Household spending on goods and services (the largest component)

Business spending on capital, new construction, and changes in inventories

Government spending on goods and services (not transfer payments)

Exports minus imports; can be negative

Between jobs or newly entering the labor force — normal job search

Skills or location mismatch; technology eliminates certain jobs

A downturn in the business cycle; zero at full employment

Higher domestic real interest rates

Appreciates (attracts foreign financial capital)

How long is the AP Macroeconomics exam?

Total testing time is about 2 hours 20 minutes: 1 hour 10 minutes for the 60 multiple-choice questions, a 10-minute reading period, and 1 hour for the three free-response questions.

What are the 6 units of AP Macroeconomics?

The College Board organizes the course into six units: (1) Basic Economic Concepts, (2) Economic Indicators and the Business Cycle, (3) National Income and Price Determination, (4) Financial Sector, (5) Long-Run Consequences of Stabilization Policies, and (6) Open Economy — International Trade and Finance.

Which AP Macroeconomics units are weighted the most?

On the multiple-choice section, the heaviest units are Unit 3 (National Income and Price Determination, 17–27%) and Unit 5 (Long-Run Consequences of Stabilization Policies, 20–30%), followed by Unit 4 (Financial Sector, 18–23%). Units 1, 2, and 6 carry smaller shares.

What graphs do I need to know for AP Macroeconomics?

The core models are the AD-AS model (aggregate demand, short-run and long-run aggregate supply), the money market, the loanable-funds market, the Phillips curve, the production possibilities curve, and the business cycle. You must be able to draw and label them on the free-response section.

How is the AP Macroeconomics exam scored?

Multiple choice is 66.7% and free response is 33.3% of the composite score, which the College Board converts to the 1–5 AP scale. Most colleges grant credit for a 3, 4, or 5. There is no penalty for wrong multiple-choice answers, so answer every question.

Is AP Macroeconomics hard?

AP Macroeconomics is considered moderately difficult — the math is light, but the models and cause-and-effect chains take practice. The exam rewards being able to draw and shift the AD-AS, money market, and loanable-funds graphs quickly and explain what each shift does.

How should I use this AP Macroeconomics study guide?

Work through the six units in order — they build on each other. After each unit, take the checkpoint quiz to find gaps, then drill that unit with our free practice questions and flashcards. Focus extra time on the heavily weighted Units 3, 4, and 5 and on drawing every core graph by hand.

Is this AP Macroeconomics study guide free?

Yes — the full guide, the checkpoints, the glossary, the practice questions, and the flashcards are 100% free, with no account required.

What is opportunity cost?

Opportunity cost is the value of the next-best alternative you give up when you make a choice. Because resources are scarce, every decision has a cost measured in what you sacrifice — for an economy, producing more of one good means producing less of another. This is a Unit 1 concept. The production possibilities curve shows opportunity cost as the trade-off between two goods; a bowed-out curve means rising opportunity cost. Opportunity cost is the basis of comparative advantage: a producer specializes in the good for which their opportunity cost is lowest.

What is the difference between absolute and comparative advantage?

Absolute advantage is the ability to produce more of a good with the same resources. Comparative advantage is the ability to produce a good at a lower opportunity cost. Gains from trade come from comparative advantage — each party specializes where its opportunity cost is lowest, even if one is better at everything. This is a Unit 1 concept. To find comparative advantage, compute each producer's opportunity cost per unit and compare; the lower-cost producer has the advantage in that good. A country can have an absolute advantage in both goods yet still gain by trading according to comparative advantage.

What is gross domestic product (GDP)?

GDP is the market value of all final goods and services produced within a country's borders in a given period. Using the expenditure approach, GDP = consumption + investment + government spending + net exports (C + I + G + NX). It counts only final goods to avoid double-counting. This is a Unit 2 concept. Intermediate goods, used goods, financial transactions, and transfer payments are excluded because they are not newly produced final output. Real GDP adjusts nominal GDP for inflation, so real GDP is the better measure of changes in actual output over time.

How do you calculate the unemployment rate?

The unemployment rate equals the number of unemployed people divided by the labor force, times 100. The labor force is the employed plus the unemployed — people without a job who are actively looking. People not looking for work are not in the labor force and are not counted as unemployed. This is a Unit 2 concept. The three types of unemployment are frictional (between jobs), structural (skills mismatch), and cyclical (from a downturn). The natural rate of unemployment is the frictional plus structural rate that exists when the economy is at full employment; cyclical unemployment is zero there.

