AP Course Audit AP Macroeconomics Unit 1 BASIC ECONOMIC CONCEPTS

TIME: 8 days

Economics Productive Efficiency Absolute Advantage Macroeconomics Allocative Efficiency Terms of Trade Microeconomics Production Possibilities Curve Economic System Ceteris Paribus Consumer Goods Market System KEY TERMS: Scarcity Command System Tradeoffs Comparative Advantage Traditional System Opportunity Costs Full Production Circular Flow Model Factors of Production Utility Marginal Cost / Benefits Self-Interest

1. Define Economics. 2. Explain the relationship between scarcity and unlimited wants and how it relates to economics. 3. Identify types of economic resources and types. 4. Differentiate between full employment and full production. 5. Explain the difference between self-interest and trade 6. Explain the concepts of allocative and productive efficiency and how they differ. 7. Calculate opportunity costs. 8. Graph production possibilities curve.. 9. Explain regions of the PPC and what might cause shifts. 10. Give examples of underallocation and overallocation of resources. LEARNING 11. Differentiate between absolute advantage and comparative advantage. 12. State the case for free trade from an economic perspective. OBJECTIVES: 13. Compute absolute advantage when given data for two commodities in two countries. 14. Compute comparative advantage when given data for two commodities in two countries. 15. Calculate the potential gain from trade and specialization for each nation and the world when given appropriate data. 16. Determine favorable terms of trade. 17. Highlight main features of free market and command . 18. Apply the marginal costs / benefits model to everyday decisions 19. Differentiate between value and utility 20. Identify the decision makers and the markets in a markets system using the circular flow diagram. 21. Label the circular flow model and explain.

Production Possibilities Curve GRAPHS Circular Flow Model

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002. Chapter 1 (The Nature and Method of Economics) Chapter 2 (The Economizing Problem) Chapter 6 (pp 98-101; Comparative and Absolute Advantage)

READINGS: 2. Buchholz, Todd. New Ideas from Dead Economists. New York: Penguin Group, 1999. Chapters 2 (Adam Smith)

3. Wheelan, Charles. Naked Economics. New York: WW Norton, 2003. Pp. 22-28

4. Williams, Walter. “Economics for the Citizen.” Capitalism Magazine (online).

1 AP Course Audit AP Macroeconomics

Unit 1 BASIC ECONOMIC CONCEPTS (CONT) 1. Macroeconomics (McConnell & Brue) Textbook Study Questions: Chapter 2 (Page 37): 5, 6, 10, 11, 12, 13 2. Worksheets: . AP Macroeconomics: Student Activities 3rd Edition (National Council on Economic Education) o Unit 1; Activity 1: Scarcity, Opportunity Cost and PPC o Unit 1; Activity 2: Opportunity Cost and Comparative Advantage . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that REINFORCEMENT accompanies McConnell & Brue Textbook): Chapter 1 (The Nature and Method of Economics) ACTIVITIES: o o Chapter 2 (The Economizing Problem) 3. Videos: . Economics Made Memorable with Paul Solman. o Opportunity Costs 4. Simulations: . Measuring Utility (Using an online catalog) . Lifeboat Activity (Opportunity Cost) 5. Other: . Discussing current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

2 AP Course Audit AP Macroeconomics

Unit 2 INDIVIDUAL MARKETS

TIME 9 days

Market Substitute Goods Change in Quantity Supplied Demand (Dollar Votes) Complementary Goods Market Equilibrium Law of Demand Change in Demand Surplus Diminishing Marginal Utility Change in Quantity Shortage KEY TERMS: Income Effect Demanded Price Floor Demand Curve Supply Law of Supply Price Ceiling Determinants of Demand Supply Curve Elasticity of Demand Normal Goods Determinants of Supply Price War Inferior Goods Change in Supply Demand Elasticity

