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Mr. D. Hudson
Course Description
Economics is the science which studies human behavior as a relationship
between ends and scarce means which have alternative uses.
— Lionel Bobbins
You may have heard somewhere that economics has been called the
dismal science. While it is true that a number of important concepts in economics
are best understood from a theoretical perspective and are often most easily
explained by using graphs. Much of the usefulness of economic theory can be
found in its application to your personal economic life. That is to say, lurking
behind such concepts as opportunity cost, GDP (gross domestic product), supply
and demand, and competitive markets are applications to your everyday life.
Perhaps you have been told by well-meaning friends or relatives that you
should strive for perfection. A common proverb is, “If something is worth doing,
it is worth doing well.” Now what exactly can that mean with respect to your
life? Does it mean that every time you undertake any task you should continue
doing that task until you have reached your version of perfection, or, at least,
until you are certain you can do no better? Maybe, or maybe not. Economics has
a special way of looking at your decision and you might be surprised.
All of us face constraints. Indeed, life is often seen as one big challenge to
get everything done that needs to be done. The major constraint we face is time.
Everyone faces a scarcity of time. Therefore, while you are engaging in the job of
doing something to perfection, you are not engaging in any other job (or any
other pleasure for that matter). Otherwise stated, every action on your part
involves an opportunity cost. The quest for perfection involves the use of time
and hence is costly to you. You must give up valuable alternatives to achieve
perfection.
How do I calculate the benefits and costs involved with my choices? I
might consider the potential improvement in myself and how my friends and
teachers will respond to my work or play. I examine the additional cost
(marginal cost) as the value of the time I would have had to give up to work on
the project one more time to achieve perfection. Economists offer a rule to live
by: “Undertake any activity up to the point at which the marginal benefit equals
the marginal cost.” Such a rule usually does not lead to perfection. It applies to
studying for exams, polishing your car, shopping for new clothes, applying for
college, and writing essays. If the marginal costs exceed the marginal benefits,
something needs to change.
The course you are about to begin considers marginality very closely.
While the term plays a central role in the next course, AP Microeconomics, it
cannot be ignored in AP Macroeconomics. Our inquiries are relatively new.
Economics as an independent subject of study did not begin until the 18th
century. Before then, the subject matter of economics existed, of course, but the
purpose did not. This semester, we will explore the world created when the
factors of production (Land, Labor, Capital, and Entrepreneurial Ability) became
marketable. Our analysis deals with behavior of the economy as a whole with
respect to output, income, price levels, foreign trade, unemployment, and other
aggregate economic variables. Particular emphasis on national income and price
determination helps develop your familiarity with economic performance
measures, economic growth, and international economics. The course will be
conducted in a lecture/seminar manner. Frequently, students will research a
topic and present it to the class. All students will be expected to keep up with
their reading and to demonstrate their preparedness by active participation in
class discussions. Students will present seminar papers and take part in extensive
debates, both of which require outside research. The course will emphasize
formal expository essay writing skills: approximately every two to three weeks
students can expect to write a two- to three-page Op-Ed essay outside of class.
Essays will deal with current problems facing the economy and are intended to
help the student apply theory to everyday challenges. Advanced Placement
students pride themselves on their maturity. Each and every one of you will
manage yourself in a professional way. It is you who bear the responsibility for
your success. You must seek out answers to your questions.
Requests, Demands, Laws
1.
The Prime Law: Respect for everyone in the classroom.
All other laws follow from this.
2.
Respect for our shared environment: our room is used by many people.
We need to keep it clean, orderly, and the basic arrangement preserved.
Everyone shares the responsibility for reordering the furniture, picking up
messes, etc.
3.
Respect for others during discussions, lectures, etc: When one person is
talking, everyone is listening. Only one discussion can go on at a time. No one
puts down another’s contributions.
4.
No time will be wasted at the start of class. Please be seated and ready to
take part in class when the module begins. Your bookbag’s presence at the seat
does not count — you must be here in person. If you have personal concerns, I
will leave time at the end of class for conferences.
5.
While I consider school activities important, I firmly believe your main
purpose in being here at Robert E. Lee High is for academic enrichment. Keep
your priorities clear, or do something else with this time slot. Do not ask to be
excused from my class.
6.
Absences may prove to be unavoidable at times, but if I feel you are
excusing yourself from class without justification your grade will be affected. I
will notify you of my intention. While I do not deny material read outside of
class can bring information, I believe knowledge is achieved through discussion.
