AP Macroeconomics
Mr. Bickers
Shawnee Mission East HS
Course Description
AP Econ is a fast paced college-level course that focuses on the decision making of individuals, businesses, and the government. Students will study a variety of economic theories and analyze their practical application in the real world.
Macro focuses on the economy as a whole, including economic measures, economic growth, fiscal policy, monetary policy, and international economics. Students are expected to take the AP Exam at the conclusion of the school year.
This class will prepare you for college and potentially allow you to earn 3 university credits upon passing both AP exams or earning a ‘C’ or higher to earn credit from Baker University (if enrolled). Extensive math skills are not required; however, the ability to analyze graphs and charts is essential.
Grading
This is not an easy course, but with sufficient effort you can do well. Your semester average is based on total points. Tests, quizzes, homework, etc. is not weighted. There is no extra credit, but test corrections are available after each exam. These are optional, but they allow you to earn back up to ½ of total points missed.
If you feel you are struggling, falling behind, or just plain confused, please come see me after school. I’m happy to help you master the concepts that are tripping you up. That said, ultimate success or failure lies with you.
A – 90-100%
B – 80-89%
C – 70-79%
D – 60-69%
F – 0-59%
Unit 1: Basic Economic Concepts
Founding Principles
§ Scarcity
§ Trade-offs
§ Opportunity Cost
§ Free-Market System
§ Invisible Hand (Laissez Faire)
Microeconomics vs. Macroeconomics
Positive vs. Normative Economics
Factors of Production
Production Possibilities Curve (Frontier)
§ Straight vs. Bowed PPC
§ Underutilization, Full employment, and unattainable (in short run)
§ Law of Increasing Opportunity Costs
§ 3 Shifters of the PPC
§ Consumer Goods vs. Capital Goods
§ Effects of trade
Circular Flow Model
§ Product Market
§ Factor Market
§ Transfer Payments
§ Leakages and Injections
Specialization and Trade
§ Absolute Advantage
§ Comparative Advantage
§ Terms of Trade
Demand
§ Law of Demand
§ Market Demand Curve