1. Define “market”. 2. Identify why price and quantity demanded are inversely related. 3. Differentiate between demand and quantity demanded. 4. State Law of Demand. 5. List the major determinants of demand. 6. Identify why price and quantity supplied are directly related. 7. Differentiate between supply and quantity supplied. 8. State Law of Supply. 9. List the major determinants of supply. LEARNING 10. Graph supply and demand curves. OBJECTIVES: 11. Using a graph, locate equilibrium price and quantity. 12. Explain effects of changes in demand and supply on equilibrium price. 13. Using data, determine surpluses and shortages. 14. Using a graph, determine surpluses and shortages. 15. Define price floors and price ceilings and provide examples of each. 16. Explain market consequences of price floors and price ceilings. 17. Calculate elasticity of demand. 18. Determine if a product has elastic or inelastic demand by calculating elasticity. 19. Determine how a price war between businesses benefits consumers

FORMULAS: Elasticity of Demand

GRAPHS Supply & Demand

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapters 3 (Individual Markets) READINGS: 2. Williams, Walter. “Minimum Wage, Maximum Folly.” Capitalism Magazine (online).

3 AP Course Audit AP Macroeconomics

Unit 2 INDIVIDUAL MARKETS (CONT) 1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 3 (Page 56): 1, 2, 7,11 2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 1; Activity 3: Demand Curves, Movements Along Demand Curves and Shifts in Demand Curves o Unit 1; Activity 4: Reasons for Changes in Demand o Unit 1; Activity 6: Reasons for Changes in Supply o Unit 1; Activity 7: Equilibrium Price and Equilibrium Quantity

. Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that REINFORCEMENT accompanies McConnell & Brue Textbook): ACTIVITIES: o Chapter 3 (Individual Markets) 3. Videos: . Dead Meat (an online documentary about the shortages in Canada’s Health Care system . Economics Made Memorable with Paul Solman. o Supply and Demand o Elasticity 4. Simulations: . Lemonade Stand (Equilibrium Price, Surplus, Shortage) 4. Other: * Discussing current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

4 AP Course Audit AP Macroeconomics

Unit 3 US & THE MARKET SYSTEM

TIME 10 days

Division of Labor Bonds Deficit Specialization Limited Liability Surplus Normal Profit Double Taxation Fiscal Year Economic Profit Principle-Agent Problem Balanced Budget “Invisible Hand” Monopoly Personal Income Tax Durable Goods Oligopoly Corporate Income Tax KEY TERMS: Nondurable Goods Spillover Costs Sales Tax Services Spillover Benefits Excise Tax Sole Proprietorship Exclusion Principle Property Taxes Partnership Private Goods National Debt Corporation Public Goods Stocks Transfer Payments

1. List and explain characteristics of the American market system. 2. List basic economic questions every economic system must answer. 3. Difference between normal profits and economic profits. 4. Describe the guiding function of prices. 5. The role of competition and the “invisible hand”. 6. Explain difference between durable goods and nondurable goods LEARNING 7. Explain how the government alters income distribution. OBJECTIVES: 8. Define and explain spillover benefits and costs. 9. Explain the methods the government can use to reduce unemployment and . 10. Understand the enhanced circular flow model with the government sector. 11. Identify major categories of government spending. 12. Identify the difference between the national debt and a deficit.

FORMULAS: None

Circular Flow Model (w/ Government Sector Included) GRAPHS

5 AP Course Audit AP Macroeconomics

Unit 3 US ECONOMY & THE MARKET SYSTEM (CONT) 1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 4 (The Market System) Chapter 5 (The US Economy)

2. Buchholz, Todd. New Ideas from Dead Economists. New York: Penguin Group, 1999. READINGS: Chapter 4: David Ricardo and the Cry for Free Trade

3. “In the Debate Over Tax Policy, the Power of Luck Shouldn’t Be Overlooked” NY Times Hal Varian

4. Wheelan, Charles. Naked Economics. New York: WW Norton, 2003. pp. 18-21 / 43-61

1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 4 (Page 71): 2, 4,9, 10 Chapter 5 (Page 90): 6, 9, 11, 12, 14

2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 2; Activity 10: Understanding the Circular Flow of the Macroeconomy

. Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that REINFORCEMENT accompanies McConnell & Brue Textbook): ACTIVITIES: o Chapter 4 (The Market System) Chapter 5 (The US Economy) 3. Videos: . Wal-Mart: The High Costs of Low Prices . Is America #1? Stossel in the Classroom 4. Simulations: . Stock Market Simulation . Bartering Activity 5. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

6 AP Course Audit AP Macroeconomics

Unit 4 THE FOREIGN EXCHANGE MARKET

TIME 6 days

Economics Linkages (U.S. to world) Foreign Exchange Market GDP Exchange Rate Trade Currency Appreciation Imports / Exports Currency Depreciation KEY TERMS: Multinational Company Smoot-Hawley Tariff Act of 1930 Quotas GATT Tariffs WTO EU (European Union) NAFTA Trade Bloc

1. Explain the causes of the U.S. trade gap 2. Define foreign exchange market 3. Explain how an appreciating dollar affects U.S. trade LEARNING 4. Explain how a depreciating dollar affects U.S. trade 5. Identify the four main categories of economic flows that link nations OBJECTIVES: 6. Identify how currency appreciates and depreciates 7. Identify barriers to free trade 8. Explain how the Great Depression was amplified by the Smoot-Hawley Tariff Act 9. Discuss the controversy surrounding the World Trade Organization

FORMULAS: None

GRAPHS Currency Exchange Rates (using S & D curves)

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 6 (The United States and the Global Economy) READINGS: 2. Ansberry, Clare and Timothy Aeppel. “Battling Imports.” Wall Street Journal Classroom Edition February 2004 .

7 AP Course Audit AP Macroeconomics

Unit 4 THE FOREIGN EXCHANGE MARKET (CONT) 1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 6 (Page 112): 1, 6, 8, 12

2. Worksheets: . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that REINFORCEMENT accompanies McConnell & Brue Textbook): ACTIVITIES: o Chapter 6 (The United States and the Global Economy) . AP Macroeconomics: Student Activities (National Council on Economic Education): Unit ___; Activity 10: 3. Videos: * Economics U$A: The Foreign Exchange Market 3. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

8 AP Course Audit AP Macroeconomics

Unit 5 NATIONAL INCOME ACCOUNTING

TIME 7 days

National Income Accounting National Income (NI) Gross Domestic Product (GDP) Depreciation Gross National Product (GNP) Net Domestic Product (NDP) Intermediate Goods Personal Income (PI) Final Goods Disposable Income (DI) KEY TERMS: Multiple Counting Nominal GDP Personal Consumption Real GDP Gross Private Domestic Investment (Ig) Price Index Net v. Gross Consumer Price Index (CPI) Government Spending (G) GDP per capita Net Exports (Xn)

1. Identify what GDP measures. 2. Explain difference between Net and Gross. 3. List the components of GDO using the expenditure approach. 4. Computer GDP using the expenditure approach. 5. List the components of GDP under the income approach. LEARNING 6. Compute GDP using the income approach. OBJECTIVES: 7. Compute NDP, NI, PI, and DI when given relevant data. 8. Calculate a GDP price index using hypothetical data. 9. Find real GDP by adjusting nominal GDP with use of a price index. 10. Identify shortcomings of GDP. 11. List what GDP does not measure.

GDP: Expenditure Approach DI GDP: Income Approach Real GDP FORMULAS: NDP GDP per capita NI CPI PI

GRAPHS None

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 7 (Measuring Domestic Output, National Income, and the Price Level) READINGS:

9 AP Course Audit AP Macroeconomics

Unit 5 NATIONAL INCOME ACCOUNTING (CONT) 1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 7 (Page 134): 2, 8, 9, 10, 12, 13

2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 2; Activity 12: All About GDP REINFORCEMENT . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: ACTIVITIES: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 7 Measuring Domestic Output, National Income, and the Price Level)

3. Other: . Discuss current events from Wall Street Journal and The Economist . Analyze selected information from www.bls.gov (Bureau of Labor and Statistics)

