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Advance Placement Macroeconomics
Grade 12
1 Semester, ½ Credit, National AP Exam
Spring 2012
Instructor: Mr. Polliard
[email protected]
Course Description:
AP Macroeconomics is a one-semester course that meets every other class day for
ninety minutes per session with a total of about thirty-five sessions prior to the National
AP Exam. It is designed to replicate the introductory college level macroeconomics
course. It introduces senior level students to the field of macroeconomics and teaches
basic economic concepts and analytical skills. This course takes far more time and effort
from each student than a typical high school course. The text and handouts must be read
before class sessions and problems from the text and workbook must be completed in a
timely fashion. Homework assignments are an essential part of learning economics and
being prepared to score well on the AP exam.
Prerequisite(s):
Recommended enrollment in Honors or AP English and advanced math classes.
Course Text(s):
Principles of Economics, 3rd Edition, N. Gregory Mankiw, Thompson / South-West
Publishing 2005, ISBN: 0-324-16862-4
Advanced Placement Economics, Macroeconomics: Student Activities, 3rd Edition,
John S. Morton, Rae Jean B.Goodman, National Council on Economic Education,
New York, N.Y. 2003, ISBN: 1-56183-567-6
Materials/Resources Required of the Student:
Pen/pencil, notebook (including the collection of handouts), textbook, workbook,
syllabus/calendar and all completed assignments, other?
Description of the Students Enrolled in the Course:
Students are average to above average in reading, writing and math skills though most
have not had any formal economics training before this course. They are eager to learn
and enthusiastic in class. Many of the students are involved in extra-curricular activities
such as band, sports, NJROTC, student council, and service clubs. Most have part-time
jobs.
AP Macroeconomics (Polliard)
Course Syllabus:
First/Third Nine Weeks
ECON-1
Unit 1: An Introduction to Economics
(3 Sessions)
(Mankiw, Chapters 1-3)
(Morton/Goodman)
I.
Principles of Economics (Mankiw, Ch. 1)
A. Economics is about making choices regarding the allocation of scarce
resources.
B. The meaning of opportunity cost.
C. Individuals face tradeoffs.
a. “TINSTAAFL” (There Is No Such Thing As a Free Lunch)
D. Thinking at the margin
E. People respond to incentives
F. Trade can benefit all parties
G. Markets are a good but imperfect way to allocate resources.
a. Market economy
b. Adam Smith and the Invisible Hand
H. Comparative Economic Systems (Teacher Handout and Discussion)
I. Government intervention
a. Market failure
b. Externalities
ECON-6
c. Market power
J. A country’s standard of living depends on its ability to produce goods and
services
a. Productivity
K. Inflation
L. Short-run trade off between inflation and Unemployment
a. Intro to Phillips Curve (See Also Mankiw, p. 783, Figure 1)
b. Intro to The Business Cycle (Morton/Goodman)
II.
III.
Thinking Like an Economist (Mankiw, Ch. 2)
A. The importance of Scientific Method
a. Positive vs. Normative perspectives
B. The use of assumptions and models
a. The Circular Flow Model / Diagram (Morton/Goodman)
b. The Production Possibilities Frontier Model /Diagram
(Morton/Goodman)
1. efficiency
2. inefficiency
3. growth
4. Law of Increasing Costs
C. Contrast Microeconomics and Macroeconomics
Interdependence and the Gains from Trade (Mankiw, Ch. 3)
A. Everyone can benefit when people trade
B. Absolute Advantage vs. Comparative Advantage. What are they and how
do we calculate them? Input vs. Output models. (Teacher-made
handout/worksheet) (Morton/Goodman)
C. Comparative Advantage explains the gains from trade
Unit 2: Supply and Demand I: How Markets Work (5 Sessions) ECON-2
(Mankiw, Chapters 4-6)
(Morton/Goodman)
I.
The Market Forces of Supply and Demand (Mankiw, Ch. 4)
A. Markets and competition
a. Define market
b. Define competitive market
c. Types of competition: Perfect and otherwise
1. “Price takers” vs. “Price makers”
B. Demand (Teacher-made handout)
a. Define demand
b. The law of demand
c. The demand schedule (Students will make a schedule)
d. The demand curve (Students will convert the schedule of data into a
Demand Curve)
e. Quantity demanded based on prices vs. a Shift in demand based on
non-price factors.
