Download Complete Syllabus Macroeconomics (12th Grade)

Curriculum Map: Macroeconomics
Course: Macroeconomics (LRC) Grade: 12
Course
Description:
Macroeconomics La Roche College AMG 1005
Students study basic economic concepts that include, but are not limited to, supply and
demand; Gross Domestic Product (GDP); national income analysis, unemployment,
inflation, macroeconomic theory, monetary policy and the Federal government,
international trade and the role of the political process in economic life. This is a dual
enrollment class in economics offered jointly by SJHS and La Roche College for three
(3) undergraduate credits and a weighted SJHS grade. This class conforms to Advanced
Placement standards.
Course
Textbooks,
Workbooks,
Materials
Citations:
1. Annenberg Media. Economics USA (Twenty-eight episodes on DVD)
2. Baumol, William and Alan S. Blinder. Macroeconomics:Principles and Policy. 11th
Edition. Cengage Publishing 2011.
3. Morton, John. Advanced Placement Instructional Package: Macroeconomics
Student Activities. Joint Council on Economic Education. 1998
4. Capstone: Exemplary Lessons for High School Economics Joint Council on
Economic Education, 2009
5. Teaching the Financial Crisis Joint Council on Economic Education, 2010
6. Virtual Economics Joint Council on Economic Education, 2007
7. Focus: Understanding Economics in Civics and Government
Curriculum
Map
Author(s):
Rosanne Pucciarelli
Unit: Unit 1 Basic Economic Concepts
Timeline: 7 Weeks
Unit
Description:
Students study and analyze the fundamental economic concepts such as scarcity and
opportunity costs. They recognize the distinction between absolute and comparative
advantage and apply the principle of comparative advantage to determine the basis on
which mutually advantageous trade can take place between individuals and/or
countries, and to identify comparative advantage from differences in opportunity costs.
Students also explore the functions performed by an economic system and the way the
tools of supply and demand are used to analyze the workings of a free market
economy. Students define and describe the business cycle to better understand
economic fluctuations and to recognize the dynamics of unemployment, inflation, and
economic growth. Students develop a solid foundation for a thorough understanding
of macroeconomic concepts and issues.
Unit Big
Ideas:
1.Limited resources and unlimited wants require choices by individuals, groups, and
nations.
2.All economic systems must answer what, and how, goods and services will be
produced, and who will consume those goods and services. 3.The interaction of buyers
and sellers determines prices and quantities exchanged, except when influenced by
governmental policies.
Unit Essential 1. What are the economic goals of any society?
Questions:
2. How does a production possibilities model illustrate the economic problem of
scarcity, choice, and cost?
3. What are the guideposts to economic thinking?
4. Why do people trade?
5. Why is equilibrium important in a market economy?
6. How do government price ceilings, supports, and taxation affect equilibrium price
and quantity?
7. What is marginal utility and how does in determine what consumers will buy?
Unit Key
Terminology
& Definitions
:
1. Elasticity: The relative response of one variable to changes in another
variable. The phrase "relative response" is best interpreted as the
percentage change. For example, the price elasticity of demand, one of
the more important applications of this concept in economics, is the
percentage change in quantity demanded measured against the
percentage change in price. Other notable economic elasticities are the
price elasticity of supply, income elasticity of demand, and cross
elasticity of demand.
2. Economic growth - An increase in the total output of a nation over
time. Economic growth is usually measured as the annual rate of
increase in a nation's real GDP.
3. Full employment - A term that is used in many senses. Historically, it
was taken to be that level of employment at which no (or minimal)
involuntary unemployment exists. Today economists rely upon the
concept of the natural rate of unemployment to indicate the highest
sustainable level of employment over the long run.
4. Capital - All buildings, equipment and human skills used to produce
goods and services.
5. Capital resources - Goods made by people and used to produce other
goods and services. Examples include buildings, equipment, and
machinery.
6. Government - National, state and local agencies that use tax revenues
to provide goods and services for their citizens.
7. Gross domestic product (GDP) - The value, expressed in dollars, of all
final goods and services produced in a year.
8. Inflation - A sustained and continuous increase in the general price
level.
9. Real Gross domestic product (GDP), - GDP corrected for inflation.
10.Economic Goals: Five basic conditions of the economy that are
generally desired by society. They are typically divided into macro goals
(full employment, stability and growth) and micro goals (efficiency and
equity).
11.Production Possibility Curve (or Frontier) PPC -A curve depicting all
maximum output possibilities for two or more goods given a set of
inputs (resources, labor, etc.). The PPC assumes that all inputs are used
efficiently.
12.Productive resources - All natural resources (land), human resources
(labor), and human-made resources (capital) used in the production of
goods and services.
13.Specialization - The situation in which people produce a narrower
range of goods and services than they consume.
14.Standard of living - A minimum of necessities, comforts, or luxuries
held essential to maintaining a person or group in customary or proper
status or circumstances.
15.Marginality- In economics marginality is the focus on how one thing
changes if something else changes just slightly.
16.Incentives - Factors that motivate and influence the behavior of
households and businesses. Prices, profits, and losses act as incentives
for participants to take action in a market economy.
17.Ceteris Paribus: A Latin term meaning that all other factors are held
unchanged. The ceteris paribus assumption is used to isolate the effect
one economic factor has on another. Without this assumption, it would
be difficult to determine cause and effect in the economy. Relaxing the
ceteris paribus assumption is the primary analytical technique used in
the study of economics, especially when analyzing the market. Much
like a chemist adds one chemical at a time to a mixture to determine the
resulting reaction, an economist relaxes one ceteris paribus assumption
at a time to observe the results.
18.Production function: A mathematical way to describe the relationship
between the quantity of inputs used by a firm and the quantity
of OUTPUT it produces with them. If the amount of inputs needed to
produce one more unit of output is less than was needed to produce the
last unit of output, then the firm is enjoying increasing RETURNS to
scale (or increasing MARGINAL product). If each extra unit of output
requires a growing amount of inputs to produce it, the firm faces
diminishing returns to scale (diminishing marginal product).
19.Absolute advantage: This is the simplest yardstick of economic
performance. If one person, firm or country can produce more of
something with the same amount of effort and resources, they have an
absolute advantage over other producers. Being the best at something
does not mean that doing that thing is the best way to use your scarce
economic resources. The question of what to specialise in--and how to
maximise the benefits from international trade--is best decided
according to comparative advantage. Both absolute and comparative
advantage may change significantly over time.
20.Comparative advantage: Paul Samuelson, one of the 20th century's
greatest economists, once remarked that the principle of comparative
advantage was the only big idea that ECONOMICS had produced that
was both true and surprising. It is also one of the oldest theories in
economics, usually ascribed to DAVID RICARDO. The theory underpins
the economic case for FREE TRADE. But it is often misunderstood or
misrepresented by opponents of free trade. It shows how countries can
gain from trading with each other even if one of them is more efficient -
it has an ABSOLUTE ADVANTAGE - in every sort of economic activity.
Comparative advantage is about identifying which activities a country
(or firm or individual) is most efficient at doing.To see how this theory
works imagine two countries, Alpha and Omega. Each country has 1,000
workers and can make two goods, computers and cars. Alpha's economy
is far more productive than Omega's. To make a car, Alpha needs two
workers, compared with Omega's four. To make a computer, Alpha uses
10 workers, compared with Omega's 100. If there is no trade, and in
each country half the workers are in each industry, Alpha produces 250
cars and 50 computers and Omega produces 125 cars and 5
computers.What if the two countries specialise? Although Alpha makes
both cars and computers more efficiently than Omega (it has an
absolute advantage), it has a bigger edge in computer making. So it
now devotes most of its resources to that industry, employing 700
workers to make computers and only 300 to make cars. This raises
computer output to 70 and cuts car production to 150. Omega switches
entirely to cars, turning out 250.World output of both goods has risen.
Both countries can consume more of both if they trade, but at
what PRICE? Neither will want to import what it could make more
cheaply at home. So Alpha will want at least 5 cars per computer, and
Omega will not give up more than 25 cars per computer. Suppose the
terms of trade are fixed at 12 cars per computer and 120 cars are
exchanged for 10 computers. Then Alpha ends up with 270 cars and 60
computers, and Omega with 130 cars and 10 computers. Both are better
off than they would be if they did not trade.
21.Scarcity: Supplies of the FACTORS OF PRODUCTION are not unlimited.
This is why choices have to be made about how best to use them, which
is where ECONOMICS comes in. MARKET FORCES operating through
the PRICE MECHANISM usually offer the most efficient way to allocate
scarce resources, with GOVERNMENT planning playing at most a minor
role. Scarcity does not imply POVERTY. In economic terms, it means
simply that needs and wants exceed the resources available to meet
them, which is as common in rich countries as in poor ones.
