How to Prepare for the AP Micro/ Macro Economics Advance Placement Examinations

by Musgrave, Frank

• ISBN13: 9780764133619
• ISBN10: 0764133616
• Edition: 2nd
• Format: Paperback
• Copyright: 2006-02-01
• Publisher: Barrons Test Prep

Summary

Presented in this updated manual are two full-length practice testsincluding one all-new macroeconomics testwith all questions answered and explained. Students will also find an extensive review of all AP test topics, which include economic systems, demand and supply, theory of consumer choice, economics in the public sector, costs, product markets, perfect and imperfect competition, monopolies, labor resources, the national income and gross domestic product, inflation and unemployment, fiscal policy, money and banking, monetary policy, determinants of economic growth, and international trade and exchange. Added new sections in this edition include game theory, Giffen goods, money demand, interest rate determination, and potential GDP.

Table of Contents

Introduction	p. 1
Preparing for the Advanced Placement Exams in Microeconomics and Macroeconomics	p. 3
The Exams	p. 3
The Design of This Book	p. 3
Multiple-Choice Questions	p. 4
Free-Response Questions	p. 7
The Discipline of Economics	p. 10
Economics Defined	p. 10
Resources	p. 11
Opportunity Cost	p. 12
Production Possibilities Frontier	p. 13
Law of Increasing Costs	p. 15
Comparative Advantage	p. 16
Summary	p. 18
Terms	p. 19
Multiple-Choice Review Questions	p. 20
Free-Response Review Questions	p. 22
Economic Systems	p. 23
The Fundamental Economic Questions	p. 23
Strategies for Dealing with the Fundamental Economic Questions	p. 24
The Circular Flow Diagram	p. 32
Summary	p. 33
Terms	p. 33
Multiple-Choice Review Questions	p. 34
Free-Response Review Questions	p. 37
Microeconomics	p. 39
Demand and Supply: The Basics	p. 41
Introduction	p. 41
Competitive Markets	p. 41
Market Equilibrium-Demand and Supply	p. 42
Summary	p. 49
Terms	p. 50
Multiple-Choice Review Questions	p. 51
Free-Response Review Question	p. 52
Applications of Demand and Supply-Elasticity	p. 53
Introduction	p. 53
Limits and Degrees of Elasticity	p. 55
Cross-Elasticity of Demand	p. 58
Income Elasticity of Demand	p. 59
Price Elasticity of Supply	p. 60
Incidence of Tax on Suppliers and Consumers	p. 60
Summary	p. 61
Formulas	p. 62
Multiple-Choice Review Questions	p. 63
Free-Response Review Question	p. 64
Theory of Consumer Choice or Behavior	p. 65
Introduction	p. 65
The Basic Tenets of the Theory of Consumer Choice	p. 65
Consumer Surplus	p. 67
Income and Substitution Effects	p. 69
Summary	p. 69
Terms	p. 69
Multiple-Choice Review Questions	p. 70
Free-Response Review Question	p. 71
Government and Public Sector: Market Failure, Rents, Externalities, Public Goods, and Efficiency	p. 72
Introduction	p. 72
Important Concepts	p. 73
Private Goods and Public Goods	p. 74
Measures of Efficiency	p. 74
Bases for Public Goods or Government Interference with Market Outcomes	p. 76
Summary	p. 80
Terms	p. 80
Formulas	p. 81
Multiple-Choice Review Questions	p. 82
Free-Response Review Question	p. 83
Costs, Production, Supply	p. 84
Introduction	p. 84
Production	p. 86
Costs	p. 87
Summary	p. 93
Terms	p. 94
Formulas	p. 94
Multiple-Choice Review Questions	p. 95
Free-Response Review Question	p. 96
Product Markets: Types, Characteristics, Pricing Strategies	p. 97
Introduction	p. 97
Things to Know	p. 97
Product Markets: Definitions	p. 97
Summary	p. 102
Terms	p. 102
Multiple-Choice Review Questions	p. 103
Perfect Competition	p. 104
Things to Know	p. 104
The Expanded Concepts	p. 106