C. Supply (Teacher-made handout and Whole-class activity; Widgets &
Airplanes)
a. Define Supply
b. The Law of Supply
c. The supply schedule (Students will make a schedule)
a. The supply curve (Students will convert the schedule of data
into a Supply Curve)
d. Quantity supplied based on prices vs. a Shift in Supply based on
non-price factors.
D. Demand and supply together. (Teacher-made handout)
a. Equilibrium
b. Equilibrium price or market-clearing price
c. Equilibrium quantity. What is it and where is it on a S&D Graph?
d. Shortage (excess Demand)
e. Surplus (Excess Supply)
II.
A. Elasticity and its Application (Mankiw, Ch. 5, Morton/Goodman)
Define Elasticity
B. The Price Elasticity of Demand and its Determinants
C. Computing the Price Elasticity of Demand – ARC or Midpoint formula
D. Graphing elasticities of Demand
E. Elasticities of Demand and Total Revenue
F. Income Elasticities of Demand
G. The Price Elasticity of Supply and Its Determinants
a. Computing the Price Elasticity of Supply – ARC or Midpoint
formula
b. Graphing elasticities of Supply
Supply, Demand, and Government Policies (Mankiw, Ch. 6)
A. The role of government in a market economy
a. Price Controls (Teacher-made handout)
1. Price Floors
2. Price Ceilings
c.Tax incidence (Who pays the burden of a tax?)
d.Taxes discourage market activity and cause deadweight loss
e.Elasticities and Tax Incidence
Unit 3: Supply and Demand II: Markets and Welfare (6 Sessions)
ECON-2
(Mankiw, Chapters 7-9)
(Morton/Goodman Workbook)
I. Consumers, Producers, and Efficiency of Markets (Mankiw, Ch. 7)
A. Define Welfare Economics
a. Public Economic Well-being not Public Assistance.
b. Consumer Surplus
c. Producer Surplus
d. Total Surplus = Value to Buyers – Cost to Sellers.
e. Graphing skills
B. Market Efficiency and the Question of Equity.
II. Application: The Costs of Taxation. (Mankiw, Ch. 8)
A. The Deadweight Loss of Taxation
a. Graphing taxes and Deadweight losses
B. Deadweight loss and Tax Revenue
a. The Laffer Curve and Supply-Side Economics (See Figure 7
P.171, Mankiw)
III. Application: International Trade (Mankiw, Ch 9)
A. Determinants of Trade
B. Equilibrium Without Trade
ECON-8
C. World Price and Comparative Advantage.
D. Winners and Losers from Trade
a. Gains and Losses of an Exporting Country
b. Gains and Losses of an Importing Country
c. The Effects of a Tariff
d. The Effects of an Import Quota
e. Lessons for Trade Policy
E. The Arguments for Restricting Trade
a. The Jobs Argument
b. The National Security Argument
c. The Infant Industry Argument
d. The Unfair-Competition Argument
e. The Protection-as-a-BargainingChip Argument
Unit 4: The Data of Macroeconomics (3 Sessions)
(Mankiw Chapters 23 and 24)
(Morton/Goodman Workbook)
I. Measuring a Nations Income (Mankiw Ch. 23)
A. Gross Domestic Product (GDP) and economic well being.
(Morton/Goodman)
B. GDP measures the total Income of everyone in the economy
C. Income approach [W + I = R + P] where
a. W = Compensation for Employees
b. I = Net Interest
c. R = Rental Income of Persons
ECON-7
D.
E.
F.
G.
H.
d. P = Profits (Non-income adjustments)
GDP measures total expenditure on an economy’s output of goods and
services.
a. Y = C + I + G + NX
Total Income must equal Total Expenditure
Nominal vs. Real GDP
the GDP Deflator
Problems with calculations GDP – Nonmarket transactions, distribution,
kind and quality of products.