22.Business cycle: Boom and bust. The long-run pattern of
economic growth and recession. According to the Center for
International Business Cycle Research at Columbia University, between
1854 and 1945 the average expansion lasted 29 months and the
average contraction 21 months. Since the second world war, however,
expansions have lasted almost twice as long, an average of 50 months,
and contractions have shortened to an average of only 11 months. Over
the years, economists have produced numerous theories of why
economic activity fluctuates so much, none of them particularly
convincing. A Kitchin cycle supposedly lasted 39 months and was due to
fluctuations in companies' inventories. The Juglar cycle would last 8-9
years as a result of changes in investment in plant and machinery. Then
there was the 20-year Kuznets cycle, allegedly driven by
house-building, and, perhaps the best-known theory of them all, the
50-year kondratieff wave. hayek tangled with keynes over what caused
the business cycle, and won the nobel prize for economics for his theory
that variations in an economy's output depended on the sort of capital it
had. Taking a quite different tack, in the late 1960s Arthur Okun, an
economic adviser to presidents Kennedy and Johnson, proclaimed that
the business cycle was "obsolete". A year later, the American economy
was in recession. Again, in the late 1990s, some economists claimed
that technological innovation and globalisation meant that the business
cycle was a thing of the past. Alas, they were soon proved wrong.
23.Opportunity Cost The true cost of something is what you give up to get
it. This includes not only the money spent in buying (or doing) the
something, but also the economic benefits (UTILITY) that you did
without because you bought (or did) that particular something and thus
can no longer buy (or do) something else. For example, the opportunity
cost of choosing to train as a lawyer is not merely the tuition
fees, PRICE of books, and so on, but also the fact that you are no longer
able to spend your time holding down a salaried job or developing your
skills as a footballer. These lost opportunities may represent a
significant loss of utility. Going for a walk may appear to cost nothing,
until you consider the opportunity forgone to use that time earning
money. Everything you do has an opportunity cost (see
SHADOW PRICE). Economics is primarily about the efficient use of
scarce resources, and the notion of opportunity cost plays a crucial part
in ensuring that resources are indeed being used efficiently.
24.Supply: One of the two words economists use most, along
with DEMAND. These are the twin driving forces of the market
economy. Supply is the amount of a good or service available at any
particular PRICE. The law of supply is that, other things remaining the
same, the quantity supplied will increase as the price increases. The
actual amount supplied will be determined, ultimately, by what the
market price is, which depends on the amount demanded as well as
what suppliers are willing to produce. What suppliers are willing to
supply depends on several things:the cost of the FACTORS OF
PRODUCTION;technology;the price of other goods
and SERVICES (which, if high enough, might tempt the supplier to
switch production to those products); and the ability of the supplier
accurately to forecast demand and plan production to make the most of
the opportunity.
25.Supply curve: A graph of the relationship between the PRICE of a good
and the amount supplied at different prices.
26.Demand:One of the two words economists use most; the other
is SUPPLY. These are the twin driving forces of the market economy.
Demand is not just about measuring what people want; for economists,
it refers to the amount of a good or service that people are both willing
and able to buy. The DEMAND CURVE measures the relationship
between the PRICE of a good and the amount of it demanded. Usually,
as the price rises, fewer people are willing and able to buy it; in other
words, demand falls (but see GIFFEN GOODS, NORMAL
GOODS and INFERIOR GOODS). When demand changes, economists
explain this in one of two ways. A movement along the demand curve
occurs when a price change alters the quantity demanded; but if the
price were to go back to where it was before, so would the amount
demanded. A shift in the demand curve occurs when the amount
demanded would be different from what it was previously at any chosen
price, for example, if there is no change in the market price, but
demand rises or falls. The slope of the demand curve indicates
the ELASTICITY of demand. Policymakers seek to manipulate aggregate
demand to keep the economy growing as fast as is possible without
pushing up INFLATION. Keynesians try to manage demand through
FISCAL POLICY; monetarists prefer to use the MONEY SUPPLY. Neither
approach has been especially successful in practice, particularly when
attempting to manage short-term demand through FINE TUNING.
27.Demand curve: A graph showing the relationship between the price of
a good and the amount of DEMAND for it at different PRICES.
28.Economics:The “dismal science”, according to Thomas Carlyle, a
19th-century Scottish writer. It has been described in many ways, few
of them flattering. The most concise, non-abusive, definition is the
study of how society uses its scarce resources.
29.Efficiency: Getting the most out of the resources used. Factors of
production. The ingredients of economic
activity: land, labour, capital and enterprise.
30.Capitalism: The winner, at least for now, of the battle of economic
'isms'. Capitalism is a free-market system built on private ownership, in
particular, the idea that owners of CAPITAL have PROPERTY
RIGHTS that entitle them to earn a PROFIT as a reward for putting their
capital at RISK in some form of economic activity. Opinion (and
practice) differs considerably among capitalist countries about what
role the state should play in the economy. But everyone agrees that, at
the very least, for capitalism to work the state must be strong enough
to guarantee property rights.
31.Communism: The enemy of CAPITALISM and now nearly extinct.
Invented by KARL MARX, who predicted that feudalism and capitalism
would be succeeded by the 'dictatorship of the proletariat', during
which the state would 'wither away' and economic life would be
organised to achieve 'from each according to his abilities, to each
according to his needs'. The Soviet Union was the most prominent
attempt to put communism into practice and the result was conspicuous
failure, although some modern followers of Marx reckon that the
Soviets missed the point.
32.Socialism: The exact meaning of socialism is much debated, but in
theory it includes some collective ownership of the means of production
and a strong emphasis on equality, of some sort.
Unit Student 1. Define scarcity.
Learning
2. Define, compute and apply opportunity cost.
Outcomes:
3. Describe the Production Possibilities Curve and construct and interpret production
possibilities schedules, and graphs; relate production possibilities curves to the
issues of scarcity, choice and cost.
4. Define, describe and calculate absolute and comparative advantages for production
exchange.
5. Identify, describe and discuss the functions of any economic system.
6. Compare ways societies determine allocation, efficiency, and equity
Unit
Instructional
Instructional Procedures, Activities are contained within each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS ECO. 2.1 A, 2.1 B, 2.1 C, 2.1 D, 2.1 E.
Unit
Materials:
Text: Advanced Placement Instructional Package: Microeconomics
Film: Economics USA Episode 1 "Resources and Scarcity", Episode 2 "Markets and
Prices" and Episode 3 "Supply and Demand."
Unit
Chapters 1-4 in Macroeconomics: Principles and Policy
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.1.1.D
Economic Systems
(Advanced)
APSS-ECO.2.1.A
Scarcity, Choice, and Opportunity Costs
(Advanced)
APSS-ECO.2.1.B
Production Possibilities Curve
(Advanced)
APSS-ECO.2.1.C
Comparative Advantage, Absolute Advantage, Specialization, and
(Advanced)
Exchange
APSS-ECO.2.1.D
Demand, Supply, and Market Equilibrium
(Advanced)
APSS-ECO.2.1.E
Macroeconomic Issues: Business Cycle, Unemployment, Inflation,
(Advanced)
Growth
APSS-ECO.2.2.C.1
Definition and Measurement
(Advanced)
APSS-ECO.2.2.C.2
Types of Unemployment
(Advanced)
APSS-ECO.2.2.C.3
Natural Rate of Unemployment
(Advanced)
Unit: Unit 2 Measurement of Economic Performance
Timeline: 6 Weeks
Unit
Description:
Students will get an overview of how the economy works, the unit will start with
a model of the circular flow of income and products that contains the four
sectors: households, businesses, government, and international . It is important to
identify and examine the key measures of economic performance: gross domestic
product, unemployment, and inflation.In studying the concept of gross domestic
product, it is also important that students learn how gross domestic product is
measured, have a clear understanding of its components, and be able to distinguish
between real and nominal gross domestic product. The unit should examine the nature
and causes of unemployment, the costs of unemployment, and how the
unemployment rate is measured, including the criticisms associated with the
measurement of the unemployment rate . It is also important to understand the
concept of the natural rate of unemployment and the factors that affect it. Students
should also have an understanding of inflation and how it is measured. In this section,
the course should cover the costs of inflation; the main price indices, such as
the consumer price index (CPI) and the gross domestic product deflator. Students
should learn how these indices are constructed and used to convert nominal values
into real values, as well as to convert dollar values in the past to dollar values in the
present. It is also important to highlight the differences between the two price indices
as a measure of inflation, as well as the problems associated with each measure.
Unit Big
Ideas:
1. Inflation causes uncertainty and anxiety
2. There are high human costs to unemployment.
Unit Essential 1.
Questions:
2.
3.
4.
5.
Unit Key
Terminology
& Definitions
:
What are the measures of national economic performance?
How can we measure the level of real performance?
Who is helped and who is harmed by inflation?
How does a circular flow describe the economy of the United States?
What is meant by unemployment?
1. Consumer Price Index: An index of prices of goods and services typically
purchased by urban consumers. The Consumer Price Index, commonly known by its
abbreviation, CPI, is compiled and published monthly by the Bureau of Labor Statistics
(BLS), using price data obtained from an elaborate survey of 25,000 retail outlets and
quantity data generated by the Consumer Expenditures Survey. The CPI is
unquestionably one of the most widely recognized macroeconomic price indexes,
running second only to the Dow Jones averages in the price index popularity contest.
It is used not only as an indicator of the price level and inflation, but also to convert
nominal economic indicators to real terms and to adjust wage and income payments
(such as Social Security) for inflation.
