1. In-Class Final Exam Review
AP Macroeconomics
In-Class Final Exam Review

2. Economic growth A sustained increase in real per capita GDP
stimulate economic growth - Technological progress

3. exchange rate The price of nation’s currency
e.g. If a Japanese firm buys cars from the United States, there would be an increase in which of the following in the foreign exchange market (demand for US dollars and supply of yen)
Impact of high inflation in a given country?

4. Trade Absolute v Comparative advantage
with PPC
Comparative advantage implies that two countries should benefit from trade (unless both have equal opportunity costs in every good)

5. Nominal v Real Real interest rate = Nominal – inflation
Nominal interest rate = Real + inflation
Nominal rate of increase v real (with % change calculation)

6. fiscal policy government expenditures taxes most expansionary
Cut taxes & increase government spending

7. Monetary policy Contraction to fight inflation (higher interest rate)
Expansion to fight recession (lower interest rate)
Increasing the reserve requirement – Fed reduces the ability of the banking system to create money

8. GDP
Counting gross domestic product - A final good or service produced in country

9. GDP = AD
GDP/AD = Consumption, Investment, Government spending and net exports (Xn)

10. impact of a decrease/increase in foreign income on the aggregate demand in the United States

11. short-run Phillips curve
decrease in unemployment = increase in inflation
Increase in unemployment = decrease in inflation

12. AS Input costs (e.g. labor wages) rise, supply shifts left (up)
decrease in the price of inputs = increase in the short-run AS and a decrease in the price level

13. national debt
accumulation of past and current budget deficits and surpluses

14. Purchasing power
A decrease in the purchasing power of the currency most undermines the ability of a nation’s currency to store value

15. Types of unemployment Cyclical unemployment
Frictional unemployment e.g. recent graduate who is looking for her first job
Structural unemployment
Problems measuring unemployment - discouraged workers