AP Macro Unit 1-3 Study Guide

Unit 1:

Resources (Land, Labor, Capital, Entrepreneurship)

Production possibility curves (feasible vs infeasible, long-run output)

Calculating opportunity cost

Specialization and terms of trade

Demand vs Quantity Demanded

Supply vs Quantity Supplied

Complements, substitutes, normal goods, inferior goods

Equilibrium

Surpluses and shortages

Unit 2:

Circular flow diagram – households, firms, factor market, goods market

What’s counted in GDP?

Calculating GDP growth

Real vs Nominal GDP, per capita GDP

Calculating unemployment rate, labor force participation rate

Types of unemployment: structural, frictional, and cyclical

Natural rate of unemployment and full employment

Calculating inflation and price indices

Measuring inflation – CPI, PPI, GDP Deflator

Costs of inflation – shoe leather, menu costs, unit-of-account costs, erosion of

purchasing power

Real wages and real income

Winners and losers of inflation

Shortcomings of the CPI

Business cycles – peaks, troughs, expansions, recessions

Actual vs Potential output; the output gap

Unit 3:

The money multiplier

Using marginal propensity to consume (MPC) to calculate effects on GDP

Aggregate Demand; why is it downward sloping, what shifts it?

Short Run Aggregate Supply; why is it upward sloping, what shifts it?

Long Run Aggregate Supply; why is it vertical, what shifts it?

Trade offs between unemployment and inflation in the short and long run

What is maximum sustainable output? How does it relate to full employment and LRAS?

Short-run equilibrium; Long-run equilibrium

Shifts in AD and SRAS; their effects on inflation and output/employment

Transitioning from long-run equilibrium to short-run equilibrium

What is the output gap?

How to use fiscal policy to close the output gap

What are automatic stabilizers? Why are they automatic?