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.