AP Macroeconomics: 250 Key Terms and Their Directions
Most free-response points come from naming a direction and a mechanism, not from a number.
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| Front | Back |
|---|---|
| Scarcity | Meaning: The condition that wants exceed the resources available to satisfy them. Why it matters: It is why every economy must choose, and why every choice has a cost. Example: A shortage is a market condition at one price. Scarcity is permanent and applies to every good. |
| Demand | Meaning: The quantities of a good buyers are willing and able to buy at each price. Why it matters: It slopes downward because of the substitution and income effects. Example: A change in price moves along the curve. Only other factors shift the whole curve. |
| Factors of production | Meaning: The inputs used to produce goods and services: land, labour, capital and entrepreneurship. Why it matters: Each earns a return: rent, wages, interest and profit. Example: Money is not capital in this sense. Capital means produced tools and equipment. |
| Human capital | Meaning: The skills, education and health embodied in workers. Why it matters: Investment in it raises labour productivity and long-run growth. Example: It is not counted as physical capital. Both raise output but through different channels. |
| Gross domestic product | Meaning: The market value of all final goods and services produced within a country in a period. Why it matters: It is the headline measure of output and the base for growth and per-capita comparisons. Example: Only final goods count. Adding intermediate goods would double-count the same output. |
| Final good | Meaning: A good bought by its end user rather than used to produce something else. Why it matters: Only final goods enter GDP. Example: The same physical good can be intermediate or final depending on who buys it and why. |
| Consumer price index | Meaning: A measure of the cost of a fixed basket of goods bought by a typical household. Why it matters: It is the standard measure for consumer inflation and for indexing payments. Example: The fixed basket makes it overstate inflation somewhat, because buyers substitute away from what rises. |
| Labour force | Meaning: People of working age who are employed or actively seeking work. Why it matters: It is the denominator of the unemployment rate. Example: Those not seeking work are outside the labour force, so they are not counted as unemployed. |
| Business cycle | Meaning: The pattern of expansion, peak, contraction and trough in real output. Why it matters: Unemployment falls in expansions and rises in contractions. Example: The cycle is not regular. Its phases have no fixed length. |
| Aggregate demand | Meaning: The total quantity of real output buyers want at each price level. Why it matters: It is the sum of consumption, investment, government purchases and net exports. Example: It slopes down for different reasons than a single market's demand curve. Income is not held constant here. |
| Short-run aggregate supply | Meaning: The total output firms produce at each price level while input prices are fixed. Why it matters: It slopes upward because nominal wages and other input prices adjust slowly. Example: It shifts when input prices, productivity or expectations change, not when the price level changes. |
| Marginal propensity to consume | Meaning: The fraction of an additional unit of disposable income that is spent. Why it matters: It determines the size of the spending multiplier. Example: It is a fraction of the change in income, not a fraction of total income. |
| Wage price spiral | Meaning: A cycle in which rising prices lead to higher wage demands, which raise costs and prices again. Why it matters: It makes inflation persistent once it becomes expected. Example: It requires expectations to adjust. A one-off price rise does not start a spiral by itself. |
| Demand shock | Meaning: A sudden shift in aggregate demand. Why it matters: It moves output and the price level in the same direction. Example: The common direction is what distinguishes it from a supply shock. |
| Classical range | Meaning: The vertical portion of the aggregate supply curve at full capacity. Why it matters: Demand increases raise prices with no rise in output. Example: Which range applies depends on where output stands relative to potential. |
| Functions of money | Meaning: Serving as a medium of exchange, a unit of account and a store of value. Why it matters: The medium of exchange function is what removes the need for a double coincidence of wants. Example: Money is a poor store of value under high inflation, yet it still works as a medium of exchange. |
| Fractional reserve banking | Meaning: A system in which banks hold only part of deposits as reserves and lend the rest. Why it matters: It is what allows the banking system to create money. Example: Banks cannot repay all depositors at once. That is why deposit insurance and a lender of last resort exist. |
| Demand for money | Meaning: The amount of wealth people wish to hold in liquid form at each interest rate. Why it matters: It slopes down because the interest rate is the opportunity cost of holding money. Example: It shifts with the price level and real income, not with the interest rate. |
| Central bank | Meaning: The institution responsible for monetary policy and the stability of the financial system. Why it matters: It controls the money supply and acts as lender of last resort. Example: It is not part of the fiscal authority. Its actions are not government spending. |
| Fiscal policy | Meaning: Government use of spending and taxation to affect aggregate demand. Why it matters: It is decided by the legislature rather than the central bank. Example: It works through spending and taxes. Changing the money supply is monetary policy. |
| Supply-side policy | Meaning: Policy aimed at raising long-run aggregate supply rather than demand. Why it matters: Investment in infrastructure, education and research shifts the long-run curve right. Example: Its effects are slow. It is not a tool for closing a current output gap. |