2. Constant GDP: The total market value, measured in constant prices, of all goods
and services produced within the political boundaries of an economy during a given
period of time, usually one year. The key is that constant gross domestic product is
measured in constant prices, the prices for a specific base year. Constant gross
domestic product, also termed real gross domestic product, adjusts gross domestic
product for inflation.
3. Inflation: A persistent increase in the average price level in the economy. Inflation
occurs when the AVERAGE price level (that is, prices IN GENERAL) increases over time.
This does NOT mean that ALL prices increase the same, nor that ALL prices necessarily
increase. Some prices might increase a lot, others a little, and still other prices
decrease or remain unchanged. Inflation results when the AVERAGE of these assorted
prices follows an upward trend. Inflation is the most common phenomenon associated
with the price level.
4. Unemployment: The general condition in which resources are willing and able to
produce goods and services but are not engaged in productive activities. While
unemployment is most commonly thought of in terms of labor, any of the other factors
of production (capital, land, and entrepreneurship) can be unemployed as well. The
analysis of unemployment, especially labor unemployment, goes hand-in-hand with the
study of macroeconomics that emerged from the Great Depression of the 1930s.
5. Gross Domestic Product and National Income: Gross domestic product (GDP)
is the total market value of all final goods and services produced within the political
boundaries of an economy during a given period of time, usually a year. National
income (NI) is the total income earned by the citizens of the national economy
resulting from their ownership of resources used in the production of final goods and
services during a given period of time, usually one year. While the vast majority of
domestic production is undertaken by domestic factors of production (national income
is about 80% of gross domestic product) key differences do exist. The six main
differences between gross domestic product and national income are (1) capital
consumption adjustment, (2) indirect business taxes, (3) business transfer payments,
(4) net foreign factor income, (5) government subsidies, and (6) statistical
discrepancy.
6. Cost of Living: The amount of income or money needed to acquire a given
quantity of goods and services or to achieve a given living standard. This cost of living
notion is closely intertwined with inflation, the economy's price level, and the concept
of purchasing power. The cost of living is typically indicated by a price index such as
the
7. Consumer Price Index (CPI). The CPI, for example, measures the changing cost
of a specific market basket of goods. An increase in the CPI indicates that the cost of
this market basket has increased, and presumably so too has the cost of living. In fact,
labor union wages, benefits paid to Social Security recipients, and similar income
sources are regularly adjusted for changes in the cost of living using the CPI.
8. GDP Deflator: A price index based on the calculation of real gross domestic
product that's used as an indicator of average prices in the economy. Those loveable
economists who spend their days and nights compiling and estimating the size of our
economic pie provide estimates of gross domestic product in both nominal dollars and
real dollars.
9. Consumption Expenditures: The common term for expenditures by the
household sector on gross domestic product. In general consumption expenditures
include the wide assortment of goods and services purchased by the household sector
that provide satisfaction of wants and needs. Consumption expenditures are divided
into three categories -- durable, nondurable, and services.
10. Investment: The sacrifice of current benefits or rewards to pursue an activity
with expectations of greater future benefits or rewards. Investment is typically used to
mean the purchase of capital by business in anticipation of the profit. By increasing the
quantity or quality of resources, investment is a source of economic growth. While
investment, in principle is diverse, in practice, the official government measure, as
reported by the Department of Commerce, includes businesses' purchases of capital
and consumers' purchases of new houses.
11. Government Purchases of Goods and Services: Expenditures on final goods
and services (that is, gross domestic product) undertaken by the government sector.
The official entry for government purchases in the National Income and Product
Accounts maintained by the Bureau of Economic Analysis is termed government
consumption expenditures and gross investment. Government purchases are used to
operate the government (administrative salaries, etc.) and to provide public goods
(national defense, highways, etc.). Government purchases do not include other
government spending for transfer payments. These are expenditures on final goods by
all three levels of government: federal, state, and local governments.
12. Net Exports of Goods and Services: The official item in the National Income
and Product Accounts maintained by the Bureau of Economic Analysis measuring net
exports by the foreign sector. Net exports of goods and services is the smallest of the
four expenditures, averaging around 2% of gross domestic product. Unlike the other
expenditures, net exports of goods and services can be either positive or negative.
They are positive when exports are greater than imports and negative when exports
are less than imports. In recent years, net exports of goods and services have been
negative.
13. Circular Flow: The continuous movement of production, income, and resources
between producers and consumers. This flow moves through product markets as the
gross domestic product of our economy and is then the revenue received by the
business sector in payment for this production. This stream of revenue then flows
through resource markets as payments by businesses for the resources employed in
production. The payments received by resource owners, however, is nothing more
than the income of the household sector. The resource owners of the household sector
use this income to purchase goods and services through the product markets, coming
full circle to where we began.
14. Leakage: A line used in the injection-leakage model representing the relation
between non-consumption uses of income (that is, leakages) and national income. The
three leakages are saving, taxes, and imports. The foundation of the leakages line is
the saving line, which is then enhanced by adding taxes and imports. The other part of
the injection-leakage model is a line representing injections. The intersection of the
injection and leakage lines identifies equilibrium aggregate output, or Keynesian
equilibrium. A non-consumption expenditure on gross domestic product, including
investment expenditures, government purchases, and exports. Injections are combined
with leakages in the injection-leakage model used to identify equilibrium aggregate
output in Keynesian economics. The notion of injection is best viewed through the
circular flow, in which investment expenditures, government purchases, and exports
are "injected" into the main flow between output, factor payments, national income,
and consumption.
15. Factors of Production: The four basic factors used to produce goods and
services in the economy--labor, capital, land, and entrepreneurship. These are also
called resources or scarce resources. The term "factors of production" is quite
descriptive of the function these "resources" perform. Labor, capital, land, and
entrepreneurship are the four "factors" or items use in the "production" of goods and
services. So there you have it "factors" of "production."
16. Full Employment: In principle, this is when all of our economy's resources are
being used to produce output. This is one of the five economic goals, specifically one
of the three macro goals (the other two are economic growth and stability). In
practice, our economy is considered to be at full employment when the unemployment
rate is around 5 to 5 1/2 percent and the capacity utilization rate is about 85 percent.
This unemployment rate includes structural and frictional unemployment.
17. Transfer Payment: A payment made without any corresponding production or
expectations of production. Unless otherwise noted (such as business transfer
payments), the term transfer payments generally refers to payments by the
government sector to the household sector. The three most important transfer
payments in our economy are for Social Security, unemployment compensation, and
welfare. The intent of these transfers payments is to redistribute income, and thus the
goods and services that can be had with the income. Transfer payments surface as
income received but not earned (IRBNE) added to national income to derived personal
income.
18. Structural Unemployment: Unemployment caused by a mismatch between
workers' skills and skills needed for available jobs. Structural unemployment essentially
occurs because resources, especially labor, are configured (trained) for a given
technology but the economy demands goods and services using another technology.
Employers seek workers who have one type of skill and workers who seek employment
have a different type of skill. This mismatch in skills, which is largely the result of
technological progress, creates unemployment of the structural variety. Structural
unemployment is one of four unemployment sources. The other three are cyclical
unemployment, seasonal unemployment, and frictional unemployment.
19. Frictional Unemployment: Unemployment attributable to the time required to
match production activities with qualified resources. Frictional unemployment
essentially occurs because resources, especially labor, are in the process of moving
from one production activity to another. Employers are seeking workers and workers
are seeking employment, the two sides just haven't matched up. Hence unemployment
of the frictional variety increases. This mismatch is largely the result of limited
information, which is often compounded by geographic separation between producer
and resource. Frictional unemployment is one of four unemployment sources. The
other three are cyclical unemployment, seasonal unemployment, and structural
unemployment.
20. Cyclical Unemployment: Unemployment attributable to a general decline in
macroeconomic activity, especially expenditures on gross domestic product, that
occurs during a business-cycle contraction. When the economy dips into a contraction,
or recession, aggregate demand declines, so less output is produced and fewer
workers and other resources are employed. Hence unemployment of the cyclical
variety increases. Cyclical unemployment is one of four unemployment sources. The
other three are seasonal unemployment, frictional unemployment, and structural
unemployment.
21. Growth Rate: The percentage change in a variable from one year to the next.
The growth rate, in effect, measures how much the variable is growing over time. In
that economists (as well as regular human people) are quite interested in economic
growth, progress, and a lessening of the scarcity problem, growth rates for different
economic variables are closely scrutinized. Among the most important are: real gross
domestic product, population, and per capita income. Growth rates are important not
only for the analysis of long-run progress (economic growth, economic development),
but also short-run instability (business cycles)
22. Potential Real Gross Domestic Product: The total real output (real gross
domestic product) that the economy could produce if resources are fully employed. In
other words, the economy is operating ON the production possibilities frontier. Full
employment is generally indicated by achieving what is termed the natural
unemployment rate, which is an unemployment rate in the neighborhood of about 5%.
If the economy is at full employment then actual gross domestic product is equal to
potential gross domestic product and the actual unemployment rate is equal to the
natural unemployment rate. The macroeconomy is thus living up to its potential, at
least in terms of producing wants-and-needs satisfying goods and services.