What does the consumer price index (CPI) measure?

The CPI measures the average change over time in the prices of a fixed market basket of goods and services bought by a typical urban household. It is the most common gauge of inflation: the inflation rate is the percent change in the CPI from one period to the next. This is a Unit 2 concept. To find an inflation rate, take (new CPI − old CPI) ÷ old CPI × 100. Nominal values are measured in current prices; real values are adjusted for inflation using a price index so you can compare purchasing power across years.

What is the spending multiplier?

The spending multiplier shows how an initial change in spending produces a larger change in real GDP. It equals 1 ÷ (1 − MPC), or equivalently 1 ÷ MPS, where MPC is the marginal propensity to consume. If MPC is 0.8, the multiplier is 1 ÷ 0.2 = 5. This is a Unit 3 concept. The multiplier works because one person's spending becomes another person's income, which is partly spent again in successive rounds. The total change in real GDP equals the initial spending change times the multiplier; a $20 billion injection with a multiplier of 5 raises GDP by $100 billion.

Why does the aggregate demand curve slope downward?

Aggregate demand slopes downward because of three effects: the wealth effect (a lower price level raises real wealth and spending), the interest-rate effect (a lower price level lowers interest rates and boosts investment), and the net-exports effect (a lower price level makes domestic goods cheaper abroad). This is a Unit 3 concept. AD shows the total quantity of real output demanded at each price level; shifts come from changes in C, I, G, or NX. Do not confuse a movement along AD (caused by the price level) with a shift of AD (caused by a spending component changing).

What is the difference between fiscal and monetary policy?

Fiscal policy is the government's use of spending and taxes to influence the economy; it is set by Congress and the President. Monetary policy is the central bank's control of the money supply and interest rates. Both can be expansionary (to fight a recession) or contractionary (to fight inflation). Fiscal policy is mainly Unit 3; monetary policy is mainly Unit 4. Expansionary fiscal policy raises spending or cuts taxes; expansionary monetary policy increases the money supply to lower interest rates. Fiscal policy can cause crowding out (Unit 5) when government borrowing raises interest rates and reduces private investment.

What are the three functions of money?

Money serves three functions: a medium of exchange (it is accepted in trade for goods and services), a unit of account (it provides a common measure of value, like a price tag), and a store of value (it holds purchasing power over time so you can save and spend later). This is a Unit 4 concept. M1 is the most liquid money — currency plus checkable deposits; M2 adds less-liquid near-money like savings deposits. When money loses value quickly during high inflation, it fails as a store of value, which can break down its other functions too.

How do banks create money?

In a fractional reserve system, banks keep a fraction of deposits as reserves and lend out the rest. Each loan becomes a new deposit somewhere else, which is partly lent again. This process expands the money supply by the money multiplier, equal to 1 ÷ the reserve requirement. This is a Unit 4 concept. If the reserve requirement is 10% (0.10), the money multiplier is 1 ÷ 0.10 = 10, so $1,000 in new reserves can support up to $10,000 in new deposits. The actual expansion is smaller if banks hold excess reserves or people hold cash instead of depositing it.

How does the money market set the interest rate?

In the money market, the central bank fixes a vertical money supply and households hold a downward-sloping money demand. The nominal interest rate is where they meet. Increasing the money supply shifts it right, lowering the interest rate; decreasing it raises the rate. This is a Unit 4 concept. Lower interest rates increase investment and interest-sensitive consumption, shifting aggregate demand right — the channel of expansionary monetary policy. The central bank's main tools are open-market operations, the discount rate, and the reserve requirement.

What is the Phillips curve?

The Phillips curve shows the relationship between inflation and unemployment. The short-run curve slopes downward, indicating a trade-off — lower unemployment comes with higher inflation. The long-run Phillips curve is vertical at the natural rate of unemployment, so there is no permanent trade-off. This is a Unit 5 concept. A rightward shift of AD moves the economy up the short-run Phillips curve (lower unemployment, higher inflation); a leftward shift moves it down. Changes in expected inflation shift the short-run Phillips curve, while the long-run curve stays at the natural rate.

What is the crowding-out effect?

