1. The Ultimate Review for the A.P. Economics Exam
Watch these You Tube video summaries:
Work these sample problems with Mr. Clifford:
By Ruth Narvaiz

2. Macroeconomic Unit 1 Basic Economic Concepts
Define the following terms:
Scarcity
Opportunity Cost
Production Possibilities Curve
Use the chart below to create a PPC to the right A B C D E F
Cars 1 2 3 4 5
Jeans
100 90 75 55 30
Label the following points on the graph:
X – inefficient
y – efficient
z – not possible under current conditions
What is the opportunity cost of moving from:
A to B _______________
B to C _______________
F to E _______________
E to C _______________
Does the PPC curve in this example have a constant or increasing opportunity cost?
Draw a PPC with a constant opportunity cost.
Explain why this happens.
Draw a PPC with an increasing opportunity cost. Explain why this happens.
What two things will shift the production possibilities? 1. 2.
Comparative/Absolute Advantage
The table below shows the amount of coats and cars that each country can make with the same number of inputs.
Which country has the absolute advantage in coats?
Which country has the absolute advantage in cars.
Which country has the comparative advantage in coats?
Which country has the comparative advantage in cars?
Assume each country specializes in the product it has a comparative advantage in. For both countries to benefit from trade, how many coats can be traded for each car.
Coats
Cars
U.S.A. 40 10
China 50
100

3. According to the law of demand, as price quantity demanded will _____.
What is the opportunity cost for Country A to produce:
Wheat
Cars
What is the opportunity cost for Country B to produce:
Which country has an absolute advantage in wheat?
Which country has an absolute advantage in cars?
Which country has a comparative advantage in wheat?
Which country has a comparative advantage in cars?
Assuming they specialize in the product for which they have a comparative advantage, what terms of trade would benefit both countries?
Wheat
200 50 50
100
Cars
Country A
Country B
Supply and Demand
According to the law of demand, as price quantity demanded will _____.
According to the law of supply, as price quantity supplied will _____.
Determine whether the following actions will cause a change in demand or a change in quantity demanded?
Price of the good decreases
Demand curve shifts
Movement along the demand curve
Change in consumer taste
Price of a complimentary good decreases
Determine whether the following actions will cause a change in supply or a change in quantity supplied?
Movement along the supply curve
Change in the price of an input
Supply curve shifts
Price of the good increases
Change in the number of sellers in the market
List 5 determinants of demand. (demand shifters) 1. 2. 3. 4. 5.
List 5 determinants of supply. (supply shifters) 1. 2. 3. 4. 5.
Draw a supply and demand Draw a supply and demand
graph that shows an increase graph that shows a decrease
in demand In demand
This change causes This change causes
Price____ Price _____
Quantity _____ Quantity_____
Draw a supply and demand Draw a supply and demand
graph that shows an increase graph that shows a decrease
in supply In supply.
This change causes
Price_____
Quantity_____
This change causes
Price_____
Quantity_____

4. Consumer income increases Change in the price of an input
Draw a correctly labeled supply and demand graph that includes a price floor.
What effect does a price floor have on price?
What effect does a price floor have on the amount of a good that will be bought and sold?
What will happen to price if the floor is removed?
What will happen to quantity sold if the floor is removed?
What effect does a price ceiling have on price?
What effect does a price ceiling have on the amount of a good that will be bought and sold?
What will happen to price if the ceiling is removed?
What will happen to quantity sold if the ceiling is removed?
Draw a correctly labeled supply and demand graph that includes a price ceiling.
Are each of the following actions more likely to effect the supply of or the demand for a product first?
Consumer income increases
Change in the price of an input
Change in consumer taste
A technology change makes production more efficient
Draw a supply and demand curve for green beans.
On the graph you drew, show the change that would happen if new hybrid seeds were discovered that allowed farmers to produce twice as many green beans.
As a result of this change, what would happen to the:
Price of green beans
Quantity of green beans sold
Draw a supply and demand curve for roller skates.
On the graph you drew, show the change that would happen if roller skating were to become the new fitness craze.
As a result of this change, what would happen to the:
Price of roller skates
Quantity of roller skates sold

