®
                  CLEP  
                  Principles of 
                  Macroeconomics 
                  AT A GLANCE
           Description of the Exam                                        8%–12% BASIC ECONOMIC CONCEPTS
           The Principles of Macroeconomics exam covers material            §  Scarcity, choice, and opportunity costs
           that is usually taught in a one-semester undergraduate           §  Production possibilities curve
           course. This aspect of economics deals with principles           §  Comparative advantage, specialization, and exchange
           of economics that apply to an economy as a whole, 
           particularly the general price level, output and income,         §  Demand, supply, and market equilibrium
           and interrelations among sectors of the economy. The 
           test places particular emphasis on the determinants of         12%–16% MEASUREMENT OF ECONOMIC 
           aggregate demand and aggregate supply, and on monetary         PERFORMANCE
           and fiscal policy tools that can be used to achieve 
           particular policy objectives. Within this context, test takers   §  National income accounts: 
           are expected to understand measurement concepts such                w Circular flow 
           as gross domestic product, consumption, investment,                 w Gross domestic product 
           unemployment, and inflation. Test takers are also expected 
           to demonstrate knowledge of the institutional structure of          w Components of gross domestic product
           the Federal Reserve Bank and the monetary policy tools it           w Real versus nominal gross domestic product
           uses to stabilize economic fluctuations and promote long-
           term economic growth, as well as the tools of fiscal policy      §  Inflation measurement and adjustment: 
           and their impacts on income, employment, price level,               w Price indices 
           deficits, and interest rate. Basic understanding of foreign 
           exchange markets, balance of payments, and effects of               w Nominal and real values 
           currency, appreciation, and depreciation on a country’s             w Demand-pull versus cost-push inflation
           imports and exports is also expected.
           The exam contains approximately 80 questions to                     w Costs of inflation
           be answered in 90 minutes. Some of these are pretest             §  Unemployment: 
           questions that won’t be scored.                                     w Definition and measurement 
           Knowledge and Skills Required                                       w Types of unemployment 
           Questions on the Principles of Macroeconomics exam                  w Natural rate of unemployment 
           require candidates to demonstrate one or more of the 
           following abilities:                                           15%–20% NATIONAL INCOME AND PRICE 
             §  Understanding of important economic terms and             DETERMINATION
               concepts                                                     §  Aggregate demand: 
             §  Interpretation and manipulation of economic graphs             w Determinants of aggregate demand
             §  Interpretation and evaluation of economic data                 w Multiplier and crowding-out effects
             §  Application of simple economic models                       §  Aggregate supply: 
           The subject matter of the Principles of Macroeconomics exam         w Short-run and long-run analyses 
           is drawn from the following topics. The percentages next to         w Sticky versus flexible wages and prices
           the main topics indicate the approximate percentage of exam 
           questions on that topic.                                            w Determinants of aggregate supply 
                                                                            §  Macroeconomic equilibrium: 
                                                                               w Real output and price level
                                                                               w Short and long run 
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                 w Actual versus full-employment output                      9%–13% OPEN ECONOMY: INTERNATIONAL 
                 w Business cycle and economic fluctuation                   TRADE AND FINANCE
                                                                               §  Balance of payments accounts: 
           15%–20% FINANCIAL SECTOR                                                w Balance of trade 
           Money, banking, and financial markets                                   w Current account 
             §  Definition of financial assets: money, stocks, bonds               w Financial account (formerly called capital account)
             §  Time value of money (present and future value)                 §  Foreign exchange market: 
             §  Measures of money supply                                           w Demand for and supply of foreign exchange 
             §  Banks and creation of money                                        w Exchange rate determination 
             §  Money demand                                                       w Currency appreciation and depreciation 
             §  Money market                                                       w Exchange rate policies
             §  Loanable funds market                                          §  Inflows, outflows, and restrictions
           Central bank and control of the money supply                            w Net exports and capital flows
             §  Tools of central bank policy                                       w Links to financial and goods markets
             §  Quantity theory of money                                           w Tariffs and quotas
             §  Real versus nominal interest rates                           Study Resources
           20%–25% INFLATION, UNEMPLOYMENT, AND                              Most textbooks used in college-level introductory 
           STABILIZATION POLICIES                                            macroeconomics courses cover the topics in the outline 
             §  Fiscal and monetary policies:                                above, but the approaches to certain topics and the 
                 w Demand-side effects                                       emphases given to them may differ. To prepare for the 
                                                                             Principles of Macroeconomics exam, it’s advisable to 
                 w Supply-side effects                                       study one or more college textbooks, which can be found 
                 w Policy mix                                                in most college bookstores. When selecting a textbook, 
                                                                             check the table of contents against the knowledge and 
                 w Government deficits and debt                              skills required for this test.
             §  Inflation and unemployment:                                  There are many introductory economics textbooks that 
                 w The Phillips curve: short run versus long run             vary greatly in difficulty. Some books are published in 
                 w Role of expectations                                      one-volume editions that cover both microeconomics 
                                                                             and macroeconomics; some are published in two-volume 
                                                                             editions, with one volume covering macroeconomics and 
           5%–10% ECONOMIC GROWTH AND                                        the other microeconomics. A companion study guide/
           PRODUCTIVITY                                                      workbook is available for most textbooks.
