Advanced Placement (AP) Macroeconomics (also known as AP Macro and AP Macroecon) is an

Advanced Placement Advanced Placement (AP) is a program in the United States and Canada created by the College Board. AP offers undergraduate university-level curricula and examinations to high school students. Colleges and universities in the US and elsewhere ...

macroeconomics Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...

course for high school students that culminates in an exam offered by the

College Board The College Board, styled as CollegeBoard, is an American not-for-profit organization that was formed in December 1899 as the College Entrance Examination Board (CEEB) to expand access to higher education. While the College Board is not an asso ...

. Study begins with fundamental economic concepts such as

scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...

opportunity costs In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, ...

, production possibilities, specialization,

comparative advantage Comparative advantage in an economic model is the advantage over others in producing a particular Goods (economics), good. A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior t ...

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

supply Supply or supplies may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as ...

, and

price determination Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it ...

. Major topics include measurement of economic performance, national income and price determination, fiscal and

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...

, and

international economics International economics is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns an ...

and growth. AP Macroeconomics is frequently taught in conjunction with (and, in some cases, in the same year as) AP Microeconomics as part of a comprehensive

AP Economics Advanced Placement (AP) Economics (also known as AP Econ) refers to two College Board Advanced Placement Program courses and exams addressing various aspects of the field of economics Economics () is a behavioral science that studies the Pro ...

curriculum, although more students take the former.

Topic outline

Source:

Basic Economic Concepts (5–10%)

Scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...

choice A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate Motivation, motivators and Choice modelling, models. Freedom of choice is generally cherished, whereas a severely limited or arti ...

, and

opportunity cost In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Assuming the best choice is made, ...

s * Production possibilities curve *

Comparative advantage Comparative advantage in an economic model is the advantage over others in producing a particular Goods (economics), good. A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior t ...

absolute advantage In economics, the principle of absolute advantage is the ability of a party (an individual, or firm, or country) to produce a good or service more efficiently than its competitors. The Scottish economist Adam Smith first described the principle ...

, specialization, and

exchange Exchange or exchanged may refer to: Arts, entertainment and media Film and television * Exchange (film), or ''Deep Trap'', 2015 South Korean psychological thriller * Exchanged (film), 2019 Peruvian fantasy comedy * Exchange (TV program), 2021 Sou ...

Demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

, and

market equilibrium In economics, economic equilibrium is a situation in which the economic forces of supply and demand are balanced, meaning that economic variables will no longer change. Market equilibrium in this case is a condition where a market price is esta ...

* Macroeconomic issues:

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

, growth

Economic Indicators and the Business Cycle (12–17%)

* National income accounts ** Circular flow **

Gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

**Components of gross domestic product ** Real versus nominal gross domestic product *

Unemployment Unemployment, according to the OECD (Organisation for Economic Co-operation and Development), is the proportion of people above a specified age (usually 15) not being in paid employment or self-employment but currently available for work du ...

**Definition and

measurement Measurement is the quantification of attributes of an object or event, which can be used to compare with other objects or events. In other words, measurement is a process of determining how large or small a physical quantity is as compared to ...

**Types of unemployment **

Natural rate of unemployment The natural rate of unemployment is the name that was given to a key concept in the study of economic activity. Milton Friedman and Edmund Phelps, tackling this 'human' problem in the 1960s, both received the Nobel Memorial Prize in Economic Scien ...

*Inflation measurement and adjustment **

Price indices A price index (''plural'': "price indices" or "price indexes") is a normalized average (typically a weighted average) of price relatives for a given class of goods or services in a specific region over a defined time period. It is a statistic des ...

** Costs of inflation **Nominal vs real values *Business cycles **Recession and expansion **Output gap

National Income and
Price Determination Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it ...
(17–27%)

Aggregate demand In economics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the ...

**Determinants of aggregate demand ** Multiplier and crowding-out effects *

Aggregate supply In economics, aggregate supply (AS) or domestic final supply (DFS) is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is the total amount of goods and services that firms ...

Short-run In economics, the long-run is a theoretical concept in which all markets are in economic equilibrium, equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there a ...

and

long-run In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints an ...

analyses ** Sticky versus flexible wages and prices **Determinants of aggregate supply * Macroeconomic Equilibrium **Real

output Output may refer to: * The information produced by a computer, see Input/output * An output state of a system, see state (computer science) * Output (economics), the amount of goods and services produced ** Gross output in economics, the valu ...

and price level **Short and long run **Actual versus full-employment output **Economic fluctuations *Fiscal Policy **Expansionary and contractionary **Lag time **Automatic stabilizers

Financial Sector (15–20%)

Financial sector Financial services are economic services tied to finance provided by financial institutions. Financial services encompass a broad range of service sector activities, especially as concerns financial management and consumer finance. The financ ...

