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PACING GUIDE FOR AP MACROECONOMICS 2011-2012 (UNIT 1: INTRO AND MICRO (Chapters 1, 2, 3) (4 weeks) Chapter 1 Topics & Concepts Covered The use of abstraction, models & graphs in economics Externalities, positive and negative Chapter 2 Topics & Concepts Covered Scarcity and choice Resources Opportunity Costs Production Possibility Curves Expansion and contraction of Points inside/outside Law of Increasing Marginal Costs Three economic questions Adam Smith: the Invisible Hand; Division of Labor; Economic Freedom and Comparative Advantage Chapter 3 Topics & Concepts Covered Demand The Law of; Reasons for Schedules and Curves Assumptions and Shifts (non-price determinants) Inferior Goods Supply The Law of; Reasons for Schedules and Curves Assumptions and Shifts (non-price determinants) Equilibrium price and quantity Price ceilings and floors shortages and surpluses Consequences of price supports Models Used: Production Possibilities Graph Assessments: Weekly or bi-weekly quizzes. Multiple choice test on entire unit. Test on Scarcity of Water and Price Ceilings, Tariff barriers and Price Floors. Other Readings: TBA (To Be Announced). Video: “What’s Economics All About,” Economics USA. UNIT 2: INTRO TO MACRO (Chapter 4, 5, 6) (4 weeks) Chapter 4 Topics & Concepts Covered Distinction between micro and macro-economics What is an aggregate - AS/AD What is GDP? (GDP v. GNP) What is included, not included Nominal v. real Net v. Gross Domestic Product Per capita Potential What GDP is not Historical trends in growth rate of GDP What is Inflation? Demand Pull v. Cost Push Historical trends of inflation Stagflation: causes of 1973-1980 Supply side economics What it attempted, and how What is Productivity? Factors leading to as a key to long-run growth and future standard of living long-run growth v. recovery to long-run AS as a counter to stagflation (show on an AS/AD graph) Reaganomics – GWB Reagan Redux? Clintonomics Obamanomics: The Return of John Maynard Keynes Chapter 5) Topics & Concepts Covered Stabilization policy – The goals of macroeconomic policy Productivity growth – Potential GDP On a production possibility curve Unemployment Types of Measuring and mismeasuring Underemployment & Discouraged Workers (underutilization rate) Unemployment Comp. (automatic stabilizer) Labor Force Participation Rate Full employment and Potential GDP (NAIRU) Innovation, Trade and Unemployment Inflation, Deflation, Disinflation Types of inflation Measurements of (CPI, PPI, Deflator) Nominal and real wages, interest rates, etc. What groups are hurt by recession v. inflation Bracket-creep and indexing Chapter 6 Topics & Concepts Covered The Goose: Investment Capital, Technology, Labor Quality The Golden Egg: Productivity Growth Rates and Convergence Theory Models Used: Business Cycle Graph; Historical Trend Right Angle Graphs; CIGXM; WIRP Assessments: Weekly or bi-weekly quizzes. Multiple choice test on entire unit. Exercise on recognizing types of inflation, interest rates and inflation premiums, effects of inflation on borrowers and lenders. Other Readings: TBA UNIT 3: CIGXM & the MULTIPLIER PROCESS (Chapter 8) (4 weeks) Chapter 8 Topics & Concepts Covered Circular Flow Diagram – leaks and injections, liquidity traps Why income and GDP must be equal Components of GDP, aggregate demand = CIGXM Why income and GDP must be equal: CIGXM = WIRP MPC formula Determinants of Consumption, Investment and Net Exports Importance of equilibrium and inventory levels Net Exports, exporting recessions and expansions CIGXM and full employment Income/spending expansion & contraction of real GDP Induced v. autonomous changes in spending Role of Inventories Calculation of Spending Multiplier When to use Multiplier analysis Multiplier in reverse Multiplier with tax changes Why the multiplier process is over-simplified Paradox of Thrift Closing Inflationary and recessionary gaps using multiplier analysis Models Used: CIGXM; Circular Flow Chart; Income-Expenditure Graph Assessments: Two unit quizzes: one on constructing and analyzing 45 degree graphs, and the second on applying the spending multiplier concept using the Income/Expenditure model. Other readings: TBA UNIT 4: FISCAL POLICY (Chapters 9, 10, 14)(4 weeks) Chapter 9 Topics & Concepts Covered AS/AD graph Slope of the AS curve Short-run realistic and simplified v. long-run Profits/price gap in the short-run Recessionary gap on Natural (laissez-faire) cure for recessionary gap Fiscal policy cure for recessionary gap Inflationary gap on Natural (laissez-faire) cure for inflationary gap Fiscal cure for inflationary gap Pros and cons of natural and fiscal cures for inflation and recession Stagflationary gap on Why short-run natural cure is unlikely Limits of fiscal cure Supply-side policies revisited Shifts of the AS Change in wages w/o productivity change Technology productivity Labor, quantity, quality Cost/availability of inputs of production Limits of Fiscal Policy—Effects of inflation, taxation, negative net