AP Macroeconomics
Text: Economics: Principles & Policy, 9th edition; William J. Baumol & Alan S. Blinder
Course Objectives: The purpose of an AP course in macroeconomics is to give students a thorough understanding of the principles of economics that apply to an economic system as a whole. Topics will include national income determination, economic indicators, inflation and unemployment, money and banking, stabilization policy, and the United States and the World Economy. It is a one semester college level course that allows students to earn up to three hours of college credit upon successful completion of the required AP exam. By the end of the course students should have a firm understanding of the following concepts:
A. Students will demonstrate an understanding of basic economic concepts/principles such as scarcity, opportunity cost, and production possibilities frontiers (PPFs).
B. Students will explain why and how specialization and exchange increase total economic output.
C. Students will differentiate between absolute and comparative advantage and determine the basis of mutually advantageous trade.
D. Students will analyze the determinants of supply and demand and the ways in which changes affect price and output.
E. Students will identify the impact of government policies such as price floors, price ceilings, quotas, tariffs, and taxes.
F. Students will explain the difference among the basic measures of economic performance and how these measures are determined.
G. Students will differentiate between real and nominal values and will use price indices to perform the mathematical conversion from nominal to real values.
H. Students will apply models of economic performance to analyze changes in actual levels of inflation, unemployment, GDP, and GNP.
I. Students will identify and explain the rationale behind the determinants of national income and aggregate price level.
J. Students will analyze the impact of government fiscal policy on aggregate demand.
K. Students will analyze the impact of monetary policy on aggregate demand.
L. Students will explain the basis for the differences between the Keynesian, classical, and new classical views on the shape of the aggregate supply curve.
M. Students will identify the determinants of economic growth and explore the impact of fiscal and monetary policy on economic growth.
N. Students will explain the reciprocal relationship between monetary and fiscal policy and exchange rates and balance of payments and their subsequent impact on price level, unemployment, and level of output
Course of Study:
Unit I: Basic Economics Concepts
Readings:
A. Baumol & Blinder:
a. Chapter 1: What is Economics?
b. Chapter 2: Scarcity and Choice: The Economic Problem
c. Chapter 3: Supply and Demand: An Initial Look
d. Chapter 33: International Trade & Comparative Advantage
B. Workbook: Macroeconomics: Principles & Policy 9th Edition; Swann
a. Chapter 1: What is Economics?
b. Chapter 2: Scarcity and Choice: The Economic Problem
c. Chapter 3: Supply and Demand: An Initial Look
d. Chapter 16: International Trade & Comparative Advantage
Learning Objectives:
1. List and explain the determinants of supply.
2. List and explain the determinants of demand.
3. Draw a graph from a supply schedule and draw a graph from a demand schedule.
4. Determine equilibrium price and quantity given demand and supply of a good or service.
5. Explain why the price of a good and the amount of a good bought and sold in a competitive market will be the equilibrium price and quantity
6. Differentiate between a “change in demand” and a “change in quantity demanded.”
7. Differentiate between a “change in supply” and a “change in quantity supplied.”
8. Analyze factors and situations that cause supply and demand curves to shift.
9. Define opportunity/real cost.
10. Explain the relationship between scarcity and opportunity cost.
11. Define comparative and absolute advantage.
12. Describe and give examples of the law of comparative advantage.
13. Explain how parties in a trade gain from voluntary exchange.
14. Define specialization, interdependence, and exchange.
15. Graph and distinguish between inverse, direct, and zero relationships.
16. Graph and distinguish between constant and variable relationships.
17. Identify the conditions that give rise to the economic problems of scarcity.
18. Identify the opportunity costs of various courses of action involving hypothetical problems.
19. Construct a production possibilities curve from a set of hypothetical data.
20. Apply the concept of opportunity cost to a production possibilities curve (PPC).
21. Identify the three questions that every economic system must answer.
22. Analyze the advantages and disadvantages of each of the three economic systems (market, command, traditional).
23. Describe and analyze the economic goals of different economic systems.
24. Identify the mix of tradition, command, and market systems in different economies.
Assignments & Class Activities: Study Guides for Chapters 1-3 & 33; APLIA web problems: An Introduction to Microeconomics, The Goals of Macroeconomic Policy; Problem Sets Chapters 1-3 & 33
Unit II: The Macroeconomy: Aggregate Supply and Demand
Readings:
A. Baumol & Blinder
a. Chapter 21: The Realm of Macroeconomics
b. Chapter 22: The Goals of Macroeconomic Policy
c. Chapter 23: Economic Growth: Theory and Policy
d. Chapter 24: Aggregate Demand and the Powerful Consumer
e. Chapter 25: Demand-Side Equilibrium: Unemployment or Inflation?
f. Chapter 26: Supply-Side Equilibrium: Unemployment and Inflation?