II. The Business Cycle
(Mankiw Ch. 23)
ECON-7
A. Four phases of the business cycle (Morton/Goodman
B. Total Spending and how it affects the Business Cycle
III. Inflation-- Measuring the Cost of Living (Mankiw Ch. 24 and
Morton/Goodman)
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 indices: Product/Producer Price Index (PPI)
E. The GDP Deflator vs. The CPI
F. Consequences of Inflation: shrinking incomes, changes in wealth, the
effect on interest rates
G. Demand-Pull and Cost-Push Inflation (Morton/Goodman)
Unit 5: The Real Economy in the Long Run (4 Sessions)
ECON-3
(Mankiw Chapters 25, 26, 27 and 28)
(Morton/Goodman workbook pp. 85, 107-121, 205-234, 242, 243)
I. Production and Growth (Mankiw,Ch 25)
A. Productivity: Its Role and Determinants
a. Why Productivity is so Important
b. How Productivity is Determined
c. The Production Function (Morton/Goodman workbook pp. 111112)
1. Marginal Propensities to Consume and Save
(Mankiw Ch 34, pp. 766….)
2. Autonomous Expenditure
B. Economic Growth and Public Policy
a. The Importance of Saving and Investment
b. Diminishing Returns and Catch-Up Effect
c. Investment from Abroad
d. Education.
e. The Importance of Long-Run Growth
II. Saving, Investment, and the Financial System (Mankiw, Ch 26)
ECON-5
A. Financial Institutions in the US Economy
a. Financial Markets
b. Financial Intermediaries
B. Saving and Investment in the National Income Accounts
a. The Market for Loanable Funds (Morton/Goodman)
b. Supply and Demand for Loanable Funds
c. Saving Incentives
ECON-4
d. Investment Incentives
e. Government Budget Deficits and Surpluses
III. The Basic Tools of Finance
(Mankiw, Ch 27)
A. Present Value: Measuring the Time Value of Money
a. Compound Interest
b. Rule of 70
IV. Unemployment and Its Natural Rate. (Mankiw, Ch 28 and Morton/Goodman)
A. Identified Unemployment
B. How is Unemployment Measured?
C. Does the Unemployment Rate Measure What We Want it to?
D. How Long are the Unemployed without Work?
E. Why Are There Always Some People Unemployed?
F. Job Search
G. Why Some Frictional Unemployment Is Inevitable
H. Public Policy and Job Search
I. Unemployment Insurance
J. Minimum-Wage Laws
K. Unions and Collective Bargaining
a. The Economics of Unions
b. Are Unions “Good” or “Bad” for the Economy?
L. The Theory of Efficiency Wages
a. Worker Health
b. Worker Turnover
c. Worker Effort
d. Worker Quality
Second/Fourth Nine Weeks
Unit 6: Money and Prices in the Long Run (4 Sessions)
(Mankiw, Chapters 29 and 30)
(Morton/Goodman)
ECON-7
I. The Monetary System ( Mankiw, Ch. 29)
A. The meaning of Money
a. The Functions of Money
B. The Kinds of Money (Morton/Goodman
C. The Federal Reserve System (The Fed)
a. The Fed’s Organization
b.The Federal Open Market Committee (FOMC)
D. Banks and the Money Supply
a. The Simple Case of 100%-Reserve Banking.
b.Money Creations with Fractional-Reserve Banking
c. The Money Multiplier
d.The Fed’s Tools of Monetary Control
e. Problems Controlling the Money Supply
II.
Money Growth and Inflation (Mankiw, Ch. 30and Morton/Goodman)
A. The Classical Theory of Inflation
a. The Level of Prices and the Value of Money
b.Money Supply, Money Demand and the Monetary
Equilibrium
c. The Effects of Monetary Injection.
d.A Brief Look at the Adjustment Process
e. Classical Dichotomy and Monetary Neutrality
f. Velocity and the Quantity Equation
g.The Inflation Tax
h.The Fisher Effect
B. The Costs of Inflation
a. A Fall in Purchasing Power? The Inflation Fallacy
b.Shoeleather Costs
c. Menu Costs
d.Relative-Price Variability and the Misallocation of
Resources.
e. Inflation-Induced Tax Distortions.