5. Macroeconomic Unit 2 Measure of Economic Performance
Define the following terms:
Nominal GDP
Real GDP
Friction Unemployment
Structural Unemployment
Cyclical Unemployment
Business Cycle
Draw a representation of the business cycle including the labels peak, recession, contraction, trough, expansion.
During which phase of the business cycle would you:
have inflation
have cyclical unemployment
have frictional unemployment
Real GDP
time
Gross Domestic Product
The Formula for Gross Domestic Product is
GDP = _____ + _____ + _____ + ____
Determine if the following are classified as part of GDP and if so, which component they belong to.
100 shares of Apple stock
A new home
A vintage prom dress purchased on ebay
Your new back to school wardrobe
Toys imported from China
The Army’s new tanks
A veteran’s disability check
Consumption
Use the information below to calculate GDP
Millions of Dollars item________________________________amount
Exports $100
Dividends _______________________ $_____________
Consumption of fixed Capital 150
Personal Consumption _______________________ $_____________
Government Purchases 1150
Imports _______________________ $_____________
Corporate profits 750
Gross private investment _______________________ $_____________
_______________________ $_____________

6. Quantity of Screw Drivers
Write two formulas for calculating real GDP
Year
Price of Hammers
Quantity of Hammers
Price of Screw Drivers
Quantity of Screw Drivers
Price of Wrenches
Quantity of Wrenches
2008 $2
100
$10 10 20
2009 $4
120
$15
$12
2010 $6
110 25
Using the information above fill in the table below.
Year
Nominal GDP
2008
2009
2010
Using 2009 as the base year, fill in the following table.
Year
Real GDP
2008
2009
2010
Write the formula for Price Index.
Assume the market basket of goods used to CPI for Narvaizville includes 2 cars, 1 truck and 10 motorcycles. Fill in the chart with the price of the market basket of goods. Calculate the price index. Use 2010 as the base year then recalculate using 2015 and 2016 as the base year.
product
2010 price
2011 price
2012 price
car
$1,500
3,500
4,000
truck
5,000
motorcycle
200
800
1,200
Fill in the price index in the chart below. Use 2014 as the base year then recalculate using 2015 and 2016 as the base year
Year
Price of the Market Basket of Goods
Base Year 2010
Base Year 2011
Base Year 2012
2010
100
2011
2012

7. Given the table to the left, how much did prices change between:
Inflation
Define:
Demand Pull Inflation
Cost Push Inflation
Disinflation
deflation
Write the formula used to determine the rate of inflation
Assume that the actual rate of inflation turns out to be HIGHER than the rate of inflation that was expected. Who is helped and hurt by this unexpected inflation?
Helped
Hurt
year
Consumer Price Index
2000
100
2005
112
2010
110
Given the table to the left, how much did prices change between:
2000 and 2005
2005 and 2010
2000 and 2010
Unemployment
Explain the following economic concepts:
The natural rate of unemployment
Discouraged workers
Write the formula for the unemployment rate
Narvaizville’s population includes the following people:
Employed full time
500
Employed part time
400
Retirees who have retuned to work
Unemployed looking for work
100
Students working part time
What is the size of Narvaizville’s labor force?
What is Narvaizville’s unemployment rate?

8. Macroeconomic Unit 3 National Income and Price Determination
Explain the following reasons for the aggregate demand curve being downward sloping:
Real Balances (wealth) effect
Interest Rate effect
Foreign Purchases effect
Write the formula for Aggregate Demand
Draw the AD/AS model showing the economy at full employment equilibrium. Include all the appropriate labels.
List the determinants of Aggregate Demand AKA Demand Shifters
List the determinants of Aggregate Supply AKA Supply Shifters
Draw the AD/AS model showing the economy with a recessionary gap
Draw the AD/AS model showing the economy with an inflationary gap.
Draw the AD/AS model in equilibrium and then show a negative demand shock.
Draw the AD/AS model in equilibrium and then show a positive demand shock.
How will this shock effect:
Price
GDP
Unemployment
How will this shock effect:
Price
GDP
Unemployment

9. MPC,MPS and The Multiplier
Draw the AD/AS model in equilibrium and then show a negative supply shock.
Draw the AD/AS model in equilibrium and then show a positive supply shock.
How will this shock effect:
Price
GDP
Unemployment
How will this shock effect:
Price
GDP
Unemployment
Explain Stagflation
MPC,MPS and The Multiplier
Write the formulas for:
Disposable Income
MPC
MPS
Multiplier
Assume that households typically save 20%
of any additional income they receive.
What is the MPC?
What is the MPS?
What is the multiplier
If households receive a $200 tax cut:
How much of the $200 will they spend?
How much will GDP increase?
NOW – you are going to show this result
graphically here
If Government spending increases by $200:
1. How much will GDP increase?
Draw the AD/AS model in equilibrium. Next, show the change that will result from the $200 tax cut that households receive. Be sure to consider the multiplier effect when you make this change to the graph.