Crowding out happens when government deficit spending raises the demand for loanable funds, which pushes up the real interest rate and reduces private investment. The higher borrowing cost discourages firms from investing, partly offsetting the expansionary effect of the government spending. This is a Unit 5 concept, shown in the loanable-funds market: deficit borrowing shifts demand for funds right, raising the real interest rate. Lower private investment today can slow long-run economic growth, because investment in capital is a key driver of growth.

What causes long-run economic growth?

Long-run economic growth comes from increases in the quantity or quality of resources — more physical and human capital, a larger labor force, better technology, and higher productivity. In the AD-AS model, growth is shown as a rightward shift of the long-run aggregate supply (LRAS) curve. This is a Unit 5 concept. Investment in capital, education, and research raises the economy's productive capacity (potential GDP). Growth shifts the production possibilities curve outward and the LRAS curve right, raising full-employment output.

What determines exchange rates?

An exchange rate is the price of one currency in terms of another, set by supply and demand in the foreign exchange market. A currency appreciates when demand for it rises (for example, higher domestic interest rates or stronger exports) and depreciates when demand falls or its supply rises. This is a Unit 6 concept. A stronger (appreciated) currency makes imports cheaper and exports more expensive, tending to reduce net exports. Higher real interest rates at home attract foreign financial capital, raising demand for the domestic currency and causing it to appreciate.

What is the balance of payments?

The balance of payments records all economic transactions between a country and the rest of the world. It has two main parts: the current account, which tracks exports and imports of goods and services plus income, and the financial (capital) account, which tracks flows of financial assets and investment. This is a Unit 6 concept. A current-account deficit is generally offset by a financial-account surplus, so the overall balance of payments tends toward zero. Net exports (exports minus imports) is a component of aggregate demand, linking the open economy back to the AD-AS model.

The basic economic problem that wants are unlimited but resources are limited, so every choice involves trade-offs.

The value of the next-best alternative you give up when you make a choice. Producing more of one good means giving up some of another.

The ability to produce more of a good than another producer using the same resources.

GDP adjusted for inflation, valued at constant base-year prices, so it measures changes in actual output rather than prices.

GDP measured using current-year prices, so it rises with both output and inflation.

The number of unemployed people divided by the labor force, times 100. The labor force is the employed plus those actively seeking work.

Natural rate of unemployment

The frictional plus structural unemployment that remains when the economy is at full employment; cyclical unemployment is zero.

A measure of the average change over time in the prices of a fixed market basket of goods bought by a typical urban household; the main gauge of inflation.

A sustained rise in the general price level, which reduces the purchasing power of money.

The total quantity of real output demanded at each price level: C + I + G + NX. It slopes downward and shifts when a spending component changes.

The total quantity of real output producers supply. Short-run AS (SRAS) slopes upward; long-run AS (LRAS) is vertical at full-employment output.

Marginal propensity to consume

The fraction of each additional dollar of disposable income that households spend. MPC + MPS = 1.

FREE AP Macroeconomics Study Guide 2026 + Readiness Score

This free AP Macroeconomics study guide teaches every unit the College Board tests, organized the way the course is built.^[1] AP Macroeconomics is the study of the economy as a whole — output, unemployment, inflation, money, and policy — and the exam is built around a handful of core models you have to draw and explain.

The course has six units, and this guide follows them in order because they build on one another: you measure the economy (Units 1–2), model how it reaches equilibrium (Unit 3), add the financial sector (Unit 4), trace the long-run effects of policy (Unit 5), and open it up to trade (Unit 6). It’s interactive, not a wall of text: every unit has a built-in checkpoint quiz, hover-able glossary terms, worked examples, and the key graphs drawn and labeled.

Taking AP Microeconomics too? The supply-and-demand toolkit carries over to our AP Microeconomics study guide. Read this guide unit by unit, test yourself at each checkpoint, then round out your free prep with our practice questions and flashcards.

AP Macroeconomics is one of the 17 AP exams — explore our AP study guides to compare and prep across the whole family.