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

10 AP Course Audit AP Macroeconomics

Unit 6 ECONOMICS INDICATORS

TIME 6 days

Economic Growth Natural Rate of Unemployment Rule of 70 GDP Gap Business Cycle Okun’s Law Peak Inflation Recession Demand-Pull Inflation Trough Cost-Push Inflation Expansion/Recovery Per Unit Cost of Production Labor Force Nominal Income KEY TERMS: Unemployment Rate Real Income Discouraged Workers Cost-of-Living-Adjustments (COLAs) Frictional Unemployment Real Structural Unemployment Nominal Interest Rate Cyclical Unemployment Deflation Full Employment Rate Hyperinflation Stagflation

1. Define two measures of economic growth. 2. Explain why growth is desirable. 3. Identify two sources of economic growth. 4. Explain the “Rule of 70” 5. Describe the four phases of the business cycle. 6. State why business cycles fluctuate. LEARNING 7. State causes of frictional, cyclical, and structural unemployment. OBJECTIVES: 8. Identify the natural unemployment rate. 9. Explain consequences of high unemployment rates. 10. Define inflation and list two types of inflation. 11. List groups who are hurt or helped by unanticipated inflation. 12. Possible effects of inflation on output and employment. 13. Compare US inflation rate with other countries.

Rule of 70 (Economic Growth) Real Income FORMULAS: Unemployment Rate Percentage Change in Real Income Rate of Inflation Real Interest Rate GDP Gap Business Cycles GRAPHS GDP Gap

11 AP Course Audit AP Macroeconomics

Unit 6 ECONOMICS INDICATORS (CONT) 1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and th READINGS: Policies, 15 edition. McGraw-Hill Irwin, 2002.: Chapter 8 (Introduction to Economic Growth and Instability)

1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 8 (Page 157): 10-13

2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 2; Activity 15: Who Is Helped and Who Is Hurt by Unanticipated Inflation? o Unit 2; Activity 16: Types of Unemployment o Unit 2; Activity 17: The Business Cycle REINFORCEMENT o Unit 2; Activity 18: Test Your Understanding of Macroeconomic Indicators o Unit 4; Activity 41: Real Interest Rates and Nominal Interest Rates CTIVITIES A : . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 8 (Introduction to Economic Growth and Instability)

3. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

12 AP Course Audit AP Macroeconomics

Unit 7 AGGREGATE EXPENDITURES MODEL

TIME 8 days

John Maynard Keynes Investment Schedule Aggregate Equilibrium GDP Consumption Schedule Planned Investment Savings Schedule Leakage Average Propensity to Consume (APC) Injection Average Propensity to Save (APS) Unplanned Changes in Inventory Multiplier KEY TERMS: Marginal Propensity to Consume (MPC) Net Exports Marginal Propensity to Save (MPS) Lump-Sum Tax Wealth Effect Balanced Budget Multiplier Expected Rate of Return ® Recessionary Gap Real Interest Rate Inflationary Gap Investment Demand Curve Say’s Law

1. Recognize, construct, and explain the consumption, savings and investment schedules. 2. Identify the determinants of the consumption and saving schedules. 3. Differentiate between average and marginal propensities to consume (and save). 4. Identify factors that may cause a shift in the investment-demand curve or schedule. 5. Describe the reasons for the instability in investment spending. 6. Use a graph to depict the equilibrium level of GDP. 7. Explain why above-equilibrium or below-equilibrium GDP levels will not persist. 8. Explain the basics of the classical view that the economy would generally provide full employment levels of output. LEARNING 9. Describe and define the multiplier effect. OBJECTIVES: 10. State the relationships between the multiplier and the MPS and MPC. 11. Compute the four propensities (APS, APC, MCP, and MPS) 12. Define the net export schedule. 13. Explain the effects of increases (or decreases) in exports and imports on real GDP. 14. Describe how government purchases affect equilibrium GDP. 15. Describe how personal taxes affect equilibrium GDP. 16. Explain what if meant by the balanced-budget multiplier and why it equals 1. 17. Identify the recessionary gap and explain its effects on real GDP. 18. Explain the significance of the multiplier

