Ultimate AP Macroeconomics Formula Sheet

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32 Terms

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Opportunity Cost

The value of the next best alternative to any decision you make.

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Production Possibilities Curve (PPC)

A graphical model that represents all combinations of two goods that can be produced, capturing scarcity of resources and opportunity costs.

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Surplus

When the quantity supplied of a good, service, or resource is greater than the quantity demanded.

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Shortage

When the quantity demanded of a good, service, or resource is greater than the quantity supplied.

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Demand

An economic principle referring to a consumer's desire to purchase goods and services and their willingness to pay a price.

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Supply

The total amount of a specific good or service available to consumers.

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Equilibrium

Occurs when price has adjusted until quantity supplied is equal to quantity demanded.

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Disequilibrium

Occurs when quantity supplied is not equal to quantity demanded, leading to a shortage or surplus.

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GDP

Measures the value of the output of all goods and services produced within a country in a year.

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Nominal GDP

The market value of the final production of goods and services in a given period using current prices.

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Real GDP

Nominal GDP adjusted for changes in the price level, using prices from a base year.

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GDP Deflator

A price index used to adjust nominal GDP to find real GDP, measuring average prices of all finished goods.

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Unemployment Rate

The percentage of the labor force that is unemployed but actively seeking work.

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Labor Force Participation Rate (LFPR)

The percentage of the eligible population that is in the labor force.

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Consumer Price Index (CPI)

An index that calculates the cost of a market basket of goods purchased by a typical urban family to track cost of living changes.

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Inflation Rate

The pace at which the overall price level is increasing; percentage increase in price level from one period to the next.

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Circular Flow Model

A diagram representing GDP as a flow of income and expenditures between households and businesses.

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AD-AS Model

Illustrates national income determination and changes in the price level, showing phases of the business cycle.

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Fiscal Policy

The use of taxes, government spending, and transfers to stabilize an economy.

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Nominal Interest Rate

The interest rate you earn or pay on a loan, as advertised.

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Real Interest Rate

The nominal interest rate adjusted for inflation; the effective interest rate.

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Money Multiplier

The ratio of money supply to the monetary base, indicating how many additional dollars are created with an increase in reserves.

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Opportunity Cost Calculation

Always expressed in terms of the good that is given up.

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Mutually Beneficial Terms of Trade

Determined by looking at the two opportunity costs plotted on a PPC and choosing a number between them.

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Nominal GDP Calculation

Calculate using the market value of final goods and services at current prices.

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Real GDP Calculation

Nominal GDP adjusted for changes in the price level.

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CPI Calculation

Tracks changes in the cost of a market basket of goods over time.

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GDP per Capita

GDP divided by population to measure economic output per person.

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Effects of Fiscal Policy

Can be shown using the AD-AS model to illustrate changes in output and price level.

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Maximum Increase in Loans

Calculated as (Deposit - reserves) x money multiplier.

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Excess Reserves Calculation

Excess reserves = Deposits - (Deposits x reserve requirement).

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Short-run Economic Impacts

Calculated based on changes in spending and taxes affecting real GDP.