10. Macroeconomic Unit 4 Stabilization Policies
Define the following terms:
Fiscal Policy
Discretionary Fiscal Policy
Expansionary Fiscal Policy
Contractionary Fiscal Policy
Automatic stabilizers
The political business cycle
Economic Problem
Should policymakers expand or contract the economy
What specific policy should be pursued
The economy is in recession
The economy is experiencing inflation
There is high unemployment
Suppose Narvaizville’s full employment potential output is $500 but the actual GDP is only $400. Draw the AD/AS model that shows Narvaizville’s current economic situation.
Suppose the MPS for Narvaizville is .2. What is the Multiplier?
If the government of Narvaizville increases government spending by $20 what will be the resulting increase in GDP?
Show the result of this increase in government spending on the graph to the left.
Who is John Maynard Keynes and why is he important?
What is the formula for the Budget Balance?
What is likely to happen to the budget as a result of pursuing expansionary fiscal policy during a recession?
What is likely to happen to the budget as a result of pursuing contractionary fiscal policy during a period of inflation?
If people begin to expect inflation what is likely to happen to the actual inflation rate?

11. NOW - ON THE SAME GRAPH ABOVE NOW - ON THE SAME GRAPH ABOVE
The Phillips Curve
Draw an AD/AS graph in equilibrium. Be sure to include all the appropriate labels. Label the equilibrium point A
Draw the short and long run Phillips Curve. Be sure to include all the appropriate labels. Label the equilibrium point A
On the AD/AS graph above show the result of a positive demand shock. Label the new short run equilibrium point B. NEXT – label the corresponding point B on the Phillips Curve
NOW - ON THE SAME GRAPH ABOVE
On the AD/AS graph above show the result of a negative demand shock. Label the new short run equilibrium point C. NEXT – label the corresponding point C on the Phillips Curve
Draw an AD/AS graph in equilibrium. Be sure to include all the appropriate labels. Label the equilibrium point A
Draw the short and long run Phillips Curve. Be sure to include all the appropriate labels. Label the equilibrium point A
On the AD/AS graph above show the result of a positive supply shock. Label the new short run equilibrium point B. NEXT – make a change to the Phillips Curve that would happen as a result of this shock. Label point B on the Phillips curve that corresponds with point B on the AD/AS graph
NOW - ON THE SAME GRAPH ABOVE
On the AD/AS graph above show the result of a negative supply shock. Label the new short run equilibrium point C. NEXT – make a change to the Phillips Curve that would happen as a result of this shock. Label point on the Phillips curve that corresponds with point B on the AD/AS graph

12. Macroeconomic Unit 5 Financial Sector
Explain the three roles of money 1. 2. 3.
Write the time value of money formula
Assume that the interest rate is 10%. If $100 is deposited in a bank account today, how much money will there be in that account one year from now?
Bank T-accounts
Define:
Fractional banking
Excess reserves
Required reserves
4. Demand deposits
What is the money multiplier equation?
Use the bank balance sheet to answer the questions to the right.
What is the reserve requirement?
What is the money multiplier
What is the maximum possible increase in the money supply if the bank loans out all excess reserves?
Assume that the bank loans all the excess reserves it has on hand. Create a T-account below that shows the result of all excess reserves being loaned out. Assume that any money created is redeposited into the bank.
Assets
Liabilities
Required Reserves $3,000
Excess Reserves $3,000
Loans $24,000
Demand Deposits $30,000
The Fed
List the three tools used by the Fed to control the money supply: 1. 2. 3.

