AP Macroeconomics Cheat Sheet 2026
AP Macro tests your ability to analyze economic conditions and apply the right policy. Graph drawing and multiplier calculations appear on nearly every FRQ.
Key Formulas
| Formula | Meaning |
|---|---|
| GDP = C + I + G + (X − M) | Expenditure approach: Consumption + Investment + Gov spending + Net exports |
| GDP = W + R + I + P | Income approach: Wages + Rent + Interest + Profit |
| Real GDP = Nominal GDP / Price Level × 100 | Adjusts for inflation using base-year prices |
| GDP Deflator = (Nominal/Real) × 100 | Broad price index |
| CPI = (Cost of basket / Base year cost) × 100 | Measures cost of living |
| Inflation rate = (CPI₂ − CPI₁) / CPI₁ × 100 | % change in price level |
| Unemployment rate = Unemployed / Labor force × 100 | Labor force = employed + unemployed (seeking work) |
| Money multiplier = 1 / Reserve requirement | Max expansion of money supply from $1 deposit |
| Spending multiplier = 1 / (1 − MPC) = 1 / MPS | Total change in GDP from change in spending |
| Tax multiplier = −MPC / MPS | Negative because tax ↑ → spending ↓ |
| MPC + MPS = 1 | Marginal propensity to consume + save |
| Exchange rate effect: $ appreciates → exports ↓, imports ↑ | Strong dollar makes US goods expensive abroad |
Required Graphs — What to Draw and Label
1. AD-AS Model (Most Important)
Axes: Price Level (P) on vertical, Real GDP (Y) on horizontal.
Curves: AD (downward sloping), SRAS (upward sloping), LRAS (vertical at full employment Yf).
| Shift AD right | Shift AD left |
|---|---|
| ↑ Government spending (fiscal stimulus) | ↓ Government spending (fiscal austerity) |
| ↓ Taxes (expansionary fiscal) | ↑ Taxes (contractionary fiscal) |
| ↓ Interest rates (expansionary monetary) | ↑ Interest rates (contractionary monetary) |
| ↑ Consumer confidence, ↑ net exports | ↓ Consumer confidence, ↓ net exports |
| Shift SRAS right | Shift SRAS left |
|---|---|
| ↓ Input prices (oil, wages, raw materials) | ↑ Input prices |
| ↑ Productivity, ↑ technology | Supply shocks (natural disasters) |
| ↓ Business regulations | ↑ Business regulations |
2. Money Market
Axes: Interest rate (i) on vertical, Quantity of money (Qm) on horizontal.
Curves: Money demand (Md, downward sloping), Money supply (Ms, vertical — set by Fed).
- Fed buys bonds → Ms shifts right → interest rates fall → investment rises → AD shifts right
- Fed sells bonds → Ms shifts left → interest rates rise → investment falls → AD shifts left
3. Loanable Funds Market
Axes: Real interest rate on vertical, Quantity of loanable funds on horizontal.
Curves: Supply of LF (upward sloping = savings), Demand for LF (downward sloping = investment).
- Government deficit → D for LF shifts right → real interest rate rises → crowding out of private investment
- Tax incentives for saving → S shifts right → real interest rate falls
4. Foreign Exchange Market
Axes: Exchange rate (price of USD in foreign currency) on vertical, Quantity of USD on horizontal.
- ↑ US interest rates → foreigners demand more USD → USD appreciates → exports ↓, imports ↑
- ↑ Foreign income → demand for US exports ↑ → USD appreciates
5. Production Possibilities Curve (PPC)
Shows tradeoffs between two goods. Points inside = inefficient. Points on curve = efficient. Points outside = unattainable. Economic growth shifts PPC outward.
