AP Macroeconomics Midterm Study Guide
1. Know that economics is driven by the scarcity of resources.
2. Know the definition of opportunity cost and apply it.
3. Know that rational decisions at the margin means you compare marginal costs and marginal benefits.
4. Know the definition of the business cycle.
5. Know that a growth in the quantity of money causes inflation.
6. Understand the relationship between productivity and the cost of living.
7. Know that economists can’t test theories due to the inability to perform experiments on the economy.
8. Know what the factors of production are.
9. Know the definition of goods and services and capital.
10. Be familiar with the circular flow chart.
11. Be familiar with the production possibilities curve aka frontier.
12. Differentiate between microeconomics and macroeconomics.
13. Differentiate between a normative vs. a positive statement.
14. Know what elasticity of demand means and what an elastic demand curve and an inelastic demand curve look like.
15. Be familiar with all aspects of the supply and demand graph. (Demand, quantity demanded, supply, quantity supplied, equilibrium, price ceiling, price floor, movement versus shift, surplus vs. shortage)
16. Know the determinants of demand.
17. Know the relationship between trade, specialization, and comparative advantage.
18. Differentiate between absolute advantage and comparative advantage.
19. Differentiate between exports and imports.
20. Differentiate between complements and substitutes.
21. Differentiate between normal and inferior goods.
22. Know the purpose of taxes and how policy makers use them as incentives.
23. Know that price is the rationing mechanism in a competitive market.
24. Know the definition of minimum wage.
25. Know how the terms GDP, income, and expenditures are related.
26. Know the definition of retained earnings.
27. Differentiate between GDP and GNP and be able to apply the definitions.
28. Know what is included in GDP and what is not.
29. Be able to calculate GDP using the formula and the intermediate goods calculation.
30. Know the definition of transfer payment.
31. Know the definition of a recession.
32. Know that the GDP Deflator is always 100 in the base year.
33. Differentiate between nominal and real GDP and know what each measures.
34. Know the definition of consumption, investment, inflation, productivity.
35. Differentiate between real and nominal interest rates and know the formula real = nominal – inflation.
36. Know the best measure of a nation’s standard of living is GDP per capita.
37. Differentiate between human capital, physical capital, and technology.
38. Know in a closed economy that savings equals investment and if savings increases then consumption falls and investment rises.
39. Know the relationship of patents to research and development by private firms.
40. Know what diminishing returns to capital and labor mean.
41. Know that the price of stock is dependent on supply and demand.
42. In the bond market, know what maturity, principal, yield, and coupon rate are.
43. Know the definition of budget surplus and budget deficit.
44. Know that investment affects the demand curve and savings affect the supply curve in the loanable funds market.
45. Know the source of the supply of loanable funds.
46. Know the definition of crowding out and discounting.
47. Know what the Rule of 70 is.
48. Differentiate between risk, return, and diversification.
49. Know the definition of dividend.