AP Macroeconomics Spring 2016 Test One Review
Test One is Wednesday, January 20 Friday, January 22. It will cover the material from the Introduction and Chapters 1-2
of Macroeconomics. [Information from the Chapter Two Appendix might be useful in aiding your understanding of the
material in Chapter Two.]
Part I. Multiple Choice. Matching items will come from the key terms below. Multiple choice questions will be based on
key concepts in the assigned readings, as well as the key terms.
Be sure that you can define each of the following or identify the correct term from its definition or description.
economy
economics
market economy
invisible hand
microeconomics
market failure
recession
macroeconomics
economic growth
individual choice
resource
scarce
trade-off
opportunity cost
marginal decisions
incentive
interaction
trade
gains from trade
specialization
equilibrium
efficient
equity
model
other things equal assumption
technology
barter
factors of production
barter
production possibility frontier
household
firm
circular-flow diagram
factor markets
markets for goods and services
forecast
income distribution
positive economics
normative economics
Intro
Ch. 1
Ch. 2
Part II. Short Answer. For the following concepts, you should be able to construct the appropriate curves or diagrams from
the information provided, and provide written answers about each. You will also need to be able to calculate the appropriate
values and quantities from the given information

Production possibilities frontier (PPF). From a table of production values, you should be able to construct
a PPF including labels for maximum outputs.
You should also be able to identify points of
efficiency/inefficiency, as well as points of infeasible production. You should also be able to answer the
following questions:
o
o
o


How is the concept of opportunity cost reflected in the PPF? What is the opportunity cost of each
point on the curve? That is, how do you calculate the cost of one product in terms of the other?
What is the slope of the PPF curve? What does the slope of the PPF curve suggest?
What do movements of the PPF curve suggest? How are they different from movements along the
curve?
Absolute and comparative advantage. From a table of values, you should be able to identify (and if)
absolute and comparative advantage (using the appropriate opportunity cost calculations where needed).
You should also be able to answer the following questions:
o
Based on calculations of comparative advantage, what economic decisions should be made?
o
How does the idea of efficiency lead to decisions made based on comparative advantage? What
other impact will these decisions have?
Circular-flow diagram. You should be able to draw and label a simple circular-flow diagram, including the
proper “inhabitants” and markets, as well as the associated flows. You should also be able to answer the
following questions:
o
What impact would changes in an associated PPF have on the circular-flow diagram? What impact
would changes in the circular-flow diagram have on the PPF?
o
What impact would other kinds of changes have on the circular-flow diagram?
o
What might be added to your circular-flow diagram to make it more realistic?
Practice Problems. In addition to the problems discussed in class, the following problems might prove useful in your test
preparation.

Chapter One: #1, #3, #7, #9

Chapter Two: #1, #3, #4, #5, #8