f. Confusion and Inconvenience
g.Arbitrary Redistributions of Wealth
Unit 7: The Macroeconomics of Open Economies (3 Sessions)
ECON-8
(Mankiw, Chapters 31 and 32)
(Morton/Goodman)
I. Open-Economy Macroeconomics: Basic Concepts (Mankiw Ch. 31)
A. The International Flows of Goods and Capital
a. The Flow of Goods: Exports, Imports, and Net Exports
b.The Flow of Resources: Net Capital Outflow
c. The Equality of Net Exports and the Net Capital Outflow
d.Saving, Investment, and Their Relationship to the
International Flows
B. Real and Nominal Exchange Rates: The Prices for International
Transactions:
a. Nominal Exchange Rates
b.Real Exchange Rates
C. Purchasing-Power Parity: A First Theory of Exchange-Rate
Determination
a. The Basic Logic of Purchasing Parity
b.Implications of Purchasing-Power Parity
c. Limitations of Purchasing-Power Parity
d.The Big Mac Index
II. Macroeconomic Theory of the Open Economy (Mankiw, Ch. 32)
A. Supply and Demand for Loanable Funds and for Foreign-Currency
Exchange
a. The Market for Loanable Funds
b.The Market for Foreign-Currency Exchange
B. Equilibrium in the Open Economy
a. Net Capital Outflow (NCO): The Link between the Two
Markets
b.Simultaneous Equilibrium in Two Market
C. How Policies and Events Affect an Open Economy
a. Government Budget Deficits
b.Trade Policy
c. Political Instability and Capital Flight
Unit 8: Short-Run Economic Fluctuations (4 Sessions) ECON-2, 4, 5, & 7
(Mankiw, Chapters 33, 34 and 35)
(Morton/Goodman)
I. Aggregate Demand and Aggregate Supply
( Mankiw, Ch. 33)
A. Economic Fluctuations
B. Explaining Short-Run Economic Fluctuations
a. How the Short Run Differs from the Long Run
b.The Basic Model of Economic Fluctuations.
C. The Aggregate-Demand Curve (students will interpret and create
AS/AD graphs)
D. Why the Aggregate Demand Slopes Downward
E. Why the Aggregate-Demand Curve Might Shift
F. The Aggregate-Supply Curve (students will interpret and create
AS/AD graphs)
a. Why the Aggregate-Supply Curve is Vertical in the Long
Run
b.Why the Long-Run Aggregate-Supply Curve might shift.
c. A New Way to Depict Long-Run Growth and Inflation
d.Why the Aggregate-Supply Curve Slopes Upward in the
Short Run
e. Why the Short-Run Aggregate Supply Curve Might Shift
G. Two Causes of Economic Fluctuations.
a. The Effects of Shift in Aggregate Demand
b.The Effects of a Shift in Aggregate Supply
II. The Influence of Monetary and Fiscal Policy on Aggregate Demand
(Mankiw, Ch. 34)
A. How Monetary Policy Influences Aggregate Demand
a. The Theory of Liquidity Preference
b.The Downward Slope of the Aggregate-Demand Curve
c. Changes in Money Supply
d.The Role of Interest Rate Targets in Fed Policy
B. How Fiscal Policy Influences Aggregate Demand
a. Changes in Government Purchases
b.The Multiplier Effect (Morton/Goodman workbook,
pp.113-117)
c. A Formula for the Spending Multiplier
d.Other Applications of the Multiplier Effect
e. The Crowding-Out Effect (Morton/Goodman)
f. Changes in Taxes
C. Using Policy to Stabilize the Economy
a. The Case For Active Stabilization Policy
b.The Case Against Active Stabilization Policy
c. Automatic Stabilizers
III. The Short-Run Tradeoff Between Inflation and Unemployment (Mankiw,
Ch 35)
A. The Phillips Curve (Morton/Goodman)
a. Origins of the Phillips Curve
b.Aggregate Demand, Aggregate Supply, and the Phillips
Curve
B. Shifts in the Phillips Curve: The Role of Expectations.
a. The Long-Run Phillips Curve
b.Expectations and the Short-Run Phillips Curve
c. The Natural Experiment for the Natural Rate Hypothesis
C. Shifts in the Phillips Curve: The Role of Supply Shocks
D. The Cost of Reducing Inflation
a. The Sacrifice Ratio
b.Rational Expectations and the Possibility of Costless
Disinflation
c. The Volker Disinflation
d.The Greenspan Era
e. Bernanke as Chairman of The Fed (Teacher-lead
Discussion)
IV. NATIONAL EXAM REVIEW and LOCAL FINAL EXAM– (3-5
Sessions)
V. National AP Exam
VI. Consumer Economics
ECON-4
a. Budgets, Credit, Saving and Investing,
b.The ABC’s of Personal Finance
END OF COURSE