Table of Contents
Preface vii
Acknowledgments ix
About the Author xi
Introduction: The Five-Step Program xiii
Step 1 Set Up Your Study Program
1 What You Need to Know About the AP Macroeconomics Exam 3
2 How to Plan Your Time 12
Step 2 Determine Your Test Readiness
3 Take the Diagnostic Exam 19
Diagnostic Exam: AP Macroeconomics 23
Step 3 Develop Strategies for Success
4 How to Approach Each Question Type 33
Section I Multiple-Choice Questions 33
Section II Free-Response Questions 36
Step 4 Review the Knowledge You Need to Score HIGH
5 Fundamentals of Economic Analysis 41
5.1 Scarce Resources 42
5-2 Production Possibilities 45
5.3 Functions of Economic Systems 51
6 Demand, Supply, Market Equilibrium, and Welfare Analysis 55
6.1 Demand 55
6.2 Supply 61
6.3 Market Equilibrium 64
6.4 Welfare Analysis 69
7 Macroeconomic Measures of Performance 74
7.1 The Circular Flow Model 75
7.2 Accounting for Output and Income 76
7-3 Inflation and the Consumer Price Index 82
7.4 Unemployment 86
8 Consumption, Saving, Investment, and the Multiplier 92
8.1 Consumption and Saving 93
8.2 Investment 96
8.3 The Multiplier Effect 99
9 Aggregate Demand and Aggregate Supply 106
9.1 Aggregate Demand (AD) 106
9.2 Aggregate Supply (AS) 109
9.3 Macroeconomic Equilibrium 112
9.4 The Trade-Off Between Inflation and Unemployment 119
10 Fiscal Policy, Economic, Growth, and Productivity 126
10.1 Expansionary and Contractionary Fiscal Policy 126
10.2 Difficulties of Fiscal Policy 130
10.3 Economic Growth and Productivity 134
11 Money, Banking, and Monetary Policy 141
11.1 Money and Financial Assets 141
11.2 Fractional Reserve Banking and Money Creation 148
11.3 Monetary Policy 151
12 International Trade 160
12.1 Comparative Advantage and Gains from Trade 160
12.2 Balance of Payments 164
12.3 Foreign Exchange Rates 166
12.4 Trade Barriers 169
Steo 5 Build Your Test-Taking Confidence
AP Macroeconomics Practice Exam 1 177
AP Macroeconomics Practice Exam 2 197
Appendixes
Further Reading 217
Websites 219
Glossary 221
Important Formulas and Conditions 227