| Inflation targeting | Meaning: A framework in which the central bank commits publicly to a numerical inflation goal. Why it matters: It anchors expectations, which makes the short-run Phillips curve more favourable. Example: A target is not a ceiling. Undershooting it is also a policy failure. |
| Recognition lag | Meaning: The delay before policymakers know a shock has occurred. Why it matters: Data arrive late and are revised, so the state of the economy is uncertain in real time. Example: This lag applies to both fiscal and monetary policy. |
| Deficit financing | Meaning: Funding a budget deficit by issuing government debt. Why it matters: It raises demand in the loanable funds market and can push up real interest rates. Example: The effect on rates is small when private demand for funds is weak. |
| Transfer payment | Meaning: A government payment made without any good or service in exchange. Why it matters: Pensions and unemployment benefits are examples. They affect demand through recipients' spending. Example: They are excluded from government purchases in GDP. Counting them twice is a common error. |
| Balance of payments | Meaning: A record of all transactions between a country and the rest of the world. Why it matters: It is divided into the current account and the financial account. Example: The two accounts offset each other by construction. A deficit in one is a surplus in the other. |
| Exchange rate | Meaning: The price of one currency in terms of another. Why it matters: It is determined in the foreign exchange market by supply and demand for currencies. Example: Quoting it in the wrong direction reverses every conclusion. Fix which currency is being priced first. |
| Purchasing power parity | Meaning: The idea that exchange rates should equalise the price of the same basket across countries. Why it matters: It is a useful long-run benchmark for whether a currency is over or undervalued. Example: It fails in the short run. Non-traded goods and transport costs break the link. |
| Currency reserves | Meaning: Foreign currency assets held by a central bank. Why it matters: They are used to intervene in the foreign exchange market and defend a peg. Example: They are finite. A peg can be defended only while reserves last. |
| Gains from trade | Meaning: The increase in total consumption made possible by specialisation and exchange. Why it matters: They arise from differences in opportunity cost between producers. Example: The gains are aggregate. Specific groups can lose even when the country gains overall. |
About this deck
The hard part of macro is not the vocabulary. It is knowing which way a curve moves and why. A student who can define crowding out still loses the point if they cannot say that government borrowing raises the real interest rate, which lowers investment, which offsets part of the fiscal expansion. The same is true of a supply shock: prices and output move in opposite directions, so no single demand policy fixes both, and the question is which one you are willing to give up. This deck is 250 cards, one term per card, with the back cut into three fixed lines. "Meaning" defines the term in a sentence. "Why it matters" gives the direction it moves in a model. "Watch for" names the confusion that costs the point. The sections follow the shape of the course: basic concepts, economic indicators, national income and price determination, the financial sector, stabilisation and debt, and the open economy. Numbers are deliberately scarce. Where a figure is part of a definition, such as the components of GDP or the money multiplier, it is on the card. Where it is a country's current statistic, it is not, because a memorised figure goes stale while the mechanism does not. Once the deck is on a spaced-repetition schedule, the terms you can already place stop coming back and the ones whose direction you keep reversing return until they stop being a coin flip.
Frequently asked
- What is in each section of the deck?
- Basic concepts has 35 cards, economic indicators 45, national income and price determination 45, the financial sector 50, stabilisation and debt 40, and the open economy 35, for 250 in total. Every card carries section and subtopic tags, so you can drill only the money market, only fiscal policy, or only the external accounts.
- Does the deck cover graphs and models?
- It covers what the graphs mean rather than the drawings themselves. Cards state which curve shifts, in which direction, and what happens to output and the price level, including the cases where the result is genuinely ambiguous because two curves move at once. Drawing practice still has to happen on paper, but the direction and the mechanism are here.
- Is this useful outside the AP course?
- Yes. The vocabulary is standard introductory macroeconomics, so it transfers to a first university course or to reading economic coverage. The section order follows the AP units, which makes it easy to align with a class, but nothing on the cards depends on the exam format.
- Can I import the whole deck on the free plan?
- Yes. Importing a saved deck runs no new AI generation and spends no AI credits, so the free plan imports all 250 cards. You can study, edit and delete them afterwards.
- Will importing it twice create duplicates?
- No. Cards you already have are skipped and only cards added in a revision come through. Including re-imports after deleting it, one official deck can be imported three times per account.
- Can I use it on the web and in the mobile app?
- Yes. The deck is added to your account rather than to a device, so the same cards and the same progress are there on the web, on iOS and on Android.
- Can I edit the cards after importing?
- Yes. Imported cards are yours: you can edit both sides, delete cards you do not need, change tags, and move cards to another deck.
No official exam questions are reproduced. Every card was written for this deck.Advanced Placement is a trademark of College Board. This deck is not produced, endorsed or approved by College Board.Editorial reference date 2026-08-30.