B. Workbook: Macroeconomics: Principles & Policy 9th Edition; Swann
a. Chapter 4: The Realm of Macroeconomics
b. Chapter 5: The Goals of Macroeconomic Policy
c. Chapter 6: Economic Growth: Theory and Policy
d. Chapter 7: Aggregate Demand and the Powerful Consumer
e. Chapter 8: Demand-Side Equilibrium: Unemployment or Inflation?
f. Chapter 9: Supply-Side Equilibrium: Unemployment and Inflation?
Learning Objectives:
1. Draw a circular flow diagram (CFD) from memory and use it to explain how a single purchase can influence many macro flows in the economy.
2. Analyze the major components of a CFD.
3. Using a CFD, form hypotheses regarding causes of changes in the level of goods and services produced, income, and employment
4. Describe the purpose of national income accounting.
5. Define gross national product (GNP), gross domestic product (GDP), national income, personal income, and disposable income.
6. Explain how GDP is measured.
7. Use the value-added, income, and expenditure approach to calculate GDP.
8. Explain what goods and services are counted in GDP as consumption, as investment, as government, and as net exports.
9. Describe the relative magnitude of the various components of GDP.
10. Describe which goods are counted in GDP and which are not.
11. Evaluate the strengths and weaknesses of GDP as a measure of economic well-being.
12. Describe the differences between real and nominal GDP.
13. Find real GDP by adjusting nominal GDP using price indices.
14. Describe the purpose of a price index.
15. Explain how a price index is calculated.
16. Explain how unemployment is measured in the United States.
17. Evaluate the strengths and limitations of unemployment statistics.
18. Describe how changes in the composition of the work force affect unemployment rates.
19. Calculate unemployment rates from appropriate data.
20. Explain why full employment does not indicate zero unemployment.
21. Describe four types of unemployment and how they differ.
22. Explain some of the causes of frictional, structural, cyclical, and seasonal unemployment.
23. Describe and evaluate the economic and social costs of unemployment.
24. Use a price index to calculate the rate of inflation.
25. Distinguish between demand-pull and cost-push inflation.
26. Describe the groups and are hurt and groups that benefit from unanticipated inflation.
27. Identify and describe the major phases of a business cycle.
Assignments & Class Activities: APLIA Web problems: Economic Growth: Theory and Policy, News Analysis: Too Much Productivity?, News Analysis: Defusing the Demographic Time Bomb in OECD Countries, Unemployment Compensation Experiment; Aggregate Demand and the Powerful Consumer, Demand-Side Equilibrium: Unemployment or Inflation?, Supply-Side Equilibrium: Unemployment of Inflation?; Problem Sets Chapters 21-26; Unit Test: 2 Part Multiple Choice and Free Response (use former AP free response questions).
Unit III: National Income and Price Determination
Readings:
A. Baumol & Blinder
a. Chapter 27: Managing Aggregate Demand: Fiscal Policy
b. Chapter 28: Money and Banking System
c. Chapter 29: Monetary Policy and the National Economy
d. Chapter 30: The Debate Over Monetary Policy
e. Chapter 31: Fiscal Policy, monetary Policy, and Growth
f. Chapter 32: Inflation and Growth: The Phillips Curve
B. Workbook: Macroeconomics: Principles & Policy 9th Edition; Swann
a. Chapter 10: Managing Aggregate Demand: Fiscal Policy
b. Chapter 11: Money and Banking System
c. Chapter 12: Monetary Policy and the National Economy
d. Chapter 13: The Debate Over Monetary Policy
e. Chapter 14: Fiscal Policy, monetary Policy, and Growth
f. Chapter 15: Inflation and Growth: The Phillips Curve
Learning Objectives:
1. Define aggregate demand, aggregate supply, and equilibrium.
2. List and explain the basic causes of shifts in aggregate demand and aggregate supply.
3. Describe the effects on output and prices of events that increase or decrease aggregate demand, aggregate supply, or both
4. Graph aggregate and aggregate supply.
5. Describe what determines the amount of goods and services produced and the level of employment in Keynesian theory.
6. Explain how consumption and saving are related to disposable income in the Keynesian model.
7. Describe and calculate from given data the marginal propensity to consume (MPC) and marginal propensity to save.
8. Distinguish between autonomous and induced consumption.
9. Describe the simplified multiplier.
10. Given values for the marginal propensity to consume, calculate the values for the simplified multiplier.
11. Calculate the total spending that occurs from a given change in business or government spending when the MPC is known.
12. Given the values for the simplified multiplier, calculate the change in spending that would occur from a given change in business or government spending.
