AP Econ FULL year review

Review for AP econ exam. Good luck!

What is economics

Utilizing scarce resources to satisfy unlimited wants

What is the economizing problem

-Unlimited wants vs scarce resources

-Scarcity leads to tradeoffs → Tradeoffs create choices → Choices create opportunity cost

What point(s) on the PPC are attainable and efficient

-Pt a, b, c

-Anything on the frontier is attainable and efficient

How much cyclical unemployment is on the frontier of the PPC?

0 cyclical unemployment

What is the frontier of the PPC also known as?

-Qf

-Natural rate of unemployment

What point(s) on the curve are attainable and inefficient?

-Point D

-Any point inside the curve

Points inisde of the PPC have what time of unemployment

Cyclical unemployment

What points on the curve are unattainable with current resources and technology?

-Point E

-Any point outside of the curve

What are consumer goods?

Goods that are used up right away

What are capital goods?

Goods that are used to created other goods

What does a concave (circle-type) PPC curve reflect

It reflects the law of increasing opportunity cost

What is the law of increasing opportunity cost

As you produce one more of one good, you have to give up one more of another good.

-As you produce more of one good, the opportunity cost of producing each additional unit of that good increases.

What does the constant (linear) shape of the PPC curve reflect?

It reflects equal opportunity cost

What is the law of equal opportunity cost?

As you produce one more item of a good, you give up the same amount of other good at the same time.

• 1 gun = 2 butter

  • 2 guns = 4 butter

What Shifts the PPC and changes economic growth?

-△ Capital goods

-△ interest rate

-△ productive capacity

-△ Productivity

-△ Education

-△ Population

-△ Labor force

-△ Trade

-△ Resources

What do changes in capital goods include?

△ Ig

△ Machinery

△ Tools

△ Equipment

What does the circular flow model explain?

How sectors communicate through factor markets

What are included in sectors?

• C

• Ig

• G

  • Xn

What is C as a sector in the circular flow model

Households

What is Ig as a sector in the circular flow model

Businesses

What is G as a sector in the circular flow model

Government

What is Xn as a sector in the circular flow model

Int’l

-Foreign sector/ international market

What are the two factor markets in the circular flow model?

• Resource market

  • Product Market

What are the four factors of production?

• Land

• Labor

• Capital

  • Entrepreneurial Ability

What are the four factor payments?

WRIP

-Wages

-Rent

Interest

-Profit

What are factor payments?

Payments that businesses make to households in the circular flow model

-Households supply the factors of production to businesses

-Businesses pay households with factor payments

• Labor → wages

• Land → rent

• Capital → interest

  • Entrepreneurship → profit

The law of demand is for the consumer/producer?

Consumer

The law of supply is for the consumer/producer?

Producer

What does the law of demand state?

Prices ↑ , QD ↓

What does the law of supply state?

As P ↑ , QS ↑

What shifts the demand curve (Demand determinants)

PINTE

Price of related goods

Income

Number of buyers

Taste

Expectations

What shifts the supply curve (Supply determinants)

PRENTT aka PUPS

Price of other goods

Resource prices

Expectations

Number of buyers

Technology

Taxes and subsidies

What does the P in PINTE stand for (Demand determinant)

Price of related goods

What does the I in PINTE stand for (Demand determinant)

Income

What does the N in PINTE stand for (Demand determinant)

Number of buyers

What does the T in PINTE stand for (Demand determinant)

Taste

What does the E in PINTE stand for (Demand determinant)

Expectations

What does the P in PRENTT stand for (Supply determinant)

Price of other goods

What does the R in PRENTT stand for (Supply determinant)

Resource prices

What does the E in PRENTT stand for (Supply determinant)

Expectations

What does the N in PRENTT stand for (Supply determinant)

Number of sellers

What does the T₁ in PRENTT stand for (Supply determinant)

Technology

What does the T₂ in PRENTT stand for (Supply determinant)

Taxes and subsidies

What is GDP

The monetary ($) value of final Goods and services produced in the economy in year.

