AP Macro Economics

Semester Final

Fall 2010

Directions; answer the following questions on a separate sheet of paper.  All test questions will come from these questions!

Unit One:

  1. What is the primary concern for studying economics?
  2. Define the term "economic perspective."
  3. Why are economic models limited to only two variables?
  4. List the eight economic goals and group those goals that conflict with each other.  Then group those goals to complement each other.
  5. Explain the difference between macro and micro economics.
  6. Explain the difference between positive and normative statements.
  7. List and explain the four factors of production (resources).
  8. List the payments for each of the four resources.
  9. What basic principle does the production possibilities curve illustrate?

  1.  Know what each point on the above diagram represents.
  2. Define the term “capital investment.”

        12.  Refer to the above tables. If South Cantina is producing at production alternative D, the opportunity cost of the third unit of capital goods will be:

13. Define scarcity.

14. Define opportunity cost.

15. Define “The Law of Increasing Opportunity Cost.”

16. List the three factors that lead to economic growth.

  

17. Know the flows of the circular flow model.

Unit Two:

  1. Define the term “market.”
  2. Explain the difference between “complementary goods” and “competing goods.”
  3. Explain the difference between “normal goods” and “inferior goods.”
  4. How do you illustrate deceasing and increasing demand on a graph?  What about increasing and decreasing supply?
  5. Define “The Law of Supply.”
  6. Define “The Law of Demand.”

  1. Refer to the above diagram. The equilibrium price and quantity in this market will be:

  1. Refer to the previous diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be:

  1. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?
  2. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer?
  3. Explain how the use of money contributes to economic efficiency.
  4. Define the term “creative destruction.”
  5. Explain the “Invisible hand.”

Unit Three:

  1. Define the term “Gross Domestic Product.”
  2. Define the phrase “final goods and services.”
  3. Define the term “Intermediate Good.”
  4. List the items not counted in GDP.
  5. How is GDP calculated?
  6. When are net exports positive to GDP and when are they negative?
  7. When are net investments positive to GDP and when are they negative?
  8. How do you calculate GDP down to Disposable income?
  9. Define the term “Value Added.”
  10. What is the difference between “real” and “nominal” GDP?
  11. How do you calculate nominal GDP?
  12. How do you calculate real GDP?
  13. What is the rule of 70?
  14. Explain the differences between; seasonal, frictional, structural, and cyclical unemployment.
  15. Define “Okun’s Law.”
  16. How do you calculate the rate of inflation between two years?
  17. Explain the difference between “demand-pull” and “cost-push” inflation.
  18. How do you calculate the “GDP Gap?”

Unit Four:

  1. How do you calculate APC and APS?
  2. How do you calculate MPC and MPS?
  3. Define the term “dissavings.”
  4. What causes the consumption curve to shift upward?
  5. What causes a movement along the consumption curve?

  1. Where is the brake even point (APC=1) on this graph?
  2. What causes a shift of the investment demand curve?
  3. What causes a movement along the investment demand curve?
  4. Explain the difference between “nominal” and “real” interest rates.
  5. Define “Say’s Law.”
  6. How do you calculate the expenditure multiplier?
  7. Explain how the expenditure multiplier effects GDP.
  8. How do you calculate GDP in an open economy?

Unit Five:

  1. What does the aggregate demand curve show?
  2. Define CIG-X and explain how it affects aggregate demand.
  3. Explain the similarities between aggregate expenditure and aggregate demand.
  4. Define RAP and explain how it affects aggregate supply.
  5. How do you calculate per-unit production cost?
  6. How does the appreciation of the dollar affect aggregate demant?
  7. Define the term “efficiency wage.”
  8. Define expansionary fiscal policy, and explain how it works.
  9. Define contractionary fiscal policy, and explain how it works.
  10. Explain the “crowding-out effect.”
  11. Due to automatic stabilizers, when income rises, government transfer spending:
  12. What does our progressive tax system offer the economy?
  13. Define the term “full-employment deficit.”

Unit Six:

  1. What is meant when money is used as the following; medium of exchange, store of value, and unit of accounts?
  2. What is the largest component of (M1) money?
  3. What backs (supports) U.S. currency?
  4. What is the relationship between price levels and value of currency?
  5. How do you calculate the change in the value of money?
  6. Who issues currency in the U.S.?
  7. How do you calculate the transactional demand for money?
  8. What will happen if the demand for money increases but the supply of money remains constant?
  9. How do you calculate the new price for secondary bonds?
  10. If given the rate of return and new price of a secondary bond, how do you calculate the current interest rates for new bonds?
  11. What are the three structures of the Fed?
  12. What are the functions of the Fed?
  13. What is the money multiplier and how is it calculated?
  14. How do you calculate actual bank reserves?
  15. List the tools of monetary policy and explain how they operate.  
  16. What is the Fed Fund Rate?

