Table of Contents
Preface vii
Acknowledgments ix
Note for the Educators xi
About the Author xiii
Introduction: The Five-Step Program xv
Step 1 Set Up Your Study Program
1 What You Need to Know About the AP Macroeconomics Exam 3
Background Information 3
Frequently Asked Questions About the AP Economics Exams 4
2 How to Plan Your Time 11
Three Approaches to Preparing for AP Exams 11
Calendar for Each Plan 13
Step 2 Determine Your Test Readiness
3 Take the Diagnostic Exam 19
Diagnostic Exam: Answer Sheet 21
Diagnostic Exam: AP Macroeconomics 23
Step 3 Develop Strategies for Success
4 How to Approach Each Question Type 43
Section I Multiple-Choice Questions 43
Section II Free-Response Questions 46
Step 4 Review the Knowledge You Need to Score High
5 Fundamentals of Economic Analysis 51
5.1 Scarce Resources 52
5.2 Production Possibilities 55
5.3 Functions of Economic Systems 61
6 Demand, Supply, Market Equilibrium, and Welfare Analysis 65
6.1 Demand 65
6.2 Supply 71
6.3 Market Equilibrium 74
7 Macroeconomic Measures of Performance 82
7.1 The Circular Flow Model 83
7.2 Accounting for Output and Income 84
7.3 Inflation and the Consumer Price Index 90
7.4 Unemployment 95
8 Consumption, Saving, Investment, and the Multiplier 101
8.1 Consumption and Saving 102
8.2 Investment 105
8.3 The Multiplier Effect 108
9 Aggregate Demand and Aggregate Supply 114
9.1 Aggregate Demand (AD) 114
9.2 Aggregate Supply (AS) 117
9.3 Macroeconomic Equilibrium 120
9.4 The Trade-Off Between Inflation and Unemployment 127
10 Fiscal Policy, Economic Growth, and Productivity 134
10.1 Expansionary and Contractionary Fiscal Policy 134
10.2 Difficulties of Fiscal Policy 138
10.3 Economic Growth and Productivity 142
11 Money, Banking, and Monetary Policy 149
11.1 Money and Financial Assets 149
11.2 Fractional Reserve Banking and Money Creation 155
11.3 Monetary Policy 158
12 International Trade 167
12.1 Comparative Advantage and Gains from Trade 167
12.2 Balance of Payments 171
12.3 Foreign Exchange Rates 173
12.4 Trade Barriers 176
Step 5 Build Your Test-Taking Confidence
AP Macroeconomics Practice Exam 1 183
AP Macroeconomics Practice Exam 2 203
Appendixes
Further Reading 223
Websites 225
Glossary 227
Important Formulas and Conditions 233