AP Macroeconomics Exam Snapshot

AP Macroeconomics exam at a glance (2026)
Detail	AP Macroeconomics
Section I	60 multiple-choice questions · 1 hr 10 min · 66.7% of score
Section II	3 free-response questions · 1 hr (1 long + 2 short) · 33.3% of score
Reading period	10 minutes before the free-response section
Total time	About 2 hours 20 minutes
Units	6 College Board units (Basic Concepts → Open Economy)
Score scale	1–5 (most colleges grant credit for a 3, 4, or 5)
Guessing penalty	None — answer every question
Key graphs	AD-AS, money market, loanable funds, Phillips curve, PPC, business cycle
Publisher	College Board

How the AP Macroeconomics exam is built — two sections

Total time is 2 hours 20 minutes. Multiple choice is worth twice as much as the free-response section, but the FRQs are where labeled graphs win or lose points.

Section I — Multiple Choice60 questions · 1 hour 10 min · 66.7% of the score. Definitions, graph reading, and short numerical problems across all 6 units.
10-minute reading period
Section II — Free Response3 questions · 1 hour · 33.3% of the score. One long FRQ (about 50 min worth of points) and two short FRQs. Expect to draw and label graphs.

Practice drawing every core model by hand — AD-AS, the money market, loanable funds, and the Phillips curve all show up on the free-response section.

Roughly two-thirds of your score is multiple choice and one-third is free response, but the FRQs are where careful graphing earns or loses points.^[3] Spend your study time across all six units, but know that Units 3, 4, and 5 — the macro models, the financial sector, and stabilization policy — dominate the exam:

AP Macroeconomics units by exam weight (2026)

Unit 5 · Long-Run Stabilization30% · 20–30%

Unit 3 · National Income & Price27% · 17–27%

Unit 4 · Financial Sector23% · 18–23%

Unit 2 · Indicators & Business Cycle17% · 12–17%

Unit 6 · Open Economy / Trade13% · 10–13%

Unit 1 · Basic Economic Concepts10% · 5–10%

College Board reports unit weights as approximate ranges for the multiple-choice section, so the exact mix shifts slightly each year.^[2] This guide teaches all six units in order, as six study modules.

AP Macroeconomics units by exam weight (2026)

U3 · National Income & Price

17–27%

U5 · Long-Run Policy Effects

20–30%

U4 · Financial Sector

18–23%

U2 · Indicators & Business Cycle

12–17%

U6 · Open Economy / Trade

10–13%

U1 · Basic Economic Concepts

5–10%

Units 3, 4, and 5 — the macro models, the financial sector, and stabilization policy — together make up well over half the exam. Master the graphs there first.

1 · Basic Economic Concepts

About 5–10% of the exam. The foundation: scarcity, opportunity cost, the production possibilities curve, comparative advantage, and how supply and demand set a market price.^[2]

Scarcity & the PPC

— unlimited wants but limited resources — is why economics exists. The shows the maximum output of two goods given an economy’s resources.

A point inside is inefficient (unused resources), a point on the curve is efficient, and a point outside is unattainable now — until growth shifts the curve out. A bowed-out PPC reflects increasing opportunity cost.

Opportunity Cost & Comparative Advantage

is the value of the next-best alternative you give up. is producing more with the same resources; is producing at a lower opportunity cost. Gains from trade come from comparative advantage — each producer specializes where its opportunity cost is lowest.

Demand, Supply & Equilibrium

The law of demand says quantity demanded falls as price rises; the law of supply says quantity supplied rises as price rises. Equilibrium is where the curves cross — the price that clears the market. A shortage (price too low) pushes price up; a surplus (price too high) pushes it down.

Marginal Analysis

Economic decisions are made at the margin: keep doing an activity as long as its marginal benefit exceeds its marginal cost, and stop where they are equal. This logic underlies nearly every model in the course.

Checkpoint · Unit 1 · Basic Economic Concepts

Question 1 of 6

Which statement best captures why scarcity is considered the central problem in economics?

2 · Economic Indicators & the Business Cycle

About 12–17% of the exam. How we measure the economy: GDP, unemployment, inflation and the CPI, and where the economy sits in the business cycle.^[2]

Gross Domestic Product

is the market value of all final goods and services produced within a country in a period. By the expenditure approach, $\text{GDP} = C + I + G + NX$ . Intermediate goods, used goods, pure financial transactions, and transfer payments are excluded.