23. Economic Goals: Five basic conditions of the economy that are generally desired
by society. They are typically divided into macro goals (full employment, stability and
growth) and micro goals (efficiency and equity).
24. Business Cycle: The recurring, but irregular, pattern of business cycles can be
divided into two basic phases -- expansion and contraction. An expansion is a period of
increasing economic activity and a contraction is a period of declining economic
activity. These two phases are marked by two transitions. The transition from
expansion to contraction is termed a peak and the transition from contraction to
expansion is termed a trough. The early portion of an expansion is often referred to as
a recovery.
Unit Student At the completion of this unit, students will be able to:
Learning
1. Define GDP and explain why the value of production, income and expenditures are
Outcomes:
the same for an economy Expenditure Approach/Income Approach
2. Explain the circular flow model and use the model to explain how households, firms,
government and international markets interact (to constitute GDP)
3. Distinguish between nominal GDP and real GDP.
4. Explain and describe limitations of real GDP as a measure of economic well being.
5. Explain what the consumer price index is and how it is calculated.
6. Explain limitations of the CPI
7. Use the CPI to explain inflation and to calculate real values (wages, interest rates,
prices)
8. Define unemployment rate and its relationship with GDP Describe sources and types
of unemployment.
Unit
Instructional
Instructional Procedures, Activities are contained in the "core" lessons.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS ECO. 2.2 A1-A4, 2.2 B1-B4, 2.2 C1-C4.
Unit
Materials:
Macroeconomics, Principles and Policy
Advanced Placement Instructional Package (APIP)
Films:
Economics USA: Episode 4 "Booms and Bust" and Episode 7 "Inflation"
Unit
Chapters 5, 6, and 7 in Macroeconomics: Principles and Policy.
Assignments:
Unit Notes:
This is a great deal of material to cover but the bulk of it is rote and not terrifically
difficult or intellectually demanding.
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.2.A
National Income Accounts
(Advanced)
APSS-ECO.2.2.A.1
Circular Flow
(Advanced)
APSS-ECO.2.2.A.2
Gross Domestic Product
(Advanced)
APSS-ECO.2.2.A.3
Components of Gross Domestic Product
(Advanced)
APSS-ECO.2.2.A.4
Real Versus Nominal Gross Domestic Product
(Advanced)
APSS-ECO.2.2.B
Inflation Measurement and Adjustment
(Advanced)
APSS-ECO.2.2.B.1
Price Indices
(Advanced)
APSS-ECO.2.2.B.2
Nominal and Real Values
(Advanced)
APSS-ECO.2.2.B.3
Costs of Inflation
(Advanced)
APSS-ECO.2.2.C
Unemployment
(Advanced)
Unit: Unit 3 National Income and Price Determination
Timeline: 8 Weeks
Unit
Description:
This section introduces students to the aggregate supply and aggregate demand model
to explain the determination of equilibrium national output and the general price
level, as well as to analyze and evaluate the effects of public policy. It is important
to discuss the aggregate demand and aggregate supply concepts individually to
provide students a firm understanding of the mechanics of the aggregate
demand and aggregate supply model. The aggregate demand and aggregate supply
analysis often begins with a general discussion of the nature and shape of the
aggregate demand and aggregate supply curves and the factors that affect them. A
detailed study of aggregate demand may begin by defining the four components of
aggregate demand: consumption, investment, government spending, and net exports.
It also examines why the aggregate demand curve slopes downward and how
changes in the determinants affect the aggregate demand curve. The
spending-multiplier concept and its impact on aggregate demand, and how crowding
out lessens this impact, should be demonstrated as well. The course can then present
the definition and determinants of aggregate supply, the different views about the
shape of the aggregate supply curve in the short run and in the long run, and
highlight the importance of the shape in determining the effect of changes in
aggregate demand on the economy. It is also important to understand the notion of
sticky-price and sticky-wage models and their implication for the aggregate supply
curve in comparison to flexible prices and wages. Students should understand the
distinction between nominal and real interest rates. Students should also be
introduced to the quantity theory of money, and examine and understand the effect
of monetary policy on real output growth and inflation. Students should be able to
use the aggregate demand and aggregate supply model to determine equilibrium
income and price level and to analyze the impact of economic fluctuations on the
economy’s output and price level, both in the short run and in the long run.
Unit Big
Ideas:
1. "In the long run, we are all dead." John Maynard Keynes.
2. The market economy, while the most efficient way to allocate resources, creates
inequality.
Unit Essential 1. What are the different models that explain the status of the national economy?
Questions:
2. How does each of the models suggest a method and strategy for dealing with
national economic problems?
3. How does the AS/AD model compare with the Aggregate Expenditure Model
(Keynesian Model) as they attempt to explain the national economy?
4. How does the AS/AD model compare with the Keynesian model as they attempt to
explain the national economy?
Unit Key
Terminology
& Definitions
:
1. Aggregate Demand-The total amount that all consumers, business firms,
government agencies, and foreigners spend on final goods and services.
2. Consumer Expenditure (C)- the total amount spent by consumers on newly
produced goods and services (excluding purchases of new homes which are considered
investment (I).
3. Investment Spending (I)- the sum of the expenditures of business firms on new
plant and equipment and households on new homes. Financial "investments" are not
included, nor are resales of existing assets.
4. Government Purchases (G)- refer to the goods and services purchased by all
levels of government.
5. Net Exports or X-M- the difference between exports (X) and imports (IM.) It
indicates the difference between what we sell to foreigners and what we buy from
them.
6. Consumption Function-shows the relationship between total consumer
expenditures and total disposable income in the economy, holding all other
determinants of consumer spending constant.
7. Marginal Propensity to Consume- the ratio of the change of consumption
relative to the change in disposable income that produces the change in
consumption. On a graph, it appears as the slope of the consumption function.
8. Scatter Diagram- a graph showing the relationship between two variables. Each
year is represented by a point in the diagram, and the coordinates of each year's point
show the values of the two variable in that year.
9. Aggregate Supply Curve- Shows, for each possible price level, the quantity of
goods and services that all the nation's businesses are willing to produce during a
specified period of time, holding all other determinants of aggregate quantity supply
constant.
10. Productivity- the amount of output produced by a unit of input.
11. Self-Correcting Mechanism-refers to the way money wages react to either a
recessionary gap or an inflationary gap. Wage changes shift the aggregate supply
curve, and therefore change equilibrium GDP and the equilibrium price level.
12. The interest-rate effect is defined as a decrease in households’and
businesses’plans to buy capitaland consumer durables because a price level increase
will increase the interest rate. A price level increase decreases the purchasing power of
money.With a smaller amount of real money available,financial institutions raise the
interest rate.
13. The wealth effect is defined as a decrease in thereal value of cash balances as
the price levelincreases.Faced with this decrease in real wealth,people decrease
consumption and increase savingsto restore their real wealth to the desiredlevel.An
alternative term is the real balance effect.
14. The net export effect is defined as a decrease in domestic output demanded
with an increase in the domestic price level because domestic products are more
expensive to foreign buyers and foreign goods are less expensive to domestic
consumers.
Unit Student 1. Explain the factors that constitute a downward sloping Aggregate Demand (AD)
Learning
Income, real interest rates, and net exports effects.
Outcomes:
2. Explain the factor that influences the AD.
3. Explain the factors that constitute an upward sloping Aggregate Supply (AS) curve.
4. Explain the factors that influence the aggregate supply curve Use the AS/AD model
to explain fluctuations in the economy. Aqs=Aqd constitutes equilibrium in the
economy (LR)
5. Explain distinctions between potential GDP and actual GDP. Relationship between
potential GDP and investment and capital; labor markets Aqs=Aqd constitutes
equilibrium in the economy and now compare/contrast with real GDP. (LR)
6. Explain distinctions between natural rate of employment or full employment and
actual rate of unemployment Relationship between AS/AD model and unemployment
7. Introduce and explain aggregate expenditure model (Keynesian Income Expenditure
Model) with fixed prices.
8. Distinguish between autonomous expenditures and induced expenditures and how it
influences GDP
9. Explain how GDP adjust to equilibrium.
10. Describe and explain the expenditure multiplier.
11. Derive AD form the expenditure model
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO. 2.3 A1-A2, 2.3 B1-B3, 2.3 C1-C3.
Unit
Materials:
Text: Macroeconomics: Principles and Policy
Advanced Placement Instructional Package (APIP)
Films:
Economics USA: Episodes 5 "John Maynard Keynes" and Episode 14 "Stabilization
Policy."
Unit
Chapters 8 and 9 in Macroeconomics: Principles and Policy.
