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AP Macroeconomics
This course is designed to both introduce the concepts of macroeconomics and simultaneously encourage students to apply what they are learning to real world situations. The course will run one semester, and meet five days a week. Each class will consist of a 43 minute period.
Teacher Resources
Our students will have both a college level text and access to the NCEE activity workbook for the entire semester. However, economics cannot best be understood as a collection of theories devoid of real world application. Students will therefore, be required to avail themselves of our library’s periodical offerings. Below is a list of supplemental news sources. Students will be required to hand in an article on a specific topic each week. In addition the instructor will regularly supplement course materials from these:
The Wall Street Journal
The New York Times
The Economist
Students will keep a copy of the primary text at home. They are required to keep current with chapter readings and outline each chapter as we progress through the material.
Karl E. Case & Ray C. Fair, Principles of Economics, 8th ed. New Jersey: Prentice-Hall, 2007.
John S. Morton & Rae Jean B. Goodman, Advanced Placement Economics, Macroeconomics: Student Activities 3rd ed. New York: National Council on Economics Education, 2003.
Course Outline
Unit 1: Basic Economic Concepts
I. The Methods of Economics (2 weeks)
A. Economics: the scientific study of choice; ways of economic thinking
B. Distinguish between the concepts of opportunity cost, marginal cost, and sunk costs
C. Distinguish between positive and normative economics
D. Present the concept of economic modeling, and ceteris paribus.
E. Discuss the rudiments of constructing and interpreting graphs.
F. Productions Possibility Graphs: explain why the PPF has a negative slope and why it depicts the concept of opportunity cost. Explain the Law of Increasing Costs. Identify ways in which economic growth can occur.
G. Specialization and comparative advantage, address the advantages of exchange, introduce the controversies that surround globalization and outsourcing.
F. Identify and distinguish how economic systems differ in their solutions to the three basic economic questions.
Assignments and evaluation: Students will outline chapters 1& 2 in Case and Fair. Students will present current affairs articles of real world examples of scarcity. Students will complete activities 2 (entitled, “Scarcity, Opportunity Cost and Productions Possibilities Curves) and 6 (entitled, “Opportunity Cost and Comparative Advantage”) from NCEE. Students will be given a quiz to demonstrate mastery of concepts.
II. Demand, Supply, and Price Determination (2 weeks)
A. Demand: Identify the law of demand.
1. Provide discussion on the Substitution Effect and the Income Effect. Generate demand schedules and graphs. Distinguish between a normal and an inferior good.
2. Differentiate between a shift in the demand curve and a movement along the
demand curve.
3. Identify the determinates of demand; distinguish between goods that are complements and goods that are substitutes.
4. Illustrate graphically the various scenarios presented to the class.
B. Supply: Identify the Law of Supply
1. Explain the directly proportional relationship in terms of market entry and
increased output among existing firms.
2. Identify the determinants of supply, distinguish between a shift in supply and a movement along an existing supply curve.
3. Illustrate graphically the various scenarios presented to the class.
C. Equilibrium Price and Quantity; the process by which the market uses the price-rationing mechanism to allocate and distribute resources.
1. Define and illustrate surpluses and shortages graphically.
2. Interpret the effect of price floors and price ceilings on equilibrium price and quantity.
3. Introduce market failure, and list nonprime rationing policies designed to supplant the price-rationing mechanism.
4. Introduce the concepts of externalities and public goods.
Assignments and evaluation: Students will outline chapters 3 and 4 in Case and Fair. Students will present current affairs articles on demand and supply related disequilibriums in the real world. Students will read supplemental article from NYT on subsidies in the corn market. Students will complete activities 10 (entitled, “Reasons for Changes in Demand”) and 15 (entitled, “Shifts in Supply and Demand”) from NCEE. Students will have a unit test in first 4 weeks intended to demonstrate their ability to put the concepts together.
Unit 2. Measurement of Economic Performance
I. Gross Domestic Product (1 week)
A. Define gross Domestic Product and its components. Detail those transactions that are excluded from GDP
1. Expenditure Approach [C+I+G+(X-IM)]
Define and provide examples of component parts:
Personal Consumption Expenditures+ Gross Private Investment+ Government Consumption and Government Gross Investment + Net Exports
2. Income Approach (W+I+R+P)
Define and Provide examples of component parts:
Compensation of Employees +Net Investment + Rental Income of Persons + Profits (Non-income adjustments)
3. Distinguish between real and nominal GDP
4. Outline the shortcomings of GDP and per capita GDP as a measure of social well-being
5. Other national accounts: GNP, NI, PI, and DI
Gross National Product, National Income, Personal Income, and Disposable Income
Assignments and evaluation: Students will outline chapter 21 in Case and Fair. Students will present current affairs articles related to the current US GDP. Students will complete activity 12 entitled, “All About GDP” from NCEE. Students will demonstrate mastery with quiz.