13. Describe the aggregate consumption function and list and explain each component of it.
14. Describe Keynesian equilibrium in words and in diagrams.
15. Derive aggregate demand from aggregate expenditure equilibria that result when the price level changes.
16. Describe the horizontal, vertical, and upward sloping segments of the aggregate supply curve.
17. Specify the Keynesian aggregate supply curve in the short run and in the long run.
18. Explain the equilibrium levels of output and employment in Keynesian analysis when prices are free to vary.
19. Explain and show graphically how fiscal policy can be used to reduce any inflationary or recessionary gap.
20. Describe how fiscal policy can be used to try and stabilize the economy.
21. Distinguish between automatic and discretionary stabilizers.
22. Contrast contractionary fiscal policy with expansionary fiscal policy.
23. Evaluate macroeconomic conditions and determine the fiscal policy that can improve those conditions.
24. List and explain the complications encountered in employing fiscal policy.
25. Discuss the historical development and basis of money.
26. Define the M1 and M2 money supply and list their components.
27. Distinguish between money and near money.
28. Explain the basis of fractional reserve banking and the historical basis of the Federal Reserve System.
29. Explain the process of multiple deposit expansion or contraction and given appropriate data, the student will calculate the total increase or decrease in money supply from an initial change in deposits.
30. Calculate the simplified deposit multiplier.
31. Identify and explain three tools the Federal Reserve uses to regulate the money supply (reserve requirements, discount rate, sale of government securities).
32. Identify the determinants of demand for money.
33. Explain how equilibrium in the money market determines interest rates.
34. Draw a graph depicting the money market at equilibrium.
35. Explain the relationship between interest rates, the demand for investments, and aggregate demand.
36. Explain how changes in aggregate demand affect the money market.
37. Compare other major macroeconomic theories and models (rational expectations, classical school, monetarism) to the Keynesian model.
38. Identify the economic problems and recommend monetary and fiscal policies to improve economic performance when given economic statistics.
39. Analyze the trade-offs involved in various economic policy prescriptives.
40. Use aggregate demand and aggregate supply graphs to analyze the impact of various monetary and fiscal stabilization policies.
41. Use Keynesian total expenditure/45 degree diagrams to analyze economic problems and proposed solutions to those problems.
42. Use a Phillips curve to illustrate the trade-off between inflation and unemployment in the short run and long run.
43. Compare and contrast the effectiveness of monetary and fiscal policy as economic stabilization tools.
44. Explain the reasons why economists disagree on policy recommendations (Keynesian, Classical, and Monetarists)
45. State the assumptions, values, theoretical support, and applicable time periods underlying recommendations concerning monetary and fiscal policies that are in conflict.
46. Describe and discuss the essence of Keynesian, monetarist, supply-side, and neo-classical theories.
47. Compare and contrast the theoretical support for policy prescriptions of these theories.
48. Discuss the various problems and trade-offs that policymakers face in the real world.
Assignments and Activities: APLIA Web problems: Managing Aggregate Demand: Fiscal Policy, The Macroeconomic Effects of Hurricane Katrina, Money and the Banking System, Managing Aggregate Demand: Monetary Policy, Analyzing Interest rates and Investment, The Debate over Monetary and Fiscal Policy, Budget Deficits in the Short Run and Long Run, Flexible Prices Experiment, The Trade-off Between Inflation and Unemployment; Problem Sets Chapters 27-32; Unit Test Part III: Multiple Choice and Free Response Problems (Use of AP free response questions)
Unit IV: The United States and the World Economy
Readings:
A. Baumol & Blinder
a. Chapter 33: International Trade and Comparative Advantage
b. Chapter 34: The International Monetary System: Order or Disorder?
c. Chapter 35: Exchange Rates and the Macroeconomy
B. Workbook: Macroeconomics: Principles & Policy 9th Edition; Swann
a. Chapter 16: International Trade and Comparative Advantage
b. Chapter 17: The International Monetary System: Order or Disorder?
c. Chapter 18: Exchange Rates and the Macroeconomy
Learning Objectives:
1. Explain comparative advantage in terms of opportunity costs.
2. When given necessary data, compute the cost of producing two commodities in two countries; determine which nation has the comparative advantage of producing each product; calculate the trading ratio; and explain the gains to each nation (expansion of CPF’s) and to the world from specialization and exchange.
3. Identify the incentives that encourage specialization.
4. Identify examples of protectionism
5. Describe and evaluate the case for protectionist policies.
6. Use graphs to depict the use of tariffs or quotas on international and domestic price and quantity.
7. Explain how a nation’s balance of payments is calculated (using current and capital account data and describe the impact of a balance of payments deficit (or surplus) on a nation’s exchange rates, price level, unemployment, and output.
8. Explain how exchange rates work and convert prices using current exchange rates.
9. Explain the difference between depreciation and devaluation (appreciation and revaluation).