13. The three things that will cause the money
demand curve to shift are: 1. 2. 3.
Explain why the money supply curve is vertical
Increasing the money supply will cause the supply curve to shift ________________ the Fed causes this shift by:
_______________ bonds
_______________ reserve requirements
_______________ the discount rate
As a result of this action interest rates would __________
Decreasing the money supply will cause the supply curve to shift ________________ the Fed causes this shift by:
________________ bonds
________________ reserve requirements
________________ the discount rate
The Money Market Graph
Draw the demand and supply of money graph. Include all the appropriate labels including the equilibrium interest rate.
The Money Market Graph
Monetary policy practice:
Assume the reserve requirement is 10%. The money multiplier is ___________________.
If the Fed buys $10 million worth of bonds:
The money supply will _____________________
By $________________________
Interest rates will _________________
Assume the reserve requirement is 20%. The money multiplier is ____________________.
If the Fed sells $5 million worth of bonds;
The money supply will _____________________
By $__________________________
Interest rates will _____________________
3. Assume the reserve requirement is 50%. The money multiplier is ____________________.
If the Fed buys $2 million worth of bonds;
The money supply will _____________________
By $__________________________
Interest rates will _____________________

14. AD/AS and Monetary Policy
Loanable Funds
Draw the loanable funds market graph. Include all the appropriate labels including equilibrium.
Shifters of demand for loanable funds 1. 2.
Shifters of supply of loanable funds
What is crowding out?
1. If government funds a large deficit by borrowing
the demand for loanable funds will _______.
Interest rates will ____________
Investment spending will ________________
Economic growth will _________________
2. If there is an increase in capital inflows
the supply of loanable funds will _______.
Interest rates will ____________
Investment spending will ________________
Economic growth will _________________
AD/AS and Monetary Policy
Step 1 - Draw and label an AD/AS graph showing the economy in recession
Step 2 - Draw and label the money market graph including equilibrium
In order to close the recessionary gap the Fed should __________________ the money supply. It can do this by: 1. 2. 3.
Step 3 – Shift the money market graph to show the result of the Fed closing the recessionary gap
Draw the appropriate arrows or and follow the process to show the eventual shift in the AD
Money supply_______
Interest rates ______
Investment spending and consumer spending ____
Aggregate demand _____
Step 4 – Shift the AD/AS graph to show the eventual outcome of this chain of events

15. Macroeconomic Unit 6: Economic Growth and International Trade
Economic Growth is the result of supply side increases in: 1. 2.
How can government encourage economic growth?
Explain which point on the PPC graph to the left is most likely to promote economic growth and why. A
Capital goods B
Consumer goods
Define the following terms:
Exports
Imports
Net exports
Trade deficit
Trade surplus
Balance of payments
Current account
Financial account
Balance of Payments
Identify if the example below is part of the current account or the financial account.
The U.S. company Boeing sells 5 planes to Israel.
Walt Disney buys a beach resort in the Caribbean.
An American oil worker in Saudi Arabia sends money home to his family.
Ford motor company sells F150 trucks to Canadians.
Japanese tourists by souvenirs in NYC with dollars.
Foreign Exchange Market
When a currency appreciates:
Its value compared to other currencies ___________.
Its exchange rate _________________.
Exports ________________.
Imports________________.
When a currency depreciates:
Its value compared to other currencies____________.
Its exchange rate_____________.
Exports _________________.
Imports_________________.
List the four things that cause the foreign exchange market graphs to shift. 1. 2. 3. 4.

16. You finished! Now go ace the AP exam!
Draw the foreign exchange market for the US Dollar relative to the Mexican Peso. Be sure to include all appropriate labels
Draw the foreign exchange market for the Mexican Peso relative to the US Dollar Be sure to include all appropriate labels
On the graph above show the result of an increase in American tourists to Mexico.
Which currency appreciates?
Which currency depreciates
Compare the U.S. dollar to the Euro.
Situation
Currency that appreciates
Currency that depreciates
Currency that has an increase in demand
Currency that has an increase in supply
American tourists increase visits to Paris
The U.S. government decreases income taxes giving Americans more spending money
Europe experiences inflation making their goods more expensive
The U.S. government increases its budget deficit. The deficit is financed through borrowing which increases the interest rate
Europe places high tariffs on all U.S. imports
You finished! Now go ace the AP exam!