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.3.A.1
Determinants of Aggregate Demand
(Advanced)
APSS-ECO.2.3.A.2
Multiplier and Crowding-out Effects
(Advanced)
APSS-ECO.2.3.B.1
Short-run and Long-run Analysis
(Advanced)
APSS-ECO.2.3.B.2
Sticky Versus Flexible Wages and Prices
(Advanced)
APSS-ECO.2.3.B.3
Determinants of Aggregate Supply
(Advanced)
APSS-ECO.2.3.C.1
Real Output and Price Level
(Advanced)
APSS-ECO.2.3.C.2
Short and Long Run
(Advanced)
APSS-ECO.2.3.C.3
Actual Versus Full-Employment Output
(Advanced)
APSS-ECO.2.3.C.4
Economic Fluctuations
(Advanced)
Unit: Unit 4 The Financial Sector
Timeline: 4 Weeks
Unit
Description:
To understand how monetary policy works, students must understand the
definitions of both the money supply and money demand and the factors that affect
each of them . Here the course introduces students to the definition of money and
other financial assets, such as bonds and stocks, the time value of money, measures
of the money supply, fractional reserve banking, and the Federal Reserve System . In
presenting the money supply, it is important to introduce the process of
multiple-deposit expansion and money creation using T-accounts, and the use of the
money multiplier . In learning about monetary policy, it is important to define money
demand and examine its determinants . Having completed the study of money supply
and money demand, the course should proceed to investigate how equilibrium in the
money market determines the equilibrium nominal interest rate . Using the
investment demand curve, the students should establish the link between changes in
the real interest rate and changes in aggregate demand and understand how changes
in aggregate demand affect real output and price level . Students should have an
understanding of financial markets and the working of the loanable funds market in
determining the real interest rate . It is also important that students develop a clear
understanding of the differences between the money market and the loanable funds
market
Unit Big
Ideas:
1. Money has no value.
2. Ben Bernanke is the "master of the universe."
Unit Essential 1.
Questions:
2.
3.
4.
Unit Key
Terminology
& Definitions
:
What is monetary policy?
How do banks operate?
How does the FED promote a fully employed economy?
What does velocity have to do with monetary policy?
1. Money: Anything that is generally accepted in exchange as payment for goods and
services. The emphasis is on "any," because any item or asset can serve as money so
long as it is generally accepted in payment throughout an economy. While the key
function of money is acting as a medium of exchange, money also functions as a store
of value, standard unit of account, and standard of deferred payment.
2. Money Creation: The process in which banks increase the amount of funds in
checkable deposits by using reserves to make loans. Money creation is an important
process in the economy because it means that the government does not have total
control over the money supply.
3. Money Characteristics: Almost any item, any asset, any "thing" can function as
money so long as it is generally accepted as payment. In fact, a lot of different
"things" have been used as money over the centuries. While a number of "things" have
been used as money, some have worked better than others. Those "things" that didn't
work so well were replaced by other "things" that worked better. Those "things" that
worked best tended to have four basic characteristics: (1) durability, (2) divisibility, (3)
transportability, and (4) noncounterfeitability.
4. Money Supply: The quantity of money balances that exists in the economy. The
money supply is controlled by the Federal Reserve System through its monetary policy.
5. Monetary Policy: The Federal Reserve System's use of the money supply to
stabilize the business cycle. As the nation's central bank, the Federal Reserve System
determines the total amount of money circulating around the economy. In principle,
the Fed can use three different "tools"--open market operations, the discount rate, and
reserve requirements--to manipulate the money supply. In practice, however, the
primary tool employed is open market operations. To counter a recession, the Fed
would undertake expansionary policy, also termed easy money. To reduce inflation,
contractionary policy is the order of the day, and goes by the name tight money.
6. Money Market: A financial market that trades U.S. Treasury bills, commercial
paper and other short-term financial instruments. This market is often used by
businesses when they need short-term funds to bridge the gap between paying
operating costs and collecting revenue from product sales. As such, the term "money"
in money market indicates that businesses are using highly liquid instruments to raise
the money need for operating expenses.
7. Money Demand: The quantity of money balances that the public wants to hold.
The are three basic motives for holding money: for transactions, as a precaution, and
for speculation.
8. Federal Open Market Committee: A part of the Federal Reserve System that's
specifically responsible for directing open market operations, and is more generally
charged with guiding the nation's monetary policy. The FOMC includes the 7 members
of the Fed's Board of Governors and 5 of the 12 presidents of Federal Reserve District
Banks. The chairman of the Federal Reserve System is also the chairman of the FOMC.
The FOMC meets every 45 days to evaluate monetary policy.erm federal funds
rate Definition: The interest rate that banks charge each other when loaning bank
reserves through the federal funds market. This is a key interest rate in the economy
because helps to determine banks' minimum cost of getting funds. If the federal funds
rate is higher, then banks are likely to raise the interest rates they charge, like the
prime rate, home mortgage rate, or rate on car loans.
9. Federal Reserve System: THE central bank of the United States. It includes a
Board of Governors, 12 District Banks, 25 Branch Banks, and assorted committees. The
most important of these committees is the Federal Open Market Committee, which
directs monetary policy. The Fed (as many like to call it) was established in 1913 and
modified significantly during the Great Depression of the 1930s. It's duties are to
maintain the stability of the banking system, regulate banks, and oversee the nation's
money supply.
10. Fractional-Reserve Banking: A system in which banks keep less than 100
percent of their deposits in the form of bank reserves and use the rest for
interest-paying loans. Banks in the U. S., as well as those in most other modern
countries, practice this system of fractional-reserve banking.
11. Real Interest Rate: The market, or nominal interest rate, after adjusting for
inflation. This is the interest rate lenders receive and borrowers pay expressed in real
dollars. There two ways to think about the real interest rate, (1) the historical,
after-the-fact, interest rate and (2) the desired interest rate lenders and borrowers
have in mind when entering into a loan. The first one tells us the purchasing power of
any interest payments received or paid. The second way of looking at the real interest
rate is based on expectations of the future.
12. Moral Suasion: Government policy in which policy makers or leaders encourage
or discourage particular behavior using information requests of consumers, business,
and others, without formal actions such as laws or regulations. The use of moral
suasion can be somewhat effective during short-term crises situations, such as wars,
energy shortages, or financial instability. Moral suasion is occasionally used for
monetary policy when the Federal Reserve System doesn't want to, or have the time
to, use other monetary policy tools.
Unit Student 1. Define money and describe its functions
Learning
2. Describe the monetary system and explain the functions of banks, balance sheets
Outcomes:
required and excess reserves.
3. Understand money creation and destruction through loans and repaying
loans, deposit money multiplier effect, loanable fund market and LR interest rates.
4. Describe and explain the time value of money bond market, money demand and
money market and SR interest rates.
5. Describe the functions of the Federal Reserve System. Organization Tools of the
FED; open market operations; required reserves; discount rates Creation of nominal
interest rates by the FED.
Unit
Instructional
Instructional Procedures, Activities are to be found within each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO. 2.4 A1-A7, 2.4 B1-B3
Unit
Materials:
Text:
Advanced Placement Instructional Package (APIP)
Film:
Economics USA: Episodes 8 "The Banking System" and Episode 9 "The Federal
Reserve"
Unit
Chapters 12 and 13 in Macroeconomics: Principles and Policy
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.4.A.1
Definition of Financial Assets: Money, Stocks, Bonds
(Advanced)
APSS-ECO.2.4.A.2
Time Value of Money (present and future value)
(Advanced)
APSS-ECO.2.4.A.3
Measures of Money Supply
(Advanced)
APSS-ECO.2.4.A.4
Banks and Creation of Money
(Advanced)
APSS-ECO.2.4.A.5
Money Demand
(Advanced)
APSS-ECO.2.4.A.6
Money Market
(Advanced)
APSS-ECO.2.4.A.7
Loanable Funds Market
(Advanced)
APSS-ECO.2.4.B
Central Bank and Control of the Money Supply
(Advanced)
APSS-ECO.2.4.B.1
Tools of Central Bank Policy
(Advanced)
APSS-ECO.2.4.B.2
Quantity Theory of Money
(Advanced)
APSS-ECO.2.4.B.3
Real Versus nominal Interest Rates
(Advanced)
Unit: Unit 5 Inflation, Unemployment, and Stabilization Policies
Timeline: 4 Weeks
Unit
Description:
Public policy can affect the economy’s output, price level, and level of
employment, both in the short run and in the long run . Students should learn to
analyze the impacts of fiscal policy and monetary policy on aggregate demand and on
aggregate supply, as well as on the economy’s output and price level, both in the
short run and in the long run . It is also important to understand how an economy
responds to a shortrun shock and adjusts to long-run equilibrium in the absence of any
public policy actions . With both monetary and fiscal policies now incorporated in the
analysis of aggregate demand and aggregate supply, an understanding of the
interactions between the two is essential . Students should also examine the
economic effects of government budget deficits, including crowding out; consider the
issues involved in determining the burden of the national debt; and explore the
relationships between deficits, interest rates, and inflation . The course should
distinguish between the short-run and long-run impacts of monetary and fiscal
policies and trace the shortrun and long-run effects of supply shocks . Short-run and
long-run Phillips curves are introduced to help students gain an understanding of the
inflation-unemployment trade-off and how this trade-off may differ in the short and
long run . In this section, the course identifies the causes of inflation and illustrates
them by using the aggregate demand and aggregate supply model . A well-rounded
course also includes an examination of the significance of expectations, including
inflationary expectations .
Unit Big
Ideas:
1.
