5 Steps to a 5 - AP Macroeconomics-Microeconomics

336 Pages·2005·3.66 MB·English

McGRAW-HILL
5 Steps to a 5
AP Microeconomics/
Macroeconomics
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5 Steps to a 5
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Eric R. Dodge
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DOI: 10.1036/0071465170
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Contents
Acknowledgments / ix
Preface / xi
PART I HOW TO USE THIS BOOK / 1
The Basics / 3
Organization of the Book / 3
Introduction to the Five-Step Program / 3
Three Approaches to Preparing for the AP Economics Exams / 4
Calendars for Preparing for Each of the Plans / 6
Introduction to the Graphics Used in This Book / 9
PART II WHAT YOU NEED TO KNOW ABOUT
THE AP ECONOMICS EXAMS / 11
Background Information / 13
Some Frequently Asked Questions About the AP Economics Exams / 13
Why take the AP Economics Exam? / 13
Who writes the AP Economics Exam? / 13
What is going to appear on the exam? / 14
Who grades my AP Economics Exam? / 17
Will my exam remain anonymous? / 18
What about that permission box on the back? / 18
How is my multiple-choice exam scored? / 18
How is my free-response exam scored? / 18
So how is my final grade determined and what does it mean? / 18
How do I register and how much does it cost? / 19
What if my school only offered AP Macroeconomics and not AP Microeconomics,
or vice versa? / 20
What should I bring to the exam? / 20
What should I NOT bring to the exam? / 20
Tips for Taking the AP Economics Exams / 21
Section I: Multiple-Choice Questions / 21
Section II: Free-Response Questions / 21
Getting Started: The Diagnostic Exams / 23
Diagnostic Exams: Answer Sheet / 23
Diagnostic Exam: AP Microeconomics / 24
Diagnostic Exam: AP Macroeconomics / 28
Microeconomics Answers and Explanations, Section I / 31
Macroeconomics Answers and Explanations, Section I / 33
Scoring and Interpretation / 35
PART III COMPREHENSIVE REVIEW / 37
Chapter 1 Fundamentals of Economic Analysis / 39
Introduction / 39
1.1 Scarce Resources / 39
vv
vi • Contents
1.2 Production Possibilities / 42
1.3 Functions of Economic Systems / 48
Review Questions / 49
Answers and Explanations / 50
Rapid Review / 50
Chapter 2 Demand, Supply, Market Equilibrium,
and Welfare Analysis / 52
Introduction / 52
2.1 Demand / 52
2.2 Supply / 57
2.3 Market Equilibrium / 61
2.4 Welfare Analysis / 66
Review Questions / 68
Answers and Explanations / 68
Rapid Review / 69
Chapter 3 Elasticity, Microeconomic Policy,
and Consumer Theory / 71
Introduction / 71
3.1 Elasticity / 71
3.2 Microeconomic Policy and Applications of Elasticity / 80
3.3 Consumer Choice / 85
Review Questions / 90
Answers and Explanations / 91
Rapid Review / 92
Chapter 4 The Firm, Profit, and the Costs of Production / 94
Introduction / 94
4.1 Firms, Opportunity Costs, and Profits / 94
4.2 Production and Cost / 96
Review Questions / 105
Answers and Explanations / 105
Rapid Review / 106
Chapter 5 Market Structures, Perfect Competition,
Monopoly, and Things Between / 108
Introduction / 108
5.1 Perfect Competition / 108
5.2 Monopoly / 118
5.3 Monopolistic Competition / 123
5.4 Oligopoly / 125
Review Questions / 127
Answers and Explanations / 128
Rapid Review / 129
Chapter 6 Factor Markets / 130
Introduction / 130
6.1 Factor Demand / 130
6.2 Least-Cost Hiring of Multiple Inputs / 135
6.3 Factor Supply and Market Equilibrium / 136
6.4 Imperfect Competition in Product and Factor Markets / 137
Contents • vii
Review Questions / 139
Answers and Explanations / 140
Rapid Review / 141