Class Procedures
1.
Assignments are due on the date assigned and will be lowered one letter
grade if submitted late. I will not accept any late assignments after I have
returned that assignment to the class. Failure to turn in a major assignment can
seriously affect your grade. All honest attempts are rewarded. Always try. I will
notify your parents if a major assignment is not completed.
2.
Suggestion: Save all your papers and keep them in an economics
notebook. I know that you will not go back and look at every assignment, but I
guarantee that many of the papers will help you in preparing for examinations,
specially graphing problems.
3.
Notes are very, very important. But as I am trying to teach this class as a
college course, the responsibility for taking notes is on your shoulders. I
personally believe the notes will be extremely beneficial and in fact, I can
guarantee that you will be tested on much of the information I write on the
board.
4.
Never throw out a handout. If you decide you don’t want to keep it,
return it to me or recycle. Save a tree.
Grade
A
B
C
D
F
Percentage
90—100
80—89
70—79
60—69
59 and below
Note: It is better to turn in something that shows you tried than to turn in
nothing at all.
Course Outline
Unit 1: An Introduction to Economics
Topic I:
Basic Economic Concepts
A.
Scarcity — What is it? Why is it so important to economic thought?
B.
Opportunity Cost — Define and compute it. Why can it never be avoided?
C.
Production Possibilities — Construct and interpret production
possibilities schedules, and graphs; relate production possibilities curves to the
issues of scarcity, choice and cost. Why are most PPCs bowed out?
D.
Specialization and Comparative Advantage — Define and calculate
absolute and comparative advantages for production exchange.
E. Functions of Any Economic System
1.
Answering the questions: What to produce? How to produce?
For whom to produce?
2. Define ways societies determine allocation, efficiency, and equity.
Topic II:
Demand, Supply, and Price Determination
A. Demand — Define and illustrate demand through schedules and graphs
1.
Distinguish between change(s) in quantity demanded and
change(s) in demand.
2.
Examine the inverse relationship existing between quantity
demanded and price. Evaluate the Law of Demand.
3.
Identify and explain the variables which cause a change in demand.
4.
Illustrate graphically a change in demand versus a change in
quantity demanded.
B.
Supply Define and illustrate supply through schedules and graphs
1.
Distinguish between change(s) in quantity supplied and change(s)
in supply.
2.
Examine the direct relationship existing between quantity supplied
and price. Evaluate the Law of Supply.
3.
Identify and explain the variables which cause a change in supply.
4.
Illustrate graphically a change in supply versus a change in
quantity supplied.
C. Equilibrium Price and Quantity — Define and illustrate equilibrium
through schedules and graphs
1.
Define and illustrate surpluses and shortages.
2.
Define the effects of surpluses and shortages on prices and
quantities.
3.
Interpret the effects of a price floor and price ceiling on equilibrium
price and quantity.
4.
Introduction to market failures: Lack of competition, externalities,
and public goods.
Unit 2: Measurement of Economic Performance
Topic I:
Gross Domestic Product and National Income Concepts
A.
Measuring GDP, 4-Sector Circular Flow Model, and Flow versus Stock
1.
Expenditure Approach [C+I+G+ (X-IM)] where
C = Personal Consumption Expenditures
I = Gross Private Investment
G = Government Consumption Expenditures and Gross
Investment
X-IM = Net Exports
2.
Income Approach (W÷I+R+P) where
W = Compensation of Employees
I = Net Interest
R = Rental Income of Persons
P = Profits (Non-income adjustments)
3.
Problems with calculating GDP — Nonmarket transactions,
distribution, kind and quality of products.
4.
Changing Nominal GDP (NGDP) to Real GDP(RGDP). How and
why?
5.
Other national accounts: Net National Product (NNP). National
Income (NI), Personal Income (P1), and Disposable Income (DI).
Topic II:
Unemployment and Business Cycles
A.
The Roller Coaster — The four phases of the business cycle
B.
Total Spending and How It Affects the Business Cycle
C.
Unemployment — Defined
D.
Problems with the Unemployment Rate — Who is counted and
who isn’t?
E.
Types of Unemployment
1. Seasonal, frictional, structural, cyclical
2. Which type(s) affect the unemployment rate?
F.
Full Employment — What is it? What are the implications if achieved?
G.
