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Comprehensive AP Exam Review Guide with Essential Economic Concepts

Get ready for your AP Exam with a detailed review on government spending, interest rates, GDP, money supply, crowding out effect, and more. Understand the concepts of Marginal Propensity to Consume, GDP calculation, Stagflation, and Unemployment Rate measurement. Learn about the Spending Multiplier and Tax Multiplier to grasp key economic principles. Access 2004 FRQ practice questions to enhance your understanding.

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Comprehensive AP Exam Review Guide with Essential Economic Concepts

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  1. AP Exam Review Grab your clickers

  2. 2 things • Gov’t spends more $$. • Which means they borrow more $$. • What happens to interest rates? • What happens to AD? RGDP? • Fed buys bonds. • What happens to money supply? • What happens to interest rates? • What happens to AD? RGDP?

  3. Crowding out effect

  4. Marginal Propensity to Consume • Remember, marginal refers to what’s on the margin; what’s been added; what’s new. • NOT the same as the average or the total. • So, marginal benefit is the benefit from one more. • …and MPC is how much one will spend of any increase to their income. • If I get a $10 raise, and my MPC is 80%, how much do I spend?

  5. About GDP • Output = real GDP = real income

  6. Stagflation

  7. A recessionary gap… • What happens if we do nothing??

  8. How is the unemployment rate measured??? • What matters?? • Population • Employed • Not employed but looking (unemployed) • Not employed, not looking. • Unemployment Rate = • Unemployed/Labor Force • What is the labor force?? • Employed + Unemployed

  9. Spending Multiplier • Says that if the government spends money, output increases by more than the amount spent. • Spending Multiplier = 1/1-MPC • Tax Multiplier = -MPC/1-MPC

  10. 2004 FRQ #1

  11. 2004 FRQ #1

  12. 2004 FRQ #2

  13. 2004 FRQ #2

  14. 2004 FRQ #3

  15. 2004 FRQ #3

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