2.
3.
4.
The national debt is a burden to our children.
The national debt crisis is overstated.
Politics and ideologies predicate the response to the national debt.
Monetary and fiscal policy mix is the reality of United States economic policy.
Unit Essential 1. What are the different combinations of fiscal and monetary policy?
Questions:
2. What are the effects of using monetary policy and/or fiscal policy on interest rates,
price stability, and employment and national income?
3. What are the various policies used to promote national output, employment and
price stability?
4. How do economists measure inflation?
5. What causes (and does not cause) inflation?
6. What is the trade off between unemployment and inflation?
7. What is the role of expectations in accelerating (or decelerating) inflation?
Unit Key
Terminology
& Definitions
:
1. Phillips curve: An historical inverse relationship between the rate
of unemployment and the rate of inflation in an economy. Stated simply, lower
unemployment in an economy is correlated with a higher rate of inflation. While there
is a short run tradeoff between unemployment and inflation, it has not been observed
in the long run. Accordingly, the Phillips curve is now seen as too simplistic, with the
unemployment rate supplanted by more accurate predictors of inflation.
2. Budget Deficit: An excess of budgetary expenditures over revenues. The federal
government is well known for its inclination to operate with a budget deficit. But it is
not alone. Consumers also find themselves in this position on many occasions. When a
budget deficit occurs, the excess spending is financed through borrowing. For the
federal government this involves issuing government securities.
3. Crowding Out: A decline in investment caused by expansionary fiscal policy. When
government counteracts a recession with an increase in spending or a reduction in
taxes (both resulting in an increase in the federal deficit) interest rates tend to
increase. Higher interest rates then inhibit business investment in capital goods. To
the extent that crowding out occurs, economic growth is reduced if government has
not seen fit to offset the loss in business investment with public investment in
infrastructure, education, or other growth promoting expenditures.
4. Conservative: A political view that favors -- (1) limited government, (2) extensive
reliance on markets, (3) strong national defense, (4) protection and promotion of
existing cultural ideals and beliefs, and (5) economic rewards. Conservatives tend to be
strong advocates of free enterprise and find philosophical agreement with neoclassical
economics, new classical economics, rational expectations, and monetarism theories
that call for limited government intervention in the economy.
5. Liberal: A political view that favors--(1) paternalistic government, (2) correction of
market failure with government intervention, (3) equal opportunities for all citizens
regardless of race, age, gender, ethnic origin (4) redistribution of income and wealth,
and (5) regulation and control by government over businesses.
6. Federal Deficit: An excess of federal government spending over tax collections.
The federal deficit has been the subject of on-again, off-again debates for a number of
years. The main points of the debate are: (1) the potential crowding out of investment
in capital goods, (2) the use of borrowed funds for either "consumption" or
"investment" government purchases, and (3) the constraints imposed on fiscal policy.
7. Expectations: What people or businesses anticipate will happen, especially in
terms of markets and prices. Expectations are one of the five demand determinants
and one of the five supply determinants that are assumed constant when the demand
and supply curves are constructed. Changes in expectations then cause shifts of the
demand and supply curves when they change. Expectations are also important to the
study of inflation and the aggregate market.
8. Supply Shock: A disruption of market equilibrium (that is, a market adjustment)
caused by a change in a supply determinant and a shift of the supply curve. A supply
shock can take one of two forms--an supply increase or a supply decrease. An increase
in supply is illustrated by a rightward shift of the supply curve and results in an
increase in equilibrium quantity and a decrease in equilibrium price. A decrease in
supply is illustrated by a leftward shift of the supply curve and results in a decrease in
equilibrium quantity and an increase in equilibrium price.
9. Monetarism: A school of economic thought pioneered by Milton Friedman based
on the central role of money in the macroeconomy and as a economic policy tool.
10. Monetize the Debt: Financing the national debt by printing new money, which
causes inflation due to a larger money supply.
11. Misery Index: The sum of the unemployment rate and the inflation rate. For
example, a 5 percent unemployment rate and a 3 percent inflation rate gives us a
misery index of 8. This index was developed during the 1970s when inflation and
unemployment were both moving in the upward direction.
Unit Student 1. Explain fiscal policy measures in response to (a) recessions; (b) inflationary periods;
Learning
(c) stagflation Use AS/AD analysis Explain monetary policy measure in response to (a)
Outcomes:
recessions; (b) inflationary periods; (c) stagflation
2. Use AS/AD analysis Show and explain the Keynesian transmission (interest rate
changes to investment changes to changes in AD)
3. Show how monetary policy can offset or complement fiscal policy goals.
4. Using a SR Phillips Curve Analysis, describe the short run trade off of inflation and
unemployment Distinguish between the short run and the long run Phillips curve.
5. Describe the shifting tradeoff between inflation and unemployment
6. Explain the role of expectations and how expected inflation influences the short run
trade off.
7. Compare and contrast the trade offs using the Phillips curve analysis with that of
using the AS/AD model.
8. Discuss how budget deficits affect the aggregate economy in the short run and long
run.
Unit
Instructional
Instructional Procedures, Activities are to be found in each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO 2.5 A1-A4 2.5 B1-B3
Unit
Materials:
Text:
Advanced Placement Instructional Package (APIP)
Films:
Economics USA: Episodes 6 "Fiscal Policy," Episode 12 "Federal Deficits" and Episode
13 "Monetary Policy."
PBS Frontline "Ten Trillion and Counting"
Unit
Chapters 14 and 15 in Macroeconomics: Principles and Policy
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.5.A.1
Demand-side Effects
(Advanced)
APSS-ECO.2.5.A.2
Supply-Side Effects
(Advanced)
APSS-ECO.2.5.A.3
Policy Mix
(Advanced)
APSS-ECO.2.5.A.4
Government Deficits and Debt
(Advanced)
APSS-ECO.2.5.B.1
Types of Inflation
(Advanced)
APSS-ECO.2.5.B.2
(Advanced)
APSS-ECO.2.5.B.3
(Advanced)
The Phillips Curve: Short Run Versus Long Run
Role of Expectations
Unit: Unit 6 International Trade and Finance
Timeline: 3 Weeks
Unit
Description:
An open economy interacts with the rest of the world both through the goods market
and the financial markets, and it is important to understand how a country’s
transactions with the rest of the world are recorded in the balance of payments
accounts . Students should understand the meaning of trade balance, the distinction
between the current account balance and the financial account (formerly known as
capital account) balance, and the implications for the foreign exchange market .
The course should also focus on the foreign exchange market and examine how
the equilibrium exchange rate is determined . Students should understand how
market forces and public policy affect currency demand and currency supply in the
foreign exchange markets and lead to currency appreciation or depreciation . How
financial capital flows affect exchange rates, and how appreciation or depreciation of a
currency affects a country’s exports and imports should be an integral part of the
presentation . Having learned the mechanics of the foreign exchange markets,
students should then understand how changes in net exports and financial capital
flows affect financial and goods markets .
It is important to examine what the effects of trade restrictions are, how the
international payments system hinders or facilitates trade, how domestic policy
actions affect international finance and trade, and how international exchange rates
affect domestic policy goals.
Unit Big
Ideas:
1. U.S. trade policy stresses open markets.
2. There are winners and losers in the competition for global trade.
Unit Essential 1. Why do nations engage in international trade?
Questions:
2. Why do nations sometimes impose restrictions on international trade?
3. How do exchange rates affect international trade?
4. What is the effect of international markets on the US economy in terms of price
stability, employment, and economic growth?
5. What is a trade deficit?
Unit Key
Terminology
& Definitions
:
1. Protectionism: The economic policy of restraining trade between states through
methods such as tariffs on imported goods, restrictive quotas, and a variety of other
government regulations designed to allow (according to proponents) "fair competition"
between imports and goods and service produced domestically.
2. Specialization: The condition in which resources are primarily devoted to specific
tasks. This is one of THE most important and most fundamental notions in the study of
economics. Civilized human beings have long recognized that limited resources can be
more effectively used in the production the goods and services that satisfy unlimited
wants and needs if those resources specialize.
3. Absolute Advantage: The general ability to produced more goods using fewer
resources. This idea of absolute advantage is important for trading that occurs
between both people and nations. A nation can get an absolute advantage from an
advanced level of technology or higher quality resources. For a person, an absolute
advantage can result from natural abilities or the acquisition of human capital
(education, training, or experience). (Review)
4. Comparative Advantage: The ability to produced one good at a relatively lower
opportunity cost than other goods. (Review)
5. Tariffs: Taxes that are usually on imports, but occasionally (very rarely) on exports.
This is one form of trade barrier that's intended to restrict imports into a country.
Unlike non-tariff barriers and quotas which increase prices and thus revenue received
by domestic producers, a tariff generates revenue for the government.
6. Quota: A limit on the quantity of some sort of activity. Two of the more noted
quotas are for employment and imports. They are one form of trade barriers that's
usually intended to reduce the competition faced by a domestic producer.