What are the two ways to calculate GDP

Expenditure approach

Income approach

What is the expenditure approach formula

GDP= C+ Ig+ G + Xn (X-n)

What is the income approach formula

WRiPINDS

W+R+I+P + I + N + D + S (Four adjustments)

Wages+ Rent + interest + profits + indirect business taxes + net foreign factor + depreciation + Statistical discrepancy

What does W stand for in W+R+i+P + I + N + D + S

Wages

What does R stand for in W+R+i+P + I + N + D + S

Rent

What does i stand for in W+R+i+P + I + N + D + S

interest rates

What does P stand for in W+R+i+P + I + N + D + S

Profits

What does I stand for in W+R+i+P + I + N + D + S

Indirect business taxes

What does N stand for in W+R+i+P + I + N + D + S

Net Foreign Factor

What does D stand for in W+R+i+P + I + N + D + S

Depreciation

What does S stand for in W+R+i+P + I + N + D + S

Statistical Discrepancy

What are price indices?

Indexes used to measure changes in price

What are two price indices?

CPI

GDP Deflator

What is the formula for Price index?

Price index = (Pcy Market basket / Pby same market basket ) x 100

What is the formula for GDP Deflator

GDP Deflator = ( Nominal GDP/ Real GDP ) x 100

What is the formula for Nominal GDP

Nom GDP= (Pcy X Qcy ) + (Pcy x Qcy)

What is nominal gdp

Current GDP using current year prices

Nominal GDP in year 1 (base year) is also same as the ___ _____ in year 1

Real GDP

What is the formula for Real GDP?

(Pby x Qcy) + (Pby x Qcy)

or

Real GDP = (Nominal GDP / Price index ) x 100

What is real Gdp?

GDP in base year profits

percent change in Real GDP formula

Real GDP % △ = Nominal % △ - Inflation % △

What is the formula for the rate of inflation?

Rate of inflation = (This YR PI - Last YR PI / Last YR PI ) x 100

Rule of 70 formula

Rule of 70 = 70/ Rate of inflation

What is the rule of 70?

How long it takes for prices to double

What is the standard of living △ formula?

SOL △ = (This YR Real GDP - Last YR Real GDP / Last YR Real GDP ) x 100

Real GDP Per capita formula

Real GDP per capita = Real GDP / Population

What is real gdp per capita

inflation-adjusted output per person

inflation-adjusted value of goods and services produced per person in a country.

Best to use when comparing countries

What are the types of unemployment

-Frictional

-Structural

-Cyclical

What is frictional unemployment

Switching jobs voluntarily

Ex. College grad

What is structural unemployment

Unemployment due to lack of skill

What is cyclical unemployment

Unemployment due to lack of demand or a recession

What is the Natural Rate of Unemployment (NAIRU) equal to

Full employment (Qf)

What does NAIRU say

• Frictional and structural unemployment exist

• Cyclical unemployment = 0

  • Qf= LRAS

What is the formula for the unemployment rate?

(# of unemployed / labor force ) x 100

What is the population formula

Under 16 + Institutionalized + Not in the labor force + Labor force

What is the formula for labor force?

Unemployed + Employed

To be considered unemployed you must be…

actively seeking work and are able to work

How many hours do you have to work to be considered apart of the labor force?

15 hours+ per week

What are the problems with the unemployment rate

• Discouraged workers (they stopped seeking

• Part-time workers

• False info

These things make the unemployment rate look lower than it is (understate it)

GDP is equal to….

Aggregate expenditures (AE)

AE formula

C + Ig + G + Xn

△ GDP Formula

△ GDP = multiplier x △ AE

Disposable income formula

DI= C + S (savings)

The AE Model is also known as the ____ model

keynesian

What are aggregate expenditures

Total Spending in an economy

Multiplier formula using the MPS

1/MPS

Multiplier formula using MPC

1/1-MPC

Multiplier formula using GDP

Mult= △ equil GDP/ △ AE

Can be used only if the graph is given

MPC formula

△ C/ △ DI or △ AE/ △ GDP

MPS formula

MPS= △ S / △ DI or △ Leakages / △ GDP

Leakages equation

Leakages = T + M + S

What are leakages

Things that don’t “pump” back into economy

What are injections

Things that “pump” back into economy

Injections formula

Injections = Ig + G + X

How to find leakages from T △

T ↑ ↓, DI goes in opposite direction x MPS = (Same direction as DI ) S

What does MPC stand for

Marginal propensity to consume