Unit Seven:

  1. Explain the difference between short-run and long-run aggregate supply.
  2. Explain the short-run changes brought on by demand-pull inflation.
  3. Explain the long-run changes brought on by demand-pull inflation.
  4. What does the Philips Curve illustrate?
  5. What is stagflation?
  6. What does a supply-side shock do to the Philips Curve?
  7. List the three assumptions concerning the Philips Curve.
  8. What is disinflation?
  9. Explain the similarities between the SRAS and the SRPC.
  10. Where is the LRPC located?
  11.  Explain the argument of Supply-side economics.
  12. List the criticisms of Supply-side economics.
  13. Define the term “Federal Debt.”
  14. How do you calculate debt to GDP ratio?
  15. Explain the philosophy and criticism of an annual balanced budget.
  16. Explain the philosophy and criticism of a cyclical balanced budget.
  17. Explain the philosophy of functional finance.

Unit Eight:

  1. Define the term “comparative advantage.”
  2. How do you calculate a nation’s comparative advantage?
  3. How do you calculate the terms of trade between nations?
  4. List the benefits of free trade.
  5. Explain the effects upon an economy, if its domestic price of a product is greater than the world price?
  6. Explain the effect upon an economy, if its domestic price of a product is less than the world price?
  7. What will a country do, if its domestic price of a product equals the world price?

  1. Explain each point on the above graph.
  2. Define the term “tariff.”
  3. Define the term “import quota.”
  4. List the types of non-tariff barriers.
  5. Define the term “dumping.”
  6. What is the World Trade Organization?
  7. What is the effect if the equilibrium exchange rate changes so that fewer dollars are needed to buy a South Korean won?
  8. Depreciation of the dollar will lead to what?
  9. U.S. export transactions create what?

Free Response Practice:

  1. Suppose that the United States is in a deep recession.
  1. Using a correctly labeled AS/AD model, show the equilibrium price level and real gross domestic product.
  2. There is a debate in Congress as to whether to decrease personal income taxes by a given amount or to increase government spending by the same amount. Which of these two fiscal policies will have the larger impact on real gross domestic product?  Explain why.
  3. Explain how a decrease in personal income taxes will affect each of the following in the short run.

  1. Using a correctly labeled graph of the loanable funds market, show the effects of an increase in government spending.

  1. Assume that the U.S. economy is operating above full employment.
  1. Draw a correctly labeled AS/AD model showing the economy’s current;
  1. Suppose that the government decreases spending to decrease inflation.  On your graph in part (a), show the short-run effects that the decrease in spending would have on each of the following.
  1. Using a correctly labeled loanable-funds market graph, show the effect of the decrease in government spending on the real interest rate.

  1. Following the previous congressional elections, the Democratic Party is able to gain control in both houses of Congress.  It is decided by the Democratic leadership to increase government spending in the areas of public education and domestic infrastructure, in order to maintain Americas’ economic dominance in the world.  Assuming that everything else remains constant.
  1. Using a correctly labeled AS/AD model, show how these new policies will affect the following in the short run (assuming the economy is at full employment equilibrium).
  1. Identity the appropriate open-market operation to counter the effects Congress’ actions.
  2. Explain how the open-market operation you identified in (b) will affect
  1. Using a correctly labeled graph of the money market, show the short- run affects of the open market operation you identified in (b) on each of the following.

        

  1. Following a Republican Party victory in the next presidential election, it is decided to institute a 10% decrease in personal income taxes.  Assuming that the economy is operating at full employment equilibrium.
  1. Identity the appropriate open-market operation to counter the effects of this action.
  2. Explain how the open-market operation you identified in (b) will affect
  1. Using a correctly labeled graph of the money market, show the short- run affects of the open market operation you identified in (b) on each of the following.
  1. The ideal economy is with a money supply of $250 billion, interest rates of 5% and gross domestic investments of $110 billion.  
  1. What if the economy’s money supply is at $200 billion? Using a correctly labeled money market graph, show the affects that the new money supply will have on the following.
  1. Identify the appropriate open-market operation that could be used to combat this instability.  
  2. Using a correctly labeled AS/AD model show how the open-market operation you identified in (b) will affect the following.