7. Dumping: Selling the same good to a foreign country at a lower price, often below
production cost, than that charged to the domestic buyers. Dumping usually occurs
because -- (1) producers in one country are trying to stay competitive with producers
in another country, (2) producers in one country are trying to eliminate the producers
in another country and gain a larger share of the world market, (3) producers are
trying to get rid of excess stuff that they can't sell in their own country, (4) producers
can make more profit by dividing sales into domestic and foreign markets, then
charging each market whatever price the buyers are willing to pay.
8. Subsidy: A payment from government to individuals or businesses without any
expectations of production.
9. The Bretton Woods System: A system of monetary management established the
rules for commercial and financial relations among the world's major industrial
states in the mid-20th century. The Bretton Woods system was the first example of a
fully negotiated monetary order intended to govern monetary relations among
independent nation-states.
10. International Monetary Fund: An agency of the United Nations established in
1945 to monitor and stabilize foreign exchange markets. Close to 150 of the world's
nations (which is just about all of them) belong to the IMF. The IMF was set up to
keep countries from manipulating their exchange rates in such a way as to gain a
competitive trading advantage over others. Their strategies of control have changed
over the decades, but they currently use a managed float where exchange rates are
allowed to fluctuate with changing market conditions, but only within certain ranges.
The IMF also plays an active role in providing the "international" currency needed to
participate in foreign trade through its system of Special Drawing Rights.
11. Exchange Rate Mechanism: The system used to link the euro to the currencies
of European Union member nations that do not immediately participate in the use of
the euro. Linkages with these non-participating European Union member nations is
voluntary, but designed to ease their transition into full-blown use of the euro.
12. Gold Standard: Use of gold as the standard for valuing a nation's currency.
Unit Student 1. Explain why nations trade (distributive practice from beginning of course, emphasis
Learning
on comparative advantage and terms of trade.)
Outcomes:
2. Explain benefits of trade.
3. Explain trade barriers (tariffs and quotas) and how they reduce trade Give
arguments for/against barriers.
4. Explain the balance of trade and how the balance of trade determines the
international borrowing and lending.
5. Explain exchange rates and how they are determined and why they fluctuate Explain
and link foreign trade to the AS/AD model.
6. Explain and link how monetary/fiscal policy affects international trade and the
balance of payment
Unit
Instructional
Unit Instructional Procedures and Activities are to be found within each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO. 2.7 A1-A3, 2.7 B1-B3, 2.7 C, 2.7 D
Unit
Materials:
Text:
Advanced Placement Instructional Package (APIP)
Films:
Economics USA: Episode 27 "International Trade" and Episode 28 "Exchange Rates."
Unit
Chapters 17, 18 and 19 in Macroeconomics: Principles and Policy
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.7.A.1
Balance of Trade
(Advanced)
APSS-ECO.2.7.A.2
Current Account
(Advanced)
APSS-ECO.2.7.A.3
Capital Account
(Advanced)
APSS-ECO.2.7.B.1
Demand for and Supply of Foreign Exchange
(Advanced)
APSS-ECO.2.7.B.2
Exchange Rate Determination
(Advanced)
APSS-ECO.2.7.B.3
Currency Appreciation and Depreciation
(Advanced)
APSS-ECO.2.7.C
Net Exports and Capital Flows
(Advanced)
APSS-ECO.2.7.D
Links to Financial and Goods Markets
(Advanced)
Unit: Unit 7 The Great Recession
Timeline: 2 Weeks
Unit
Description:
Every student has been affected by the Great Recession and they need to understand
how this happened and what the future for them holds. Though its roots are quite
complex, the proximate cause of the recession was a series of sharp declines in
aggregate demand—first in housing, a component of I, starting in 2006, and then in
consumer spending, C, starting with a vengeance in September 2008. By mid-February
2009, virtually every component of aggregate demand, C + I + G + (X-IM), was in
decline. Why did this happen? While the lines of causation are complicated, it all began
with the bursting of the “housing bubble” in 2006 or 2007. House prices in the U.S.
roughly doubled from 2000 until 2006-2007, and then began a sharp decline that is
unprecedented since the Great Depression. The fall in houses prices decimated the
home-building industry. Since spending on houses is part of Investment the multiplier
process began pulling real GDP down. At first, this downward pull was offset by rising
net exports, X - IM, another component of aggregate demand, so total demand did not
fall much. But everything fell apart after September 2008, when consumer spending
dropped suddenly, business investment followed suit, job losses mounted, and the
recession spread worldwide, thus damaging U.S. exports.
Unit Big
Ideas:
1. "Greed is good"
2. We're too big to fail!
Unit Essential 1. What were the underlying factors that caused the Great Recession?
Questions:
2. What are subprime mortgages and what role did they play in the financial
meltdown?
3. What was the government's response to the crisis?
4. What is TARP?
5. What is meant by "too big to fail?"
Unit Key
Terminology
& Definitions
:
1. Asset-backed security:A security whose value and income payments are
derived from and backed by a specified pool of underlying assets.Pooling the
assets into financial instruments allows shares to be sold to general
investors and may be intended to reduce risk.The pools of underlying assets
can include common payments from credit cards,auto loans,and mortgage
loans.
2. Bank run (bank panic):A series of unexpected cash withdrawals caused by
a sudden decline in confidence or fear that the bank will fail,that is,many
depositors withdraw cash almost simultaneously.Because the cash reserve a
bank keeps on hand is only a small fraction of its deposits,a large number of
withdrawals in a short period of time can deplete available cash and force
the bank to close and possibly go out of business.
3. Bond:A loan to a government or corporation in return for a promised
repayment at a specified interest rate.
4. Capital:The wealth—cash or other financial assets—used to establish or
maintain a business.Within companies,it is often characterized as working
capital or fixed capital.
5. Central bank:The principal monetary authority of a nation,which performs
several key functions,including issuing currency and influencing the supply
of credit in the economy.The Federal Reserve is the central bank of the
United States.
6. Commercial bank:A bank that offers a broad range of deposit
accounts,including checking and savings deposits,and extends loans to
individuals and businesses.
7. Common stock:An ownership share of a corporation.A common stock
offers no guarantee that it will hold its value or pay dividends.
8. Credit:What individuals and institutions borrow.When you borrow
money,you promise to pay in the future.A“line of credit" is permission from
a bank to borrow money up to an established limit.
9. Credit crunch:A situation created when banks and other lenders suddenly
and significantly reduce their lending to each other,to individuals,and to
businesses,because they are uncertain about how much money they will
have to lend and whether the borrowers will be able to pay loans back.
10. Credit default swap:A type of insurance against a security falling in
value.For example,an owner of a mortgage-backed security pays a fee to an
institution or investor in return for the promise of much larger payment if
the mortgage-backed security falls in value.The risk of default has
been“swapped”to the seller of the credit default swap in return for fees.
11. Debt:Money owed;also known as liability.Default:Failure to meet the
terms of a credit or loan agreement.
12. Equity:Ownership interest in an asset after liabilities are deducted.For
example,the value of your house after deducting the total amount of your
mortgage.
13. Fannie Mae and Freddie Mac:Government-created financial institutions
that buy mortgages from banks and then sell those mortgages as
investment products.They were created to help make more money available
for banks to make more home loans.Because of the housing crisis,both
independent companies were on the verge of collapse and were taken over
by the federal government in September 2008.Fannie Mae was created in
1938 and Freddie Mac in 1970.
14. Quantitative easing (QE) is an unconventional monetary policy used
by central banks to stimulate the national economy when standard
monetary policy has become ineffective. A central bank implements
quantitative easing by creating purchasing power to buy financial
assets from commercial banks and other private institutions, thus increasing
the monetary base. This is distinguished from the more usual policy of
buying or selling government bonds in order to keep market interest rates at
a specified target value.
15. Subprime Lending (also referred to as near-prime, non-prime,
and second-chance lending) means making loans to people who may have difficulty
maintaining the repayment schedule. These loans are characterized by higher interest
rates, poor quality collateral, and less favorable terms in order to compensate for
higher credit risk.
16. The Troubled Asset Relief Program (TARP) is a program of the United States
government to purchase assets and equity from financial institutions to strengthen its
financial sector that was signed into law by U.S. President George W. Bush on October
3, 2008. It was a component of the government's measures in 2008 to address
the subprime mortgage crisis. The TARP program originally authorized expenditures of
$700 billion. The Dodd–Frank Wall Street Reform and Consumer Protection
Act reduced the amount authorized to $475 billion. By October 11, 2012,
the Congressional Budget Office (CBO) stated that total disbursements would be $431
billion and estimated the total cost, including grants for mortgage programs that have
not yet been made, would be $24 billion.
17. Leverage: The use of credit or loans to enhance speculation in the financial
markets. Suppose, for example, that you take the $1,000 in your bank account to your
stock broker and purchase $1,000 worth of stocks, bonds, or whatever.
18. Bubble (sometimes referred to as a speculative bubble, a market bubble, a price
bubble, a financial bubble, a speculative mania or a balloon) is "trade in high volumes
at prices that are considerably at variance with intrinsic values"
19. Risk Premium: This has two very closely related uses. First, it's what risk averse
people are willing to pay to avoid a risky situation. For example, if you would be
equally happy with a guaranteed $900 or a 50-50 chance of getting either $500 or
$1,500, then you're risk premium is $100. Second, it's the extra percentage points
added to an interest rate to compensate for the risk of a loan. As a general rule, each
1 percent chance of default on a loan adds a risk premium of about 1 percent to the
interest rate.
