers ii-the iiphysical iiand iimental iiefforts iiof iipeople,
iiincluding iihuman iicapital, iithe iiknowledge iiand iiskills iiacquired iithrough iitraining iiand
iiexperience
Entrepreneurship ii- iiAnswers ii-the iiability iito iiidentify, iiopportunities iiand iiorganizer
iiproduction, iithe iiwillingness iito iiaccept iirisk iiin iithe iipursuit iiof iireward
Natural iiresources iiand iiland ii- iiAnswers ii-any iiproductive iiresource iiexisting iiin iinature,
iiincluding iiwild iiplants, iimineral iideposits, iiwind, iiand iiwater
Trade iiOffs ii- iiAnswers ii-ALL iipossible iioptions iigiven iiup iiwhen iiyou iimake iia iichoice
Choice ii- iiAnswers ii-
Opportunity iiCost ii- iiAnswers ii-The iiONE iibest iioption iigiven iiup iiwhen iiyou iimake iia
iichoice iiincluding iithe iimoney, iitime, iiand iiforgone iiopportunities
Most iidesirable iiAlternative ii.
Communism ii- iiAnswers ii-the iigovernment iiowns iiall iithe iiresources iiin iisociety ii
designed iito iiminimize iiimbalance iiin iiwealth iivia iithe iicollective iiownership iiof iiproperty ii
divide iithe iiavailable iiwealth iifor iiequal iiadvantage iiamong iicitizens ii
lack iiof iiincentives iifor iiextra iieffort, iirisk iitaking, iiand iiinnovation ii
the iicentral iigovernment iiin iiallocating iiresources iiand iisetting iiproduction iilevels iimakes
iithis iisystem iiparticularly iivulnerable iito iicorruption
Socialism ii- iiAnswers ii-system iiwhere iithe iigovernment iimaintains iicontrol iiof iispecific
iiresources iior iimarkets iiin iisociety, iisuch iias iienergy, iieducation iior iihealthcare. ii
goal iiof iifair iidistribution iiand iithe iipitfall iiof iiinadequate iiincentives ii
wages iiare iinegotiated iibetween iitrade iiunions iiand iimanagers ii
a iisingle iipolitical iiparty iidoes iinot iirule iithe iieconomy
Capitalism ii- iiAnswers ii-individuals iiand iiprivate iifirms iiown iithe iiresources iiin iisociety ii
, private iiindividuals iicontrol iithe iifactors iiof iiproduction iiand iioperate iithem iiin iipursuit iiof
iiprofit ii
wages iiare iinegotiated iibetween iimanagers iiand iiemployees iior iitheir iiunion ii
the iimarket iiforces iiof iisupply iiand iidemand iilargely iidetermined iithe iiallocation iiof iiscare
iiresources ii
Government iimay iiregulate iibusinesses iiand iiprovide iitax iisupported iisocial iibenefits
3 iieconomic iisystems ii- iiAnswers ii-1. iiCentrally-Planned ii(Command) iiEconomy
2. iiFree iiMarket iiEconomy
3. iiMixed iiEconomy
Centrally iiPlanned iiEconomics ii- iiAnswers ii-An iieconomic iisystem iiwhere iithe
iigovernment iiowns iithe iiresources iiand iidecides iiwhat iito iimake, iihow iito iimake iiit, iiand
iiwho iigets iiit. iiTotal iigovernment iicontrol iiof iithe iieconomy
Free iiMarket iiEconomics ii- iiAnswers ii-Economic iisystem iiwhere iiindividual iicitizens iiown
iithe iiresources iiand iidecides iiwhat iito iimake, iihow iito iimake iiit, iiand iiwho iigets iiit. iiLittle
iior iino iigovernment iiinvolvement iiin iithe iieconomy
Mixed iiEconomies ii- iiAnswers ii-Almost iiall iieconomies iiare iia iimixture iiof iithe iiabove
iisystems.
Production iiPossibility iiCurve ii- iiAnswers ii-
Constant iiOpportunity iiCost ii- iiAnswers ii-Resources iiare iieasily iiadaptable iibetween
iiboth iiproducts.
Increasing iiOpportunity iiCost ii- iiAnswers ii-Resources iiare iinot iieasily iiadaptable
iibetween iiboth iiproducts
Investment ii- iiAnswers ii-Investment iiis iibusiness iispending iion iicapital ii(tools iiand
iimachinery) iithat iimakes iibusinesses iimore iiproductive
Capital iiStock ii- iiAnswers ii-Capital iistock iiis iithe iiamount iiof iicapital iibusinesses iihave.
The iimore iicapital iistock, iithe iimore iioutput iithey iican iimake
Three iiShifters iiof iiPPC ii- iiAnswers ii-1. iiChange iiin iiresource iiquantity iior iiquality
2. iiChange iiin iiTechnology
Change iiin iiTrade ii(Doesn't iichange iithe iiamount iithey iican iiproduce, iibut iiit iidoes
iichange iithe iiamount iithey iican iiconsume)
Comparative iiAdvantage ii- iiAnswers ii-A iination iishould iispecialize iiin iiproducing iigoods
iiin iiwhich iiit iihas iia iicomparative iiadvantage: iiability iito iiproduce iithe iigood iiat iia iilower
iiopportunity iicost ii(a iismaller iiloss iiin iiterms iiof iithe iiproduction iiof iianother iigood)