Chapter 7 Public Goods, Externalities,
and the Role of Government / 142
Introduction / 142
7.1 Public Goods and Spillover Benefits / 142
7.2 Pollution and Spillover Costs / 145
7.3 Income Distribution and Tax Structures / 147
Review Questions / 150
Answers and Explanations / 151
Rapid Review / 152
Chapter 8 Macroeconomic Measures of Performance / 153
Introduction / 153
8.1 The Circular Flow Model / 154
8.2 Accounting for Output and Income / 155
8.3 Inflation and the Consumer Price Index / 161
8.4 Unemployment / 165
Review Questions / 167
Answers and Explanations / 167
Rapid Review / 168
Chapter 9 Consumption, Saving, Investment,
and the Multiplier / 170
Introduction / 170
9.1 Consumption and Saving / 170
9.2 Investment / 174
9.3 The Multiplier Effect / 177
Review Questions / 180
Answers and Explanations / 181
Rapid Review / 181
Chapter 10 Aggregate Demand and Aggregate Supply / 183
Introduction / 183
10.1 Aggregate Demand (AD) / 183
10.2 Aggregate Supply (AS) / 186
10.3 Macroeconomic Equilibrium / 188
10.4 The Trade-off Between Inflation and Unemployment / 194
Review Questions / 197
Answers and Explanations / 198
Rapid Review / 198
Chapter 11 Fiscal Policy, Economic Growth,
and Productivity / 200
Introduction / 200
11.1 Expansionary and Contractionary Fiscal Policy / 200
11.2 Difficulties of Fiscal Policy / 203
11.3 Economic Growth and Productivity / 206
Review Questions / 209
Answers and Explanations / 210
Rapid Review / 211
viii • Contents
Chapter 12 Money, Banking, and Monetary Policy / 212
Introduction / 212
12.1 Money and Financial Assets / 212
12.2 Fractional Reserve Banking and Money Creation / 218
12.3 Monetary Policy / 220
Review Questions / 225
Answers and Explanations / 226
Rapid Review / 226
Chapter 13 International Trade / 228
Introduction / 228
13.1 Comparative Advantage and Gains from Trade / 228
13.2 Balance of Payments / 232
13.3 Foreign Exchange Rates / 234
13.4 Trade Barriers / 237
Review Questions / 239
Answers and Explanations / 240
Rapid Review / 240
PART IV PRACTICE MAKES PERFECT! / 241
AP Microeconomics Practice Exam 1 / 243
AP Macroeconomics Practice Exam 1 / 260
AP Microeconomics Practice Exam 2 / 277
AP Macroeconomics Practice Exam 2 / 293
APPENDIX / 309
Bibliography / 311
Web sites / 312
Glossary / 313
Important Formulas and Conditions / 320
About the Author / 323
Acknowledgments
This book would not have been possible without the sabbatical leave program at
Hanover College and the support of the Faculty Development Committee. Thanks to
the editorial suggestions of Don Reis and several anonymous reviewers, the readabil-
ity of this text has been greatly improved. To Michael Brody and his AP Economics stu-
dents at the Menlo School in Atherton, California, I offer my thanks for helping to refine
and improve upon the diagnostic exams. Thanks again go out to the students at the
Menlo School and also to Matthew Pedlow and his AP Economics students at Jackson
High School in Jackson, Michigan for contributing their input on what are important
topics for the exam. I wish to thank Janel Lockwood and Ashley Long at Hanover
College for their assistance in the construction of review questions for several chap-
ters. Thanks to my parents, Ray and Dorothy, for all of the encouragement over the
years. To my wife, Molly, who was at times a proofreader, a sounding board, and a
source of inspiration, I offer my heartfelt thanks and best wishes for the long-run suc-
cess of the lemonade stand. You have helped me to finally define equilibrium.
ix
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