The GDP Gap — Explaining lost potential
Topic III:
Inflation
A.
The Meaning and Measurement of Inflation
B.
The Consumer. Price Index (CPI) and How It Is Computed
C.
Problems with the CPI
D.
Other Indexes: Producer Price Index
E.
Consequences of Inflation: shrinking incomes, changes in wealth, effect on
interest rates
F.
Demand-Pull and Cost-Push Inflation
Unit 3: Macroeconomic Theory and Policy
Topic 1:
The Classical Theory and the Keynesian Theory: An Introduction
A.
The Role of the Consumption Function
B.
Marginal Propensities to Consume and Save
C.
Why the Consumption Function Shifts and How It Affects Aggregate
Demand
D.
The Role of the Investment Function
E.
Why is Investment Demand unstable?
1. Expectations
2. Technological change
3. Capacity utilization
F.
Investment as an Autonomous Expenditure
G.
Graphing the Aggregate Expenditure Function
Topic II:
Keynesian Model in Action
A.
Government Spending and How It Affects Aggregate Demand
B.
Adding International Trade to the Aggregate Expenditure Model
C.
The Spending Multiplier— the math and its effects
D.
Recessionary and Inflationary Gaps — a graphing exercise
Topic III:
Aggregate Demand and Supply
A.
Aggregate Demand Curve — Reasons for Its Shape
1. Real balances effect
2. Interest rate effect
3. Net export effect
B.
Nonprice-Level Determinants of Aggregate Demand
C.
Aggregate Supply Curve
1. Classical view
2. Keynesian view
3. Changes in equilibrium price and quantity with the three ranges
D.
Nonprice-Level Determinants of Aggregate Supply
Topic IV:
Fiscal Policy/Public Sector
A.
Discretionary Fiscal Policy
1. Changes in government spending
2. Changes in tax rates
3. Balanced-budget multiplier
B.
Supply-Side Policies
C.
Laffer Curve
D.
Government Size and Growth
E.
F.
1. Financing budgets
2. Government expenditure patterns
Types of Taxation
1. Progressive
2. Proportional
3. Regressive
Federal Deficits and the National Debt
1. The Federal Budget-Balancing Act
a. Gramm-Rudman-Hollings Act
b. Line-item veto
c. Budget ceiling
2. Should we worry about deficits or the debt?
Topic V:
Money, Banking, and Monetary Policy
A.
Three Functions of Money
B.
What Stands Behind the U.S. Dollar?
C.
The Three Money Supply Definitions
1. M1: most narrowly defined money supply
2. M2: adding near monies to M1
3. M3: adding large time deposits to M2
D.
The Federal Reserve System (FED)
1. Origins and organizational structure
2. Powers of the FED
a. controlling the money supply
b. clearing checks
c. supervising and regulating the banks
d. loaning currency to banks
e. acting as the bank for the U.S. government
3. Tools of the FED
a. open market operations
b. discount rate
c. reserve requirement
E.
The Money Multiplier
1. Theory versus reality
F.
Monetary Policy Shortcomings
1. Money multiplier inaccuracies
2. Lags in policy effects
G.
Monetary Policy
1. The demand for money and how it may affect interest rates
2. How monetary policy affects prices, output and employment
3. The Monetarist view of money (MVPY)
4. A comparison of views: Monetarist, Keynesians and Classical
economists
Topic VI:
A.
B.
The Phillips Curve and Expectations Theory
What Is the Phillips Curve?
1. In the short run
2. In the long run
Rational Expectations Theory
1. Can it work?
Unit 4: The International Economy
Topic I: International Trade and Finance
A.
Why Nations Trade at All
B.
Comparative and Absolute Advantage
C.
Free Trade versus Protectionism
1. Arguments for free trade
2. Arguments against free trade
D.
The Balance of Payments
1. Current account
2. Capitol account
3. International debt of the U.S.
E. Exchange Rates
1. Supply and demand for foreign exchange
2. Current fluctuations
a. appreciation and depreciation
b. graphing currency changes
Topic II:
Comparative Economic Systems
A.
Basic Types of Economic Systems
1. Traditional, command, and market economies — defined and analyzed
2. The mixed economy of today
3. Capitalism and socialism — basic tenets
4. Comparing the systems
B. Comparing Developed and Developing Countries
1. Classifying countries by GDP per capita
A. problems with classification
2. How to sustain economic growth in developing countries
3. Implications for a changing world