APC Expected Rate of Return FORMULAS: APS Multiplier MPC Change in GDP (using Multiplier) MPS Balanced Budget Multiplier AE Model GRAPHS Investment Demand Curve Investment Schedule

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 9 (Building the Aggregate Expenditures Model) READINGS: Chapter 10 (Aggregate Expenditures) 2. Buchholz, Todd. New Ideas from Dead Economists. New York: Penguin Group, 1999. Chapter 9: Keynes: Bon Vivant as Savior

13 AP Course Audit AP Macroeconomics

Unit 7 AGGREGATE EXPENDITURES MODEL (CONT) 1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 9 (Page 179): 2, 3, 5 Chapter 10 (Page 200): 2, 4, 7, 8, 9

2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 3; Activity 19: Keynesian Equilibrium o Unit 3; Activity 20: Practice with APC, APS, MPC, and MPS

REINFORCEMENT . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: ACTIVITIES: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 9 (Building the Aggregate Expenditures Model) o Chapter 10 (Aggregate Expenditures) 3. Simulations: . Keynesian Cross Online

4. Videos : Economics U$A (Unemployment) 4. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

14 AP Course Audit AP Macroeconomics

Unit 8 AGGREGATE SUPPLY AND DEMAND

TIME 10 days

Aggregate Menu Costs Aggregate Demand Sticky Wages Aggregate Supply SRAS Real-Balances Effect LRAS Interest-Rate Effect Phillips Curve Foreign Purchases Effect Stagflation KEY TERMS: Horizontal Range (AS) Supply Shocks Intermediate Range (AS) Long Run Phillips Curve Vertical Range (AS) Supply Side Economics Equilibrium Price Level Laffer Curve Equilibrium Real GDP Voodoo Economics Deregulation

1. Define aggregate demand & supply. 2. Illustrate, label, and explain the three ranges of the aggregate supply curve. 3. State the determinants of the aggregate demand curve’s location. 4. Indicate determinants of the aggregate supply curve’s location. 5. Explain how the market economy moves to equilibrium price and output level. 6. Explain how the multiplier is weakened in the intermediate or vertical ranges of aggregate supply. 7. Predict effects of an increase in aggregate demand when economy is in (a) horizontal LEARNING range, (b) intermediate range, and (c) vertical range. OBJECTIVES: 8. Explain the difference between the short run and long run supply curves and their significance for economic policy. 9. Construct a traditional Phillips Curve using the AD-AS model. 10. Differentiate between the SR and LR Phillips curve. 11. Identify supply side shocks to the US economy in the 70s & 80s. 12. Explain why demand management policies cannot eliminate stagflation. 13. Explain two possible effects of taxation on AS. 14. Explain the Laffer Curve concept and list three criticisms of this theory 15. Identify the origins of the term “Voodoo Economics” under the Reagan administration

FORMULAS: Per Unit Cost of Production

AS/AD Curves LRAS GRAPHS Phillips Curve Laffer Curve

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 11 (Aggregate Demand and Aggregate Supply) READINGS: Chapter 16 (Extending the Analysis of Aggregate Supply)

15 AP Course Audit AP Macroeconomics

Unit 8 AGGREGATE SUPPLY AND DEMAND (CONT) 1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 11 (Page 222): 2, 4, 7, 8, 10, 11, 13 Chapter 16 (Page 321): 1, 2, 4, 6 2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 3; Activity 23: An Introduction to Aggregate Demand o Unit 3; Activity 25: Short-Run Equilibrium Price Level and Output Unit 5; Activity 46: Short Run Phillips Curve REINFORCEMENT o

ACTIVITIES: . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 11 (Aggregate Demand and Aggregate Supply) o Chapter 16 (Extending the Analysis of Aggregate Supply)

3. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

16 AP Course Audit AP Macroeconomics

Unit 9 FISCAL POLICY

TIME 5 days

Fiscal Policy Built-in Stabilizer (Automatic) Expansionary Fiscal Policy Full-Employment Budget Contractionary Fiscal Policy Crowding Out Effect Budget Deficit Net Export Effect KEY TERMS: Budget Surplus Supply-Side Fiscal Policy Discretionary Fiscal Policy Administrative Lags Recognition Lags Operational Lags Full Employment Budget Political Business Cycle CEA Progressive Taxes Full-Employment Budget