exports on the income creation process, revisited. Crowding out with Loanable Funds Graph Chapter 10 Topics & Concepts Covered Taxation: Tax Brackets – Always say yes to a raise Progressive, Regressive, Proportional Effects on Multiplier Safety-valve (automatic stabilizer) Evaluation of Supply-side Tax Policies Chapter 14 Topics & Concepts Covered Budget Deficits, National Debt, Trade Deficit (Current Accounts) Myths and Reality When is debt good? Cyclical, countercyclical budget policy v. structural deficit How deficits affect the economy Loanable Funds Market and graph Crowding Out v. Crowding In Deficit Reduction and Growth/Deficit Increase and Recession: Recent History Models Used: AS/AD Graph, simplified short-run AS, realistic short-run AS, long-run AS; Loanable Funds Market Assessments: Weekly or bi-weekly quizzes. Multiple Choice Unit Test, Essay test on Recession/Inflation, prescribed fiscal policy, compared to effects of laissez-faire approach, effect on long-run growth (crowding out), and net exports. Other Readings: TBA Unit 5: MONEY, BANKING AND MONETARY POLICY (Ch 11, 12) (4 weeks) Chapter 11 Topics & Concepts Covered Money v. Barter Definition of money Different types of money Three uses of money Composition of M1 M2, etc Liquidity defined History of Banks How banks create money The Money Multiplier formula Limitations on money creation Multiplier contractions T-Accounts Chapter 12 Topics & Concepts Covered Money v. Income The FED Independence of Job of Three tools of the Fed Reserve Requirement Discount Rate Open Market Ops & the Fed Rate Which is most commonly used and why Money Market v. Loanable Funds Market Graphs Effects of Fed actions on The determinants of the demand for money The Fed’s Dilemma: Interest rates v. Quantity of Money On a Money Market Graph Monetizing the Debt (from Ch 14) Cause and effect from monetary policy to changes in GDP & PL On an AS/AD graph Fiscal v. Monetary Policy Crowding out revisited The Golden Goose – Long-run growth Models Used: CIGXM; Money Market Graph; AS/AD Graph; T-Accounts Assessments: Weekly or bi-weekly quizzes. Multiple-Choice unit test, essay test on economic problem solved by fiscal and/or monetary policies, effect on output & price level on a AS/AD graph, effect on long-run growth using loanable funds graph and money market graphs, effect on net exports. Additional Reading: TBA Video: Gold and the gold standard. UNIT 6: THEORIES (Chapters 13, 15 (2 weeks) Chapter 13 Topics & Concepts Covered Monetarism Defined The equation of exchange modern v. classical Velocity Inverse relation to M Determinants of View of Supply Curve Fixed monetary rule v. discretion Keynesian v. Monetarist debate Dilemma of Fed revisited Should the Fed control r or QM Rules v. Discretion Friedman's Rule The 1980s experiment with Monetarism Chapter 15 Topics & Concepts Covered Phillips Curves Long-term and short Trade off between inflation and unemployment The 1970s Expectations Adaptive Rational Different views of Classical, Keynesian, Monetarists and Rational Expectationists re: necessity for discretionary fiscal and monetary policy effectiveness of discretionary fiscal and monetary policy slope of the AS curve slope of the Philips curves (S and LR) best way to conduct monetary policy crowding out v. crowding in and monetizing the debt short-run v. long-run interest rates Models Used: MxV=PxY; Phillips Curves, long-run and short-run; Money Market Graph Assessments: Weekly or bi-weekly quizzes. Multiple choice unit test. Essay test on economic problem, solved according to Neo-Keynesian, Monetarist and Classical Economic theories. Video: The Great Depression UNIT 7: THE GLOBAL ECONOMY (Ch 16, 17, 18 ) (4 weeks) Chapter 16 Topics & Concepts Covered Free Trade and the Wealth of Nations Absolute and comparative advantage Using production possibility curves The mutual benefits of free trade Structural Unemployment The Unequal Benefits of Free Trade Tariffs, Quotas and informal barriers Balance of Payments: Current accounts balance Capital accounts balance Chapter 17 Topics & Concepts Covered What is the Foreign Exchange Market Exchange rates Fixed v. Floating Mechanics of Foreign Exchange Graphs S/D currency curve shifts Capital Flows, effects on Loanable Funds Graph Balance of Payments, Capital Inflows and Outflows Chapter 18 Topics & Concepts Covered Effect of Exchange Rates on national economies And vice versa Doing away with exchange rates Dollar pegs: China, Hong Kong Dollarization El Salvador Panama Equador The Euro Models Used: Foreign Exchange Currency Graphs; AS/AD Graphs Assessments: Weekly or bi-weekly quizzes. Multiple choice unit test. Essay test on economic problem solved with Neo-Keynesian fiscal policy compared to Monetarist policy. Effect of each on output, employment, price level, long-run growth, exchange rates, net exports. Other Reading: TBA Final Assessments: Students will take 2 practice and one final released AP multiple choice tests. Students will answer 3 practice and one final released AP free response questions.