20. Securitization: The financial practice of pooling various types of contractual debt
such as residential mortgages, commercial mortgages, auto loans or credit card debt
obligations and selling said consolidated debt as bonds, pass-through securities,
or collateralized mortgage obligation (CMOs), to various investors. The principal and
interest on the debt, underlying the security, is paid back to the various investors
regularly. Securities backed by mortgage receivables are called mortgage-backed
securities (MBS), while those backed by other types of receivables are asset-backed
securities (ABS).
21. Federal Home Loan Bank: This was originally the federal government entity
responsible for chartering and regulating savings and loan associations. However, it
has evolved into a group of 12 privately owned, government regulated banks that
promote community development and home ownership by providing funds to lending
agencies (that is, banks) that are used for home mortgage loans.
Unit Student 1. Explain why a mortgage backed security becomes riskier when the values of the
Learning
underlying houses decline.
Outcomes:
2. Explain how a collapse in house prices might lead to a recession.
3. Explain how a collapse of the economy's credit-granting mechanisms might lead to a
recession.
4. Explain the basic idea behind the TARP legislation.
5. Explain how the stagnation of wages lead to the subprime crisis.
Unit
Instructional
Instructional Procedures, Activities are to be found within each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO. 2.2 through 2.7
Unit
Materials:
The Warning: PBS Frontline
Maxed Out: Magnolia Films
The Ascent of Money: PBS
Unit
Chapter 20 in Macroeconomics: Principles and Policy
Assignments:
Unit Notes:
This unit is an excellent way to tie together all the essential elements in modern macro
theory and practice. In addition, this unit will bring the students to a deeper
understanding of how the financial crisis changed Americans' lives.
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.1.E
Macroeconomic Issues: Business Cycle, Unemployment, Inflation,
(Advanced)
Growth
APSS-ECO.2.2.B.1
Price Indices
(Advanced)
APSS-ECO.2.2.B.3
Costs of Inflation
(Advanced)
APSS-ECO.2.2.C.1
Definition and Measurement
(Advanced)
APSS-ECO.2.2.C.2
Types of Unemployment
(Advanced)
APSS-ECO.2.2.C.3
Natural Rate of Unemployment
(Advanced)
APSS-ECO.2.3.C.4
Economic Fluctuations
(Advanced)
APSS-ECO.2.4.A.1
Definition of Financial Assets: Money, Stocks, Bonds
(Advanced)
APSS-ECO.2.4.A.4
Banks and Creation of Money
(Advanced)
APSS-ECO.2.4.A.7
Loanable Funds Market
(Advanced)
APSS-ECO.2.5.A.1
Demand-side Effects
(Advanced)
APSS-ECO.2.5.A.2
Supply-Side Effects
(Advanced)
APSS-ECO.2.5.B.3
Role of Expectations
(Advanced)
(* standards consolidated from Topic level)
Unit: Unit 8 Economic Growth and Productivity
Timeline: 2 Weeks
Unit
Description:
This unit introduces students to the concept and meaning of long-run economic
growth and examine how economic growth occurs . Students should understand the
role of productivity in raising real output and the standard of living, and the role of
investment in human capital formation and physical capital accumulation, research
and development, and technical progress in promoting economic growth . Having
learned the determinants of growth, students should examine how public policies
influence the long-run economic growth of an economy.
Unit Big
Ideas:
1. The only way to provide for a high standard of living is to have a more productive
labor force.
2. Research and technical development, while expensive the short run, yield a higher
standard of living in the long run.
Unit Essential 1. What is economic growth?
Questions:
2. What factors can result in economic growth?
3. What government policies have been used (and can be used) to stimulate economic
growth?
Unit Key
Terminology
& Definitions
:
1. Capital: One of the four basic categories of resources, or factors of production. It
includes the manufactured (or previously produced) resources used to manufacture or
produce other things. Common examples of capital are the factories, buildings, trucks,
tools, machinery, and equipment used by businesses in their productive pursuits.
Capital's primary role in the economy is to improve the productivity of labor as it
transforms the natural resources of land into wants-and-needs-satisfying goods.
2. Convergence (also sometimes known as the catch-up effect) is the hypothesis that
poorer economies' per capita incomes will tend to grow at faster rates than richer
economies. As a result, all economies should eventually converge in terms of per
capita income. Developing countries have the potential to grow at a faster rate
than developed countries because diminishing returns (in particular, to capital) are not
as strong as in capital-rich countries. Furthermore, poorer countries can replicate the
production methods, technologies, and institutions of developed countries.
3. Baumol's Cost Disease (also known as the Baumol Effect) is a phenomenon
described by William J. Baumol and William G. Bowen in the 1960s. It involves a rise of
salaries in jobs that have experienced no increase of labor productivity in response to
rising salaries in other jobs which did experience such labor productivity growth. This
seemingly goes against the theory in classical economics that wages are closely tied
to labor productivity changes.
4. Innovation: The introduction and dissemination of a new idea, product, or
technological process throughout society and the economy. The innovation process
should be contrasted with the act of invention, which is the creation of something new,
but not the dissemination. Innovations are often thought of as applying to physical
products and technology. However, it applies to all aspects of society and the
economy--physical, tangible, ideological, cultural, and social. Innovation often leads to
the widespread use of new products (such as computers and DVD players), but it also
creates new cultural, social, and economic institutions (such as government agencies,
forms of business organizations, and social trends). Innovations are considered to be a
primary source of economic growth.
5. Invention: The creation of a new idea, product, or technological process. The act
of invention should be contrasted with the process of innovation, with is the
dissemination new things throughout society. The distinction is important because
inventions do not benefit society until they are distributed throughout the economy as
innovations.
6. Investment: The sacrifice of current benefits or rewards to pursue an activity with
expectations of greater future benefits or rewards. Investment is typically used to
mean the purchase of capital by business in anticipation of the profit. By increasing the
quantity or quality of resources, investment is a source of economic growth.
7. Multinational Company: A business that operates in two or more countries. With
increased foreign trade, many businesses in the United States, as well as other
nations, have found it worthwhile to open offices, branch plants, distribution centers,
etc., around the globe. Almost all of the "big boys," like General Motors, Sony, IBM,
British Petroleum, Mitsubishi, and Exxon, are multinational companies. As multinational
companies grow bigger and extend their operations world-wide, some people feel that
they lose their sense of country loyalty or national identity.
8. Property Rights: The legal ownership of resources, which entitles the owner to
receive the benefits or pay the cost of the resources' productive activities. The notion
of property rights came originally from the ownership of land (and the natural
resources of the land), but it's equally important for labor and capital resources. In
other words, your labor ownership gives you the right to be paid a wage for your
work.
9. R&D or Research and Development: Refers to a specific group of activities
within a business. The activities that are classified as R&D differ from company to
company, but there are two primary models. In one model, the primary function of an
R&D group is to develop new products; in the other model, the primary function of an
R&D group is to discover and create new knowledge about scientific and technological
topics for the purpose of uncovering and enabling development of valuable new
products, processes, and services. Under both models, R&D differs from the vast
majority of a company's activities which are intended to yield nearly immediate profit
or immediate improvements in operations and involve little uncertainty as to the return
on investment (ROI). The first model of R&D is generally staffed by engineers while
the second model may be staffed with industrial scientists. R&D activities are carried
out by corporate (businesses) or governmental entities.
Unit Student 1. Explain the concept of economic growth.
Learning
2. Define and explain the relationship among capital, investment, saving and economic
Outcomes:
growth.
3. Understand how investment and savings decision are made to determine real
interest rates.
4. Show how government influences the real interest rate, investment and savings.
5. Explain how the labor market contributes to economic potential and growth.
6. Identify sources of economic growth and theories of economic growth.
7. Use AS/AD analysis to describe effects of economic growth.
8. Describe policies that might promote economic growth
Unit
Instructional Instructional Procedures, Activities are to be found within each "core" lesson.
Procedures,
Activities &
Labs:
Unit Student Daily reading assignments
Performance Formative Assessments
Tasks:
In class small group assignments
Written homework (at least twice a week)
Summative Assessment
Exam
Unit
Standards:
APSS. ECO. 2.6 A, 2.6 B, 2.6 C, 2.6 D
Unit
Materials:
Text:
Advanced Placement Instructional Package (APIP)
Films:
Economics USA: Episode 3 "U.S. Economic Growth," Episode 24 "Reducing Poverty,"
and Episode 25 "Economic Growth."
Unit
Chapter 7 in Macroeconomics: Principles and Policy
Assignments:
STANDARDS
NATIONAL: AP - Advanced Placement Standards (2006-2009)
APSS-ECO.2.6.A
Investment in Human Capital
(Advanced)
APSS-ECO.2.6.B
Investment in Physical Capital
(Advanced)
APSS-ECO.2.6.C
Research and development, and Technological Progress
(Advanced)
APSS-ECO.2.6.D
Growth Policy
(Advanced)