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AP Macroeconomics Cheat Sheet

This AP Macroeconomics cheat sheet offers a concise overview of key concepts, such as economic indicators, monetary policy, inflation, and aggregate demand, essential for exam preparation and understanding macroeconomic principles.

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Unit 1: Basic Economic Concepts

  • Scarcity: Limited resources vs. unlimited demand.
  • Four factors of production: Land, labor, capital, entrepreneurship.
  • Opportunity cost: Value of the next best alternative.
  • Efficiency: Producing goods with fewer resources.
  • Economic systems: Free market vs. command economies.
  • Production possibilities curve (PPC): Allocative efficiency vs. productive efficiency.
  • Comparative advantage vs. absolute advantage.
  • Law of diminishing returns.
  • Circular flow diagram.

Unit 2: Economic Indicators & the Business Cycle

  • Gross Domestic Product (GDP): Value of final goods/services within a country.
  • GDP calculations: Expenditure and income approaches.
  • Types of unemployment: Cyclical, frictional, structural.
  • Natural Rate of Unemployment (NRU): 4-6% without cyclical unemployment.
  • Inflation and deflation measurement: CPI, GDP deflator.
  • Real GDP: GDP adjusted for inflation.
  • Phases of business cycles: Recessions and expansions.

Unit 3: National Income & Price Determination

  • Aggregate demand (AD): All goods/services demanded by consumers, firms, and the government.
  • AD determinants: Consumer, investment, and government spending.
  • Multiplier effect: Chain reaction of increased spending.
  • Marginal Propensities: MPC, MPS.
  • Spending and tax multipliers.
  • Short-run aggregate supply (SRAS): Factors affecting supply.
  • Fiscal policy: Government’s role in influencing AD.

Unit 4: Financial Sector

  • Liquidity: Asset convertibility into cash.
  • Interest rates and opportunity costs.
  • Nominal interest rate = Real interest rate + Inflation.
  • Types of money: Fiat money, commodity money.
  • Functions of money: Medium of exchange, unit of account, store of value.
  • Money supply (M1, M2).
  • Money multiplier.
  • Federal Reserve’s monetary policy tools: Bonds, reserve ratios, discount rates.

Unit 5: Long-Run Consequences of Stabilization Policies

  • Self-correction of the economy in the long-run.
  • Phillips Curve: Relationship between inflation and unemployment.
  • Stagflation: High inflation and unemployment.
  • Crowding out effect: Government borrowing raises interest rates.
  • Economic growth: Measured by real GDP over time.

Unit 6: Open Economy – International Trade & Finance

  • Balance of payments: Current and capital accounts.
  • Exchange rates: Determined by tastes, income, inflation, and speculation.
  • Appreciation and depreciation of currencies.
  • Tariffs: Revenue tariffs vs. protective tariffs.
  • Effects of appreciation/depreciation on exports and imports.