1. Distinguish between discretionary and automatic fiscal policy. 2. Differentiate between expansionary and contractionary fiscal policy. 3. Recognize the conditions for recommending an expansionary or contractionary fiscal policy. 4. Explain expansionary fiscal policy and its effects on the economy and Federal budget. 5. Explain contractionary fiscal policy and its effects on the economy and Federal budget. LEARNING 6. Describe ways to finance government deficits and ways to spend government surpluses. OBJECTIVES: 7. Give two examples of built-in stabilizers and how they help to eliminate recessions or inflation. 8. Explain the significance of the “full employment budget” concept. 9. List three timing problems encountered with fiscal policy. 10. Give an example of supply-side fiscal policy and three positive effects from it. 11. Show with a graph how the effects of an expansionary fiscal policy differ across the different ranges of the AS curve

FORMULAS: None

GRAPHS AS / AD Graphs

17 AP Course Audit AP Macroeconomics

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: READINGS: Chapter 12 (Fiscal Policy) 2. Mandel, Michael. “Can Anyone Steer This Economy?” Business Week 20 Nov 2006.

1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 12 (Page 240): 2, 3, 5, 6, 9, 10 2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 3; Activity 30: The Tools of Fiscal Policy o Unit 3; Activity 31: Discretionary and Automatic Fiscal Policy o Unit 3; Activity 33: Analyzing the Macroeconomy REINFORCEMENT ACTIVITIES: . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 12 (Fiscal Policy) 3. Simulations: . What’s the Problem? (Using information from the CEA to analyze the economy) 4. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

18 AP Course Audit AP Macroeconomics

Unit 10 MACRO THEORY AND POLICY

TIME 3 days

Classical Economics Monetarism Theory Equation of Exchange New Classical Economics Velocity KEY TERMS: Efficiency Wage Monetary Rule Keynesianism Coordination Failures

1. Compare and contrast the classical and Keynesian views of the AD / AS curve 2. Describe the mainstream view of stability in the macro economy 3. Describe the possible reasons for increased stability in the macro economy over the last fifty years LEARNING 4. Explain the equation of exchange OBJECTIVES: 5. Describe the monetary causes of instability in the economy 6. Use a graph to explain the new classical view of self correction 7. Identify and defend three reasons why a higher wage might translate to greater efficiency 8. Describe how monetarists and new classical economists view the effectiveness of fiscal policy

GRAPHS / AD / AS Graphs EQUATIONS MV = PQ

1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: READINGS: Chapter 19 (Disputes Over Macro Theory and Policy)

1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 19 (Page 321): 1, 4, 6, 8, 10 2. Worksheets: REINFORCEMENT * Students will complete graphic organizers to outline the differences in the theories ACTIVITIES: presented during this unit

3. Other: . Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

19 AP Course Audit AP Macroeconomics

Unit 11 MONEY, BANKING, AND

TIME 8 days

Money Balance Sheet/ T-Account Medium of Exchange Fractional Reserve Banking System Unit of Accounting Vault Cash Store of Value Required Reserves M1 Reserve Ratio M2 Excess Reserves M3 Actual Reserves Federal Reserve Notes Federal Funds Rate KEY TERMS: Checkable Deposits Discount Rate Near Monies Monetary Multiplier Legal Tender Monetary Policy Federal Reserve System Open Market Operations (OMO) Board of Governors Easy Money Policy Chairman of the Federal Reserve Tight Money Policy Federal Reserve Banks

