Key Concepts in AP Macroeconomics — Presidio Education®

Advanced Placement (AP) Macroeconomics is a content-heavy subject that can be very technical, which is why attention to detail is crucial. Students are highly encouraged to create a study plan to avoid being overwhelmed by the quantity of content and graphs that are introduced. AP Macroeconomics and AP Microeconomics are often taught in the same academic year. Most high schools teach both in the 11th grade. Typically, AP Microeconomics is taught in the fall semester and AP Macroeconomics is taught in the spring semester. However, they are separate APs with separate exams. Covering two (2) APs in one academic year can be extremely challenging. This guide is designed to aid students with certain key concepts to ensure a much smoother learning experience with AP Macroeconomics. However, if you need a quick guide on AP Microeconomics, please read this previously posted blog post: "Tips for Students New to AP Microeconomics".

Macroeconomics vs. Microeconomics

Understanding the differences between the two economics APs is vital. AP Microeconomics focuses on the principles of economics for individual decision-makers and product markets. However, AP Macroeconomics has a much wider scope. Entire economics are analyzed, with a focus on economic performance, international economics and financial markets. Students often struggle to transition between Microeconomics and Macroeconomics, as the concepts are similar but not the same. Understanding the differences without confusing the two (2) economics APs is crucial. For example, in AP Microeconomics, the basic supply and demand model is introduced. However, in AP Macroeconomics, the aggregate demand and aggregate supply (AD/AS) model is introduced, which is explained below.

Aggregate Demand and Aggregate Supply

Below is the aggregate demand and aggregate supply (AD-AS) graph.

The concept of aggregate is key here. In AP Macroeconomics, the focus is on entire economies and, subsequently, all goods and services within an economy. Therefore, we need a new aggregate demand and aggregate supply (AD-AS) concept. The x-axis is labeled “Real GDP”, or, in other words, the quantity of output of the economy. The concept of real is discussed later in this guide. The y-axis is labeled “Aggregate Price Level”, which is the general level of prices of all goods and services within an economy. Therefore, the AD/AS model allows us to analyze the relationship between the general level of prices and outputs of an economy under various conditions. Understanding the AD-AS model is the heart of AP Macroeconomics and must be mastered. Memorizing the graphs and ensuring labels are accurate will also be crucial for the AP Macroeconomic exam.

Learning the Formulas

There is a greater focus on numbers and statistics in AP Macroeconomics. We must be able to analyze certain statistics to evaluate economic performance. Therefore, students will be introduced to various formulas and calculations. A formula list will not be provided in the AP Macroeconomics exam, so students must memorize all formulas and learn to apply them.

One (1) of the most important formulas is the expenditure approach to calculating gross domestic product (GDP):

GDP = C + I + G + (X - M)

This is a deceptively simple formula. The individual components are consumption expenditure (C), investment expenditure (I), government expenditure (G), exports (X) and imports (M). Since there are various effects that can manipulate each individual component, students will often make mistakes. Other formulas, such as the GDP deflator, the various multipliers and price indexes, must also be memorized.

Adjusting for Inflation

Real is a new concept that is introduced to students in AP Macroeconomics. An example of how real might be used is real interest rate. The real interest rate is the interest rate that is adjusted for inflation. This is calculated by the nominal interest rate minus the inflation rate. The nominal interest rate is the specific interest rate value that is expressed as a percentage. Therefore, the term real is the value of something after adjusting for inflation. Other terms that are introduced in AP Macroeconomics are real wages, real GDP and real exchange rate. Students must always make the distinction between real and nominal to be accurate.

Need Further Help?

Students and parents are encouraged to contact our Presidio Education® team via email with any questions. Alternatively, please fill in the Private Classes Registration Form to request more information or register for classes. Our experienced faculty can provide one-on-one training for AP Macroeconomics, AP Microeconomics and other AP subjects.

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Author: WAYNE MAN

Wayne was born and raised in East London, United Kingdom. He holds a Bachelor of Science in Economics from the University of Birmingham in the United Kingdom and loves integrating mathematical and statistical patterns to problem solve complex equations. While Wayne teaches math and social science school subjects, focusing on microeconomics, macroeconomics and statistics, he also trains students for ACT and SAT math, as well as Advanced Placement (AP) exams. As part of our sustainability initiatives, Wayne volunteers with children with intellectual disabilities and flies overseas to participate in Presidio Education® Impact Projects to donate school supplies to impoverished children, such as with our Cebu Impact Project.