The four components of GDP (expenditure approach)
Component	What it includes
Consumption (C)	Household spending on goods and services (the largest component)
Investment (I)	Business spending on capital, new construction, and changes in inventories
Government (G)	Government spending on goods and services (not transfer payments)
Net exports (NX)	Exports minus imports; can be negative

Unemployment

The is $\dfrac{\text{unemployed}}{\text{labor force}} \times 100$ , where the labor force is the employed plus those actively seeking work. Know the three types and that the equals frictional plus structural unemployment.

Types of unemployment
Type	Cause
Frictional	Between jobs or newly entering the labor force — normal job search
Structural	Skills or location mismatch; technology eliminates certain jobs
Cyclical	A downturn in the business cycle; zero at full employment

Inflation & the CPI

The tracks the average price of a fixed market basket; the rate is its percent change. Compute it as $\dfrac{\text{new CPI} - \text{old CPI}}{\text{old CPI}} \times 100$ .

The Business Cycle & Real vs Nominal

The economy moves through expansion → peak → contraction (recession) → trough around a long-run growth trend. uses constant base-year prices, while uses current prices — so real GDP is the honest measure of output over time.

The business cycle — real GDP around its long-run trend

A full cycle runs expansion → peak → contraction (recession) → trough, repeating around the upward long-run growth trend.

Checkpoint · Unit 2 · Indicators & Business Cycle

Question 1 of 6

Which definition best describes gross domestic product as used in national income accounting?

3 · National Income & Price Determination

About 17–27% of the exam — one of the two biggest units. The core macro model: aggregate demand, the multiplier, short-run and long-run aggregate supply, and how fiscal policy closes output gaps.^[2]

Aggregate Demand

is total real output demanded at each price level. It slopes downward for three reasons — the wealth effect, the interest-rate effect, and the net-exports effect — and it shifts when C, I, G, or NX changes.

Multipliers & the MPC

The is the fraction of each extra dollar that households spend, and $MPC + MPS = 1$ . The is $\dfrac{1}{1 - MPC} = \dfrac{1}{MPS}$ .

The macro multipliers
Multiplier	Formula
Spending multiplier	$1 / (1 - MPC) = 1 / MPS$
Tax multiplier	$-MPC / (1 - MPC) = -MPC / MPS$
Balanced-budget multiplier	$1$ (equal spending and tax increase)

SRAS, LRAS & Equilibrium

slopes upward; long-run aggregate supply (LRAS) is vertical at full-employment output. The economy is in long-run equilibrium where AD, SRAS, and LRAS all meet — no output gap.

The Aggregate Demand–Aggregate Supply (AD-AS) model

Equilibrium is where AD meets SRAS. When that point sits on the vertical LRAS — at full-employment output (Yf) — the economy is in long-run equilibrium with no output gap.

Fiscal Policy & Output Gaps

A recessionary gap (output below LRAS) calls for — more government spending or lower taxes — to shift AD right. An inflationary gap (output above LRAS) calls for contractionary policy to shift AD left.

Checkpoint · Unit 3 · National Income & Price

Question 1 of 8

Which statement best describes why the aggregate demand curve slopes downward?

4 · Financial Sector

About 18–23% of the exam. Money and its functions, how banks create money, the money market, and how the central bank runs monetary policy.^[2]

Money & the Money Supply

Money has three functions — medium of exchange, unit of account, and store of value. The is measured by M1 (currency plus checkable deposits) and the broader M2.

Banking & Money Creation

In , banks lend out deposits beyond their required reserves, and each loan becomes a new deposit. The is $\dfrac{1}{\text{required reserve ratio}}$ .

The Money Market

In the , the central bank fixes a vertical money supply and money demand slopes downward; their intersection sets the nominal interest rate.

The money market — where the nominal interest rate is set

The central bank sets the vertical money supply (MS). More money supply shifts MS right, lowering the interest rate; less money supply raises it. This is how monetary policy works.

Monetary Policy

works through three tools — open-market operations, the discount rate, and the reserve requirement. Expansionary policy increases the money supply, lowering interest rates and shifting AD right.

Expansionary vs contractionary monetary policy
	Expansionary (fight recession)	Contractionary (fight inflation)
Open-market operations	Buy bonds	Sell bonds
Money supply	Increases	Decreases
Interest rate	Falls	Rises
Effect on AD	Shifts right	Shifts left

Checkpoint · Unit 4 · Financial Sector

Question 1 of 6

Which of the following lists the three primary functions of money in an economy?