II. Unemployment and the Business Cycle (1 week)
A. The Four Phases of the Business Cycle
1. Net Investment and other factors that influence output growth
B. Define Unemployment. Explain how the Unemployment Rate is calculated.
1. Identify types of Unemployment;
Distinguish between frictional, seasonal, structural, and cyclical unemployment.
2. Discuss discouraged workers and the under-employed.
3. Set standards for determining full employment within an economy, and discuss the lost potential of a gap between actual and full employment. (relate to PPF analysis)
Assignments and evaluation: Students will outline chapter 22 in Case and Fair. Students will complete activity 16 entitled “Types of Unemployment”. Students will present current affairs articles on current employment in the U.S. and provide a written analysis of what stage they believe the US is currently at in the business cycle using standard macroeconomic indicators.
III. Inflation (1 week)
A. Define Inflation. Outline the problems of price indexes such as CPI, PPI, and the GDP deflator
1. Indicate who gains and loses from inflation.
2. Distinguish between anticipated and unanticipated inflation.
3. Describe the concept of real interest rate and outline the effect of anticipated
inflation on it.
4. Demand-Pull vs. Cost-Push inflation
Assignments and evaluation: Students will outline chapter 23 in Case and Fair. Students will present current affairs articles related to the current US GDP. Students will complete activity 14 entitled “Inflation Game: Royalty for a day” and 15 entitled, “Who is Hurt and Who is Helped by Unanticipated Inflation?” from NCEE. Students will demonstrate mastery with a unit test.
Unit 3: Macroeconomic Theory and Policy
I. Aggregate Expenditure and Equilibrium Output (3 weeks)
A. Classical Theory
1. The Consumption Function; the relationship between consumption and income.
2. Define the Marginal Propensity to Consume (MPC) and the Marginal Propensity to Save (MPS).
3. Explain how actual investment and intended investment differ.
Describe the role of inventory change.
4. Derive and graph the planned aggregate expenditure function.
Describe the adjustment process when planned aggregate expenditure differs from
aggregate output.
5. The role of the investment function, discuss determinants of investment such as
expectations, technological change, and capacity utilization. Drive the numerical value of the multiplier.
Assignments and evaluation: Students will outline chapter 24 in Case and Fair. Students will present current affairs articles related to consumer confidence and spending trends. Students will complete activity19 entitled, “Keynesian Equilibrium” and 22 entitled, “Investment Demand” from NCEE. Students will demonstrate mastery with a problem set quiz.
B. The Keynesian Model
1. Identify the tools of fiscal policy.
2. Describe how the inclusion of the government sector affects the aggregate expenditure model.
3. Derive and explain the difference between the government spending multiplier
the tax multiplier
4. Analyze the effects on output and employment of a change in government spending and/or a change in taxes
5. Define deficit and explain how it relates to the federal debt. Describe how government expenditures and revenues move with the economy. Discuss the effects of fiscal drag and automatic stabilizers.
6. Define full employment, as a policy goal.
Assignments and evaluation: Students will outline chapters 25 and 29 in Case and Fair. Students will present current affairs articles related to fiscal policy options in current use. Students will complete activity 30 entitled, “The Tools of Fiscal Policy” and 32 entitled, “Two Ways to Analyze Fiscal Policy” from NCEE. Students will demonstrate mastery with a proposition paper either in favor of activist fiscal policy or against.
II. The money supply and the Federal Reserve System (1)
A. Identify the three functions of money.
B. Identify the three different measures of the US money supply.
C. Financial assets: money, stocks, bonds.
1. Distinguish between assets and liabilities on a bank’s balance sheet
Distinguish among total, excess, and required reserves.
2. Derive and explain the importance of the money multiplier.
D. Outline the functions of the Fed.
1. Identify the three policy tools of the Fed, and how they are adjusted to increase or decrease the money supply.
2. Analyze the Fed’s ability to expand or contract reserves and the money supply.
Assignments and evaluation: Students will outline chapter 26 in Case and Fair. Students will complete activities 38 entitled, “The Federal Reserve: The Mechanics of Monetary Policy” from NCEE. Students will present current affairs articles related to the Federal Reserve System.
III. Money Demand, Equilibrium Interest Rate, and Monetary Policy (1 week)
A. Define interest rate and distinguish between the transaction motive and the speculation motive for holding money.
B. List the variables that influence the demand for money.
C. Derive the graphs for the money market and the market for loanable funds.
Describe how equilibrium is reached following a shift in either demand or supply.
