AP Macroeconomics
Summary: How countries try to get the most for themselves
Unit 1: Basic Concepts
- Scarcity: Wants are unlimited, resources are limited
- Opportunity Cost: What you could’ve done/gotten
- Production Possibilities Curve (PPC): Trade-offs, efficiency, growth.
- Absolute Advantage: Producing more
- Comparative Advantage: Lower opportunity cost for specific thing
- Economic Systems: Command (government controls), market (plays control), mixed (both).
- Supply and Demand: Wants and creation change until a balance (equilibrium)
- Profit: Economic accounts for opportunity cost accounting doesn’t
Unit 2: Measurement of Economic Performance
- GDP (Gross Domestic Product): Measures total economic output
- Real (inflation adjusted) vs nominal (measure at current price)
- Unemployment: Frictional (temp), structural (mismatch), cyclical (downturn)
- Natural rate: Unemployment when there are no fluctuations
- Inflation: Money losing value, measured by CPI (cost of certain goods)
- Business Cycles: Expansion, peak, contraction, trough
Unit 3: National Income and Price Determination
- Aggregate Demand (AD): Components (C, I, G, Nx) and shifts.
- Consumption (C), investment (I), government buying(G), net exports (NX)
- Aggregate Supply (AS): Short-run and long-run; shifts due to input prices, productivity, etc.
- Multiplier Effect: A dollar spent is more than a dollar spent
Unit 4: Financial Sector
- Money Market: Demand and supply for money; interest rate determination.
- Monetary Policy: Open market operations, discount rate, reserve requirement
- M1: Currency, demand deposits, and highly liquid assets.
- M2: M1 + savings accounts, small time deposits, retail money markets.
- M3: M2 + large time deposits, institutional money, short-term securities.
- Loanable Funds Market: Interaction of savers and borrowers.
- Financial Assets: Bonds (debt), stocks (ownership), used to raise money
Unit 5: Long-Run Consequences of Stabilization Policies
- Economic Growth: Determined by physical capital, human capital, technology
- Fiscal Policy: Expansionary (more money) vs. contractionary (less)
- Monetary Policy in the Long Run: Neutrality of money and inflation targeting.
- Crowding Out: More government borrowing means harder private investment.
Unit 6: Open Economy—International Trade and Finance
- Balance of Payments: Current account (flow of goods/services) and financial account (asset ownership)
- Exchange Rates: Determination, floating (changing price) vs. fixed (currency pegged to something)
- Trade Barriers: Tariffs (import tax), quotas (max import/export), sanctions (trade bans) etc
- Globalization: Effects on economic growth, inequality, and policy.