5 · Long-Run Consequences of Stabilization Policies

About 20–30% of the exam — the single heaviest unit. The long-run side of policy: the Phillips curve, crowding out in the loanable-funds market, the link between money growth and inflation, and what drives economic growth.^[2]

The Phillips Curve

The graphs inflation against unemployment. The short-run curve slopes downward (a trade-off); the long-run curve is vertical at the natural rate, so there is no permanent trade-off.

The Phillips curve — short run vs long run

In the short run there is a trade-off — lower unemployment comes with higher inflation. In the long run the curve is vertical at the natural rate, so there is no permanent trade-off.

Crowding Out & Loanable Funds

In the , saving (supply) and investment (demand) set the real interest rate. Government deficit borrowing raises the demand for funds, pushing the real interest rate up and reducing private investment — the .

The loanable-funds market — where the real interest rate is set

Government deficit borrowing raises the demand for loanable funds, pushing the real interest rate up and reducing private investment — the crowding-out effect.

Money Growth & Inflation

In the long run, sustained increases in the money supply beyond real output growth cause inflation — the economy’s price level rises while real output returns to potential. This is why the long-run Phillips curve and LRAS are both vertical: policy can’t permanently push output past full employment, only the price level.

Economic Growth

comes from more or better resources — physical and human capital, a larger labor force, technology, and productivity. It shows up as a rightward shift of LRAS and an outward shift of the PPC.

Checkpoint · Unit 5 · Long-Run Stabilization

Question 1 of 6

The short-run Phillips curve illustrates which relationship between two macroeconomic variables?

6 · Open Economy — International Trade & Finance

About 10–13% of the exam. The economy opened to the rest of the world: the balance of payments, the foreign exchange market, and how exchange rates and capital flows feed back into aggregate demand.^[2]

The Balance of Payments

The records all transactions with the rest of the world. The current account tracks exports, imports, and income; the financial (capital) account tracks flows of financial assets. A current-account deficit is generally offset by a financial-account surplus.

Exchange Rates

An is the price of one currency in another, set by supply and demand in the foreign exchange market. A currency when demand for it rises and depreciates when it falls.

What moves a currency's value
Change	Effect on the currency
Higher domestic real interest rates	Appreciates (attracts foreign financial capital)
Stronger exports / demand for the currency	Appreciates
Higher domestic inflation	Depreciates
More imports / supply of the currency	Depreciates

Net Exports & Capital Flows

(exports minus imports) is a component of aggregate demand, so the open economy links back to the AD-AS model. A stronger currency makes exports more expensive and imports cheaper, tending to lower net exports and shift AD left.

Checkpoint · Unit 6 · Open Economy

Question 1 of 6

In the balance of payments, which account records a country's exports and imports of goods and services, along with net income from abroad and net transfers?

How to Use This Study Guide

A study guide is a map, not the whole territory — use it alongside official College Board materials and our free tools. Because AP Macroeconomics is built on a few core graphs, the highest-leverage habit is drawing each model by hand — AD-AS, the money market, loanable funds, and the Phillips curve — until you can shift them on demand and explain every step. Spend extra time on the heavily weighted Units 3, 4, and 5.

A study loop that actually works

1
Read a unit here
Work through one unit at a time, in order — the six units build on one another.
2
Take the checkpoint
The quick check at the end of each unit exposes what didn't stick.
3
Drill the gaps
Send your weak unit straight into the free practice questions and flashcards.
4
Draw every graph
Practice sketching AD-AS, the money market, loanable funds, and the Phillips curve until they're automatic, then take full timed practice.

AP Macroeconomics Concept Questions

Common AP Macroeconomics concepts the exam actually measures — at least one per unit. Tap any card for a short, exam-ready answer backed by an official source (College Board), then test yourself on them as flashcards.