             §  Investment in human capital                                  The study guides typically include brief reviews, 
             §  Investment in physical capital                               definitions of key concepts, problem sets, and multiple-
                                                                             choice test questions with answers. Many publishers also 
             §  Research and development, and technological                  make available computer-assisted learning packages.
               progress                                                      To broaden your knowledge of economic issues, you 
             §  Growth policy                                                may read relevant articles published in the economics 
                                                                             periodicals that are available in most college libraries. The 
                                                                             Economist, The Wall Street Journal and The New York 
                                                                             Times, along with local papers, may also enhance your 
                                                                                                                                    3
            understanding of economic issues.                                         Free online CLEP Macroeconomics course offered by 
            A survey conducted by CLEP found that the following                       Modern States Education Alliance (modernstates.org/
            textbooks are among those used by college faculty who                     course/principles-of-macroeconomics)
                                                                                         ®
            teach the equivalent course. You might purchase one or                    AP Macroeconomics: Challenging Concepts: Most of  
            more of these online or at your local college bookstore.                  the concepts covered in this AP course are covered in  
              Arnold, Macroeconomics and Microeconomics, Concise Edition              the CLEP Principles of Macroeconomics exam.  
              (South-Western)                                                         (edx.org/course/apr-macroeconomics-challenging-
              Bade and Parkin, Foundations of Macroeconomics and                      concepts-davidson-next-macapccx-1) 
              Foundations of Microeconomics (Addison Wesley)                          Khan Academy®: Macroeconomics (khanacademy.org 
              Case and Fair, Principles of Macroeconomics and Principles of           /economics-finance-domain/macroeconomics)
              Microeconomics (Prentice-Hall)                                          Visit www.collegeboard.com/clepprep for additional 
              Colander, Macroeconomics and Microeconomics (McGraw-Hill)               economics resources. You can also find suggestions for 
              Frank and Bernanke, Principles of Macroeconomics and Principles         exam preparation in Chapter IV of the CLEP Official Study 
              of Microeconomics, Brief Edition (McGraw-Hill)                          Guide. In addition, many college faculty post their course 
              Gottheil, Principles of Macroeconomics (Thomson/Cengage)                materials on their schools’ websites.
              Krugman and Wells, Macroeconomics and Microeconomics (Worth)
              Lipsey, Ragan and Storer, Macroeconomics and Microeconomics             Sample Test Questions 
              (Addison Wesley)
              Mankiw, Brief Principles of Macroeconomics and Brief Principles of      The following sample questions do not appear on an actual 
              Microeconomics (South-Western)                                          CLEP exam. They’re intended to give potential test takers an 
              McConnell and Brue, Macroeconomics and Microeconomics                   indication of the format and difficulty level of the exam and 
              (McGraw-Hill)                                                           to provide content for practice and review. For more sample 
              McEachern, ECON for Macroeconomics and ECON for                         questions and information about the test, see the CLEP 
              Microeconomics (South-Western)                                          Official Study Guide.
              Samuelson and Nordhaus, Macroeconomics and Microeconomics 
              (McGraw-Hill)
              Schiller, The Macro Economy Today and The Micro Economy Today                            Country X            Country Y
              (McGraw-Hill)
              Stiglitz and Walsh, Principles of Macroeconomics (W. W. Norton)                       Cotton    Wheat      Cotton    Wheat
              Taylor and Weerapana, Principles of Macroeconomics and                                 800       1600       1600       800
              Principles of Microeconomics (South-Western)
            These resources, compiled by the CLEP test development 
            committee and staff members, may help you study for                       1.   The table above shows the production possibilities for 
            your exam. However, none of these sources are designed                         Country X and Country Y. Assume both countries 
            specifically to provide preparation for a CLEP exam. The                       can either produce cotton or wheat using the same 
            College Board has no control over their content and cannot                     quantity of resources. Would trade be beneficial to both 
            vouch for accuracy.                                                            countries, and if so, which good would each country 
            Economics Department at SUNY Oswego: Online                                    produce domestically and which good would each 
            Economics Textbooks (oswego.edu/~economic/                                     country import?
            newbooks.htm)                                                                  A.  Yes; Country X will produce cotton and import 
                                                                                                wheat.
            Two differing viewpoints on contemporary economics:                            B.   Yes; Country Y will produce wheat and import 
            ”Free to Choose” TV Series by Milton Friedman                                       cotton.
            (miltonfriedman.blogspot.com) and Dollars and Sense                            C.  Yes; Country Y will produce cotton and import 
            (dollarsandsense.org)                                                               wheat.
                                                                                           D.  Yes; Country X will produce some cotton and 
            Free Macroeconomics Textbook (en.wikibooks.org/wiki/                                import some wheat.
            Macroeconomics)                                                                E.   No, trade will not be beneficial for the two 
                                                                                                countries.
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