1. Explain and list the three functions of money. 2. Define the , M1, M2, M3, and near monies 3. Describe the relationship between GDP and the interest rate and the type of money demanded. 4. Explain the structures and the purpose of the FED. 5. Explain the effects of a currency deposit in a checking account on the composition and size of the money supply. 6. Compute a bank’s required and excess reserves when you are given its balance-sheet figures. 7. Explain why a commercial bank is required to maintain a reserve. 8. Describe what happens to the money supply when a commercial bank makes a loan or buys securities. 9. Explain what happens to a commercial bank’s reserves and checkable deposits after it has made a loan. LEARNING 10. Compute the size of the monetary multiplier and the money creating potential of the banking system OBJECTIVES: when provided with appropriate data. 11. State the two leakages that reduce the money-creating potential of the banking system. 12. Identify the goals of monetary policy. 13. Explain how each of the three tools of monetary policy may be used by the FED to expand and / or contract the money supply. 14. Demonstrate graphically the money market and how a change in the money supply will affect the interest rate. 15. Show the effects of interest rate changes on investment spending and the loanable funds graph. 16. Describe the impact in investment on aggregate demand and equilibrium GDP. 17. Contrast the effects of an easy money policy with the effects of a tight money policy. 18. Identify the federal funds rate and its importance for monetary policy 19. List four shortcomings and three strengths of monetary policy.

M1, M2 Reserve Ratio FORMULAS: Monetary Multiplier Maximum Expansion of Checkable Deposits

Money Market Loanable Funds Market GRAPHS AD / AS Graphs

20 AP Course Audit AP Macroeconomics 1. McConnell, Campbell, and Stanley Brue. Macroeconomics: Principles, Problems and Policies, 15th edition. McGraw-Hill Irwin, 2002.: Chapter 13 (Money and Banking) Chapter 14 (How Banks and Thrifts Create Money) Chapter 15 (Monetary Policy) READINGS: 2. Buchholz, Todd. New Ideas from Dead Economists. New York: Penguin Group, 1999. Chapter 10: The Monetarist Battle Against Keynes

3. Woodward, Bob. Maestro. New York: Simon & Schuster, 2000 (Excerpts from Chapter One)

1. Macroeconomics (McConnell & Brue) Study Questions: Chapter 13 (Page 263): 4, 5, 9 Chapter 14 (Page 281): 1, 2, 3, 7, Chapter 15 (Page 302): 1, 2, 5, 7

2. Worksheets: . AP Macroeconomics: Student Activities (National Council on Economic Education): o Unit 4; Activity 36: Monetary Equation of Exchange o Unit 4; Activity 37: The Multiple Expansion of Checkable Deposits o Unit 4; Activity 38: The Federal Reserve: The Mechanics of Monetary Policy o Unit 4; Activity 39: The Money Market o Unit 4; Activity 40: The Federal Reserve: Monetary Policy and Macroeconomics o Unit 4; Activity 42: Monetary Policy REINFORCEMENT o Unit 5; Activity 43: Monetary Policy and Fiscal Policy o Unit 5; Activity 44: Monetary and Fiscal Policy ACTIVITIES: . Walastad, William and Robert C. Bingham. Study Guide: Macroeconomics: Principles, Problems, and Policies. McGraw-Hill Irwin, 2002. (Study guide that accompanies McConnell & Brue Textbook): o Chapter 13 (Money and Banking) o Chapter 14 (How Banks and Thrifts Create Money) o Chapter 15 (Monetary Policy) 3. Videos: . The FED Today 4. Simulations: . The Chairman Game (http://www.frbsf.org/education/activities/chairman/) 5. Other: * Discuss current events from Wall Street Journal and The Economist

ASSESSMENT Textbook Computer Generated Multiple Choice Test. McGraw-Hill Software.

21 AP Course Audit AP Macroeconomics

Unit 12 REVIEW FOR THE AP TEST

TIME 5 days

LEARNING Prepare students for the AP test by practicing multiple choice and long response questions. OBJECTIVES:

1. Anderson, David. Cracking the AP Economics Exams. The Princeton Review: 2004.

2. College Board Sample Multiple Choice Questions.

3. Past AP Macroeconomics Tests REINFORCEMENT a. 2001 ACTIVITIES: b. 2002 c. 2002 (Form B) d. 2003 e. 2004 f. 2004 (Form B) g. 2005 (Form B)

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