Evaluation of Perfect Competition	p. 110
The Long Run	p. 111
Summary	p. 112
Terms	p. 113
Formulas	p. 113
Multiple-Choice Review Questions	p. 114
Free-Response Review Questions	p. 115
Monopoly	p. 116
Introduction	p. 116
Things to Know	p. 116
The Nature of Monopoly and Its Types	p. 117
Price Discrimination	p. 120
Types of Monopolies and Their Potential Regulation	p. 120
Terms	p. 122
Formulas	p. 123
Multiple-Choice Review Questions	p. 124
Free-Response Review Question	p. 126
Imperfect Competition: Monopolistic Competition, Oligopoly	p. 127
Introduction	p. 127
Monopolistic Competition	p. 128
Oligopoly: The Non-Collusive Kinked Demand Model	p. 132
Oligopoly: Game Theory	p. 136
Terms	p. 137
Formulas	p. 137
Multiple-Choice Review Questions	p. 138
Free-Response Review Question	p. 139
Resource Markets with Applications to Labor	p. 140
Connections Between Product Markets and Resource Markets	p. 140
Derived Demand: Wage Elasticity of Demand	p. 142
The Demand for a Resource (Labor)	p. 143
Shifts in Demand for a Resource (Labor)	p. 147
Supply of Resources	p. 148
Shifts in Supply	p. 150
The Bases of Wage Differentials	p. 150
Income Inequality	p. 151
Summary	p. 152
Terms	p. 152
Formulas	p. 153
Multiple-Choice Review Questions	p. 154
Model Advanced Placement Examination in Microeconomics	p. 157
Macroeconomics	p. 185
The National Income and Product Accounts	p. 187
The Accounts	p. 187
Gross Domestic Product	p. 187
The Expenditures Approach	p. 188
The Income Approach	p. 189
Adjusting for Price Changes	p. 190
The Underground Economy	p. 191
Other Things That Are Not Counted in GDP	p. 192
Other Measures in the National Income and Product Accounts	p. 192
Summary	p. 193
Terms	p. 193
Formulas	p. 194
Multiple-Choice Review Questions	p. 195
Free-Response Review Questions	p. 197
Inflation and Unemployment	p. 198
The Twin Evils	p. 198
Inflation	p. 198
Unemployment	p. 202
Summary	p. 204
Terms	p. 204
Formulas	p. 205
Multiple-Choice Review Questions	p. 206
Free-Response Review Questions	p. 208
Aggregate Supply and Aggregate Demand	p. 209
Why the Economy Moves in Cycles	p. 209
Classical Economic Theory	p. 209
Keynesian Theory	p. 210
Using the AS/AD Model	p. 218
Summary	p. 221
Terms	p. 221
Formulas	p. 222
Multiple-Choice Review Questions	p. 223
Free-Response Review Questions	p. 226
Fiscal Policy	p. 227
Keynes' Remedy for the Great Depression	p. 227
Fiscal Policy	p. 228
Summary	p. 236
Terms	p. 237
Formulas	p. 237
Multiple-Choice Review Questions	p. 238
Free-Response Review Questions	p. 241
Money and Banking	p. 242
The Supply of Money	p. 242
Fiat Money	p. 243
The Federal Reserve System	p. 244
Summary	p. 249
Terms	p. 249
Formulas	p. 250
Multiple-Choice Review Questions	p. 251
Free-Response Review Questions	p. 253
Monetary Policy	p. 254
Definition	p. 254
Changes in the Money Supply	p. 254
Summary	p. 258
Terms	p. 259
Formulas	p. 259
Multiple-Choice Review Questions	p. 260
Free-Response Review Questions	p. 263
Economic Growth	p. 264
Living Standards	p. 264
The Determinants of Economic Growth	p. 264
Summary	p. 267
Terms	p. 268
Formulas	p. 268
Multiple-Choice Review Questions	p. 269
Free-Response Review Questions	p. 271
International Trade and Exchange	p. 272
The Balance of Trade	p. 272
Trade Restrictions	p. 272
The Balance of Payments	p. 275
Exchange Rates	p. 276
Monetary and Fiscal Policy in an Open Economy	p. 280
Summary	p. 280
Terms	p. 281
Formulas	p. 282
Multiple-Choice Review Questions	p. 283
Free-Response Review Questions	p. 285
Model Advanced Placement Examination in Macroeconomics	p. 287
Index	p. 310
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