: *

Money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

banking A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

, and

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

s ** Definition of

financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' share capital. Financial assets are usually more market li ...

s: money,

stock Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...

s, bonds **

Time value of money The time value of money refers to the fact that there is normally a greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The time ...

(present and future value) **

Functions of money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: med ...

** Measures of money supply ** Banks and creation of money **

Money demand In monetary economics, the demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments. It can refer to the demand for money narrowly defined as M1 (economics), M1 (dire ...

Money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compo ...

** Loanable funds market ** Reserve market *

Central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

and control of the money supply **

Monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...

** Real versus

nominal interest rate In finance and economics, the nominal interest rate or nominal rate of interest is the rate of interest stated on a loan or investment, without any adjustments for inflation. Examples of adjustments or fees # An adjustment for inflation (in contr ...

Long-Run Consequences of Stabilization Policies (20–30%)

* Fiscal and monetary policies ** Demand-side effects **

Supply-side Supply-side economics is a macroeconomic theory postulating that economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics theory, consumers will ...

effects ** Policy mix ** Government deficits and debt ** Crowding out * Inflation and unemployment **

Quantity theory of money The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply) ...

** Types of inflation **

Demand-pull inflation Demand-pull inflation occurs when aggregate demand in an economy is more than aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is co ...

Cost-push inflation Cost-push inflation is a purported type of inflation caused by increases in the cost of important goods or services where no suitable alternative is available. Cause As businesses face higher prices for underlying inputs, they are forced to incre ...

** The

Phillips curve The Phillips curve is an economic model, named after Bill Phillips, that correlates reduced unemployment with increasing wages in an economy. While Phillips did not directly link employment and inflation, this was a trivial deduction from his ...

: short run versus long run ** Role of expectations *

Economic Growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...

and Productivity: **

Investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

human capital Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a subs ...

** Investment in

physical capital Physical capital represents in economics one of the three primary factors of production. Physical capital is the apparatus used to produce a good and services. Physical capital represents the tangible man-made goods that help and support the pr ...

Research and development Research and development (R&D or R+D), known in some countries as OKB, experiment and design, is the set of innovative activities undertaken by corporations or governments in developing new services or products. R&D constitutes the first stage ...

, and technological progress ** Growth policy

Open Economy: International Trade and Finance (10–13%)

Balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a ...

accounts **

Balance of trade Balance of trade is the difference between the monetary value of a nation's exports and imports of goods over a certain time period. Sometimes, trade in Service (economics), services is also included in the balance of trade but the official IMF d ...

** Current account **

Capital account In macroeconomics and international finance, the capital account, also known as the capital and financial account, records the net flow of Foreign direct investment, investment into an economy. It is one of the two primary components of the balan ...

Foreign exchange market The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. By trading volume, ...

** Demand for and supply of foreign exchange **

Exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...

determination **

Currency appreciation and depreciation Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained. Currency appreciation ...

* Net exports and capital flows * Links to financial and goods markets

Exam

Multiple Choice (2/3 of Score)

*60 questions in 70 minutes *Reflects topic outline above *Example: 3-6 questions on economic growth

Free Response (1/3 of Score)

* 3 questions in 60 minutes (with 10 minutes of recommended reading and planning time)

Score distribution

The exam was first held in 1989, along with Microeconomics. Grade distributions since 2002 are as follows:

Criticism

Tawni Ferrarini, James Gwartney, and John Morton have written that the examination does not adequately cover recent advances in the field: "The AP macroeconomics exam and resources largely reflect the simplistic Keynesian view from the 1960s and 1970s." The College Board updates the AP Macroeconomics curriculum with the guidance of college and high school economics instructors. The most recent update was published in 2022.

References

AP:Macroeconomics

Study Resources

* {{Glossaries of science and engineering Economics education Advanced Placement

Topic outline

Basic Economic Concepts (5–10%)

Economic Indicators and the Business Cycle (12–17%)

National Income and Price Determination Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it ... (17–27%)

Financial Sector (15–20%)

Long-Run Consequences of Stabilization Policies (20–30%)

Open Economy: International Trade and Finance (10–13%)

Exam

Multiple Choice (2/3 of Score)

Free Response (1/3 of Score)

Score distribution

Criticism

See also

References

Study Resources

National Income and
Price Determination Pricing is the process whereby a business sets and displays the price at which it will sell its products and services and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it ...
(17–27%)