AP Macroeconomics FRQs follow predictable patterns. The long FRQ (10 pts) almost always asks you to draw and shift the AD-AS model and show how a policy change affects output, price level, and unemployment. If you can do that accurately, you're halfway to a passing score.
The 4 Graphs You Must Draw Perfectly
- AD-AS Model: AD downward-sloping, SRAS upward-sloping, LRAS vertical at full employment. Know what shifts each curve and the new equilibrium effects on real GDP and price level.
- Money Market: Money supply vertical (controlled by Fed), money demand downward-sloping. Fed buys bonds → MS shifts right → interest rate falls.
- Loanable Funds Market: Supply upward-sloping, demand downward-sloping. Government deficit spending increases demand for loanable funds → crowding out.
- PPC (Production Possibilities Curve): Economic growth shifts outward. Points inside = inefficient. Points outside = currently unattainable.
Fiscal vs Monetary Policy
Expansionary fiscal: Increase spending or cut taxes → AD shifts right → real GDP up, price level up, unemployment down. Contractionary fiscal: Cut spending or raise taxes → AD shifts left. Expansionary monetary: Fed buys bonds → money supply up → interest rate down → investment up → AD right. Contractionary monetary: Fed sells bonds → money supply down → interest rate up → investment down → AD left.
Multipliers You Must Know
- Spending multiplier: 1/(1-MPC) or 1/MPS. If MPC = 0.8, multiplier = 5. A $100B spending increase raises GDP by $500B.
- Tax multiplier: -MPC/(1-MPC). Always one less in magnitude than spending multiplier. Negative because taxes reduce income.
- Money multiplier: 1/required reserve ratio. If RRR = 0.1, multiplier = 10.
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