AP Macroeconomics Review Flashcards

Flashcards covering key formulas and definitions from AP Macroeconomics Units 1-4.

Opportunity Cost

The cost of producing one good in terms of another; calculated as Y/X for good X.

Absolute Advantage

The ability to produce more of a good or service than another producer using the same amount of resources.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another producer.

Gains from Trade

A situation where both countries benefit, occurring when the terms of trade fall between the two countries' opportunity costs.

Nominal GDP

Total value of all final goods and services produced within a country in a given year, calculated at current prices.

Real GDP

Nominal GDP adjusted for inflation, using prices from a base year.

GDP Deflator

A measure of the price level, calculated as (Nominal GDP / Real GDP) * 100.

Inflation Rate

The percentage change in the price level from one period to another; calculated as ((Price Index in Year 2 – Price Index in Year 1) / Price Index in Year 1) * 100.

Nominal GDP Formula

Consumption + Investment + Government Spending + (Exports - Imports).

Real (or Nominal) GDP per Capita

Real (or Nominal) GDP divided by the total population.

Real Interest Rate (RIR)

Nominal Interest Rate - Expected Inflation.

Labor Force

The sum of employed and unemployed individuals.

Unemployment Rate

Unemployed / Total Labor Force x 100

Natural Rate of Unemployment (NRU)

Frictional Unemployment + Structural Unemployment / Labor Force

Labor Force Participation Rate

Labor Force / Total Adults x 100

Spending Multiplier

1 / MPS or 1 / (1 - MPC)

Tax Multiplier

MPC / MPS or Spending Multiplier – 1

Required Reserves

Demand Deposits x Required Reserve Ratio

Excess Reserves

Total Reserves – Required Reserves

Monetary Multiplier

1 / Required Reserve Ratio