Fiscal Policy
| Situation | Expansionary (Stimulate) | Contractionary (Slow) |
|---|---|---|
| Economy below full employment (recessionary gap) | ↑ G, ↓ T → AD shifts right | — |
| Economy above full employment (inflationary gap) | — | ↓ G, ↑ T → AD shifts left |
| Effect on budget | Creates/increases deficit | Creates/increases surplus |
| Spending multiplier effect | $\Delta GDP = \text{multiplier} \times \Delta G$ | Same formula, negative |
| Tax multiplier effect | $\Delta GDP = \text{tax multiplier} \times \Delta T$ (smaller than spending) | Same, positive for tax increase |
Monetary Policy (The Fed)
| Tool | Expansionary | Contractionary |
|---|---|---|
| Open market operations | Buy bonds → ↑ money supply | Sell bonds → ↓ money supply |
| Reserve requirement | ↓ Reserve req → ↑ money multiplier | ↑ Reserve req → ↓ money multiplier |
| Discount rate | ↓ Discount rate → banks borrow more | ↑ Discount rate → banks borrow less |
| Interest on reserves | ↓ IOR → banks lend more | ↑ IOR → banks hold more reserves |
Transmission mechanism: ↑ Money supply → ↓ interest rates → ↑ investment → ↑ AD → ↑ Real GDP and Price Level
International Trade
| Concept | Definition |
|---|---|
| Comparative advantage | Produce the good with the lower opportunity cost |
| Current account | Exports, imports, income, transfers |
| Capital/Financial account | Foreign investment flows |
| Balance of payments | Current account + Capital account = 0 |
| Trade deficit | Imports > Exports; capital account surplus (foreigners invest in US) |
| Currency appreciation | Dollar buys more foreign currency → exports ↓ (more expensive abroad), imports ↑ |
| Currency depreciation | Dollar buys less foreign currency → exports ↑, imports ↓ |
Key Concepts Quick Reference
| Term | Definition |
|---|---|
| Recessionary gap | Actual GDP < Potential GDP; unemployment above natural rate |
| Inflationary gap | Actual GDP > Potential GDP; economy overheating |
| Natural rate of unemployment | Frictional + structural unemployment; economy at full employment |
| Frictional unemployment | Between jobs voluntarily; always exists |
| Structural unemployment | Skills mismatch; technological displacement |
| Cyclical unemployment | Due to recession; what policy aims to reduce |
| Phillips curve (SR) | Inverse relationship between inflation and unemployment |
| Long-run Phillips curve | Vertical at natural rate; no long-run tradeoff |
| Crowding out | Government borrowing raises interest rates → reduces private investment |
| Stagflation | High inflation + high unemployment; caused by negative supply shock |
Multiplier Examples
Example 1 — Spending Multiplier: MPC = 0.8. Government increases spending by $100B. What is the total change in GDP?
Spending multiplier = 1/(1−0.8) = 1/0.2 = 5. Total ΔGDP = 5 × $100B = $500B
Example 2 — Money Multiplier: Reserve requirement = 10%. Fed buys $50M in bonds. What is the maximum change in money supply?
Money multiplier = 1/0.10 = 10. Max ΔMoney supply = 10 × $50M = $500M
Common AP Macro Exam Tasks
- Draw and shift the AD-AS model — identify whether there's a recessionary or inflationary gap, draw the correct shift, label the new equilibrium price level and real GDP. This appears on nearly every FRQ.
- Trace a policy through the economy — start with the Fed action (buy/sell bonds), show the effect on money supply → interest rates → investment → AD → real GDP and price level. Every step must be explicit.
- Calculate a multiplier effect — given MPC, find the spending or tax multiplier and calculate the total change in GDP from a fiscal policy action.
- Explain crowding out — government deficit → borrows in loanable funds market → real interest rate rises → private investment falls → AD increases by less than expected.
- Analyze exchange rate effects — if US interest rates rise, foreign investors demand more USD → dollar appreciates → US exports become more expensive → net exports fall → AD falls.
How to Study AP Macro
- Master the three required graphs — AD-AS, money market, and loanable funds market. Draw each from memory, label all axes and curves, and practice every possible shift.
- Memorize the transmission mechanism — Fed buys bonds → MS right → interest rates fall → investment rises → AD right. Know this chain cold in both directions.
- Know your multipliers — spending multiplier = 1/MPS, tax multiplier = −MPC/MPS. The tax multiplier is always smaller in absolute value. This distinction appears on FRQs.
- Practice graph FRQs from past exams — College Board releases AP Macro FRQs going back years. Graph questions have a consistent format; working through 10–15 builds pattern recognition.
Frequently Asked Questions
Do you get a formula sheet on AP Macro?
No. All formulas must be memorized. The most important are: GDP = C+I+G+(X−M), spending multiplier = 1/MPS, tax multiplier = −MPC/MPS, and money multiplier = 1/reserve requirement.
What graphs must you know for AP Macro?
The three essential graphs are: AD-AS model, money market, and loanable funds market. The foreign exchange market and PPC also appear but less frequently. Every graph question requires properly labeled axes.
What is the difference between fiscal and monetary policy?
Fiscal policy is controlled by Congress and the President — it involves changes in government spending (G) and taxes (T). Monetary policy is controlled by the Federal Reserve — it involves changes in the money supply through open market operations, reserve requirements, and the discount rate.