AP Macroeconomics Glossary

Quick definitions for the terms you’ll see most across the six units:

Absolute advantage: The ability to produce more of a good than another producer using the same resources.
Aggregate demand: The total quantity of real output demanded at each price level: C + I + G + NX. It slopes downward and shifts when a spending component changes.
Aggregate supply: The total quantity of real output producers supply. Short-run AS (SRAS) slopes upward; long-run AS (LRAS) is vertical at full-employment output.
Appreciation: An increase in the value of a currency relative to another, making imports cheaper and exports more expensive.
Balance of payments: A record of all transactions between a country and the rest of the world, split into the current account and the financial (capital) account.
Comparative advantage: The ability to produce a good at a lower opportunity cost than another producer. Gains from trade come from specializing where your opportunity cost is lowest.
Consumer price index: A measure of the average change over time in the prices of a fixed market basket of goods bought by a typical urban household; the main gauge of inflation.
Crowding-out effect: When government deficit borrowing raises the real interest rate and reduces private investment.
Economic growth: An increase in an economy's productive capacity, shown as a rightward shift of LRAS and the PPC, from more or better resources and technology.
Exchange rate: The price of one currency in terms of another, set by supply and demand in the foreign exchange market.
Fiscal policy: The government's use of spending and taxes to influence the economy. Expansionary policy raises spending or cuts taxes; contractionary policy does the reverse.
Fractional reserve banking: A system in which banks keep only a fraction of deposits as reserves and lend the rest, expanding the money supply through lending.
Gross domestic product: The market value of all final goods and services produced within a country in a period. By the expenditure approach, GDP = C + I + G + NX.
Inflation: A sustained rise in the general price level, which reduces the purchasing power of money.
Loanable funds market: The market for borrowing and lending where saving (supply) and investment (demand) set the real interest rate.
Marginal propensity to consume: The fraction of each additional dollar of disposable income that households spend. MPC + MPS = 1.
Monetary policy: The central bank's control of the money supply and interest rates, through open-market operations, the discount rate, and reserve requirements.
Money market: The market where the nominal interest rate is set by a vertical money supply and a downward-sloping money demand.
Money multiplier: The maximum money the banking system can create from new reserves: 1 ÷ the required reserve ratio.
Money supply: The total amount of money in an economy. M1 is currency plus checkable deposits; M2 adds less-liquid near-money like savings deposits.
Natural rate of unemployment: The frictional plus structural unemployment that remains when the economy is at full employment; cyclical unemployment is zero.
Net exports: Exports minus imports; a component of aggregate demand in an open economy.
Nominal GDP: GDP measured using current-year prices, so it rises with both output and inflation.
Opportunity cost: The value of the next-best alternative you give up when you make a choice. Producing more of one good means giving up some of another.
Phillips curve: A graph of the inflation–unemployment relationship: the short-run curve slopes downward (a trade-off); the long-run curve is vertical at the natural rate.
Production possibilities curve: A graph of the maximum combinations of two goods an economy can produce with its resources. Points inside are inefficient; points outside are unattainable now.
Real GDP: GDP adjusted for inflation, valued at constant base-year prices, so it measures changes in actual output rather than prices.
Required reserve ratio: The fraction of deposits banks must hold as reserves rather than lend out.
Scarcity: The basic economic problem that wants are unlimited but resources are limited, so every choice involves trade-offs.
Spending multiplier: The factor by which an initial change in spending changes real GDP: 1 ÷ (1 − MPC), or 1 ÷ MPS.
Unemployment rate: The number of unemployed people divided by the labor force, times 100. The labor force is the employed plus those actively seeking work.

Free AP Macroeconomics Study Materials & Resources

Everything you need to prepare for AP Macroeconomics is free here — no paywall, no sign-up. This guide is the foundation; pair it with the rest of our free AP Macroeconomics study materials for active recall, timed practice, and last-minute review:

AP Macroeconomics Practice Test — exam-style questions across all six units, with explanations.
AP Macroeconomics Flashcards — active-recall decks for the key formulas, models, and definitions.
AP Microeconomics Study Guide — the micro side of economics, for students taking both.

AP Macroeconomics Study Guide FAQ

The AP Macroeconomics exam has two sections. Section I is 60 multiple-choice questions in 1 hour 10 minutes, worth 66.7% of the score. Section II is 3 free-response questions in 1 hour (after a 10-minute reading period) — one long FRQ and two short FRQs — worth 33.3%.

References

1.College Board. “AP Macroeconomics — AP Central.” College Board. ↑
2.College Board. “AP Macroeconomics Course and Exam Description.” College Board. ↑
3.College Board. “AP Macroeconomics Exam — AP Students.” College Board. ↑
4.College Board. “About the AP Macroeconomics Course.” College Board. ↑

Sources for the concept answers

Every answer in the AP Macroeconomics concept questions above is drawn from an official primary source:

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