Assignments and evaluation: Students will outline chapter 27 in Case and Fair. Students will complete activity39 entitled, “The Money Market” from NCEE. Students will demonstrate mastery with a quiz.
IV. Monetary Policy and Output (1 week)
A. Identify the link between the money market and the market for goods and services.
B. Distinguish between fiscal policy and monetary policy, specifying the tools used in each case.
C. The Crowding-out effect, explain the impact of interest rate sensitivity on investment demand.
D. Outline issues involved in an optimal policy mix.
E. List and explain the determinants of planned investment.
Assignments and evaluation: Students will outline chapter 28 in Case and Fair. Students will complete activity 42 entitled, “Monetary Policy”, 43 entitled, “Monetary and Fiscal Policy, and 44 entitled, “Crowding-Out: A Graphic Representation” in NCEE. Students will demonstrate mastery with a unit test.
IV. The Labor Market and Unemployment and Inflation (1 week)
A. The Classical view of the labor market
B. Introduce the concept of wage stickiness; relate wage stickiness to persistent unemployment
1. Efficiency wage theory
2. The role of imperfect information
3. The possible effects of the minimum wage law
C. The Phillips Curve
1. AS/AD model in 1950-1960
2. Explain the collapse of the relationship in the 1970-1980
3. Explain the vertical AS of the long-run Philips curve; link the concept to the natural rate of unemployment.
4. Discuss the effectiveness of monetary and fiscal policy
5. Explain what is implied by the non-accelerating inflation rate of unemployment
(NAIRU)
Assignments and evaluation: Students will outline chapter 30 in Case and Fair. Students will complete activity 46 entitled, “Short-Run Phillips Curve” in NCEE. Students will demonstrate mastery with a quiz.
Unit 4: Economic Growth, Productivity, and Macroeconomic Debates on how to achieve them
I. Long-Run Growth (1 week)
A. Define economic growth and the sources of growth
B. Describe the circumstances of diminishing marginal returns
C. List factors that encourage growth
1. Human capital formation
2. Physical capital formation
3. Research and Development
D. Outline public policy strategies
E. Summarize the arguments for and against continued economic growth
Assignments and evaluation: Students will outline chapter 34 in Case and Fair. Students will complete activity 47 entitled, “Economic Growth and the Determinants of Productive Capacity” in NCEE. Students will present articles that take various positions on continued growth.
II. Monetarism, New Classical Theory, and Supply Side Economics (1 week)
A. Monetarism vs. the Keynesian Model
1. Outline the assumptions of the quantity theory
2. Discuss the money rule (MV=PY); is the velocity of money constant?
3. What do these theories mean for the effectiveness of the Keynesian model?
B. Rational Expectation Theory and the Lucas Supply Function
C. Define Supply-side Theory; outline the reasoning behind such policies.
1. Examine the supply-side experiment of the 1980’s
Assignments and evaluation: Students will outline chapter 33 in Case and Fair. Students will complete activity 48 entitled, “Why Economists Disagree?” in NCEE. Students will construct a graphic organizer to demonstrate their understanding of each school’s assumptions and policy preferences.
Unit 5: The International Economy and Trade
I. International Trade, Comparative Advantage, and Protectionism (1week)
A. Distinguish between open and closed economies.
B. Absolute and Comparative Advantage
1. Calculate feasible range of trade given two-country, two-good scenarios
C. Calculate the limiting values of exchange rates, and relate exchange rates to the concept of comparative advantage.
1. Discuss the Heckscher-Ohlin theorem
D. Define barriers to trade; using demand and supply analysis demonstrate the costs of each:
1. Tariff
2. Export Subsidy
3. Quotas
E. Give arguments for and against protectionism
Assignments and evaluation: Students will outline chapter 35 in Case and Fair. Students will complete activity 50 entitled, “Economic Efficiency and Gains from Trade” from NCEE. Students will participate in a formal debate on trade policy with the Chinese based on current events research.
II. The Balance of Payments and Exchange Rates (1 week)
A. Outline the components comprising the balance of payments and distinguish between the current account and the capital account.
B. Incorporate imports and exports into the Aggregate Expenditure graph
1. Explain how imports effect the size of the expenditure multiplier
2. List the variables that influence imports and exports
C. Use Supply and Demand analysis to describe the determination of exchange rates
1. Describe the effects of exchange rate movements on imports and exports, GDP prices, and the balance of payments.
Assignments and evaluation: Students will outline chapter 36 in Case and Fair. Students will complete activity 53 entitled, “Exchange Rates” in NCEE. Students will demonstrate mastery with a unit exam.
The last week of class will be devoted to a review of basic principles, with a particular emphasis on drawing and interpreting graphic material in preparation for a final exam. Students will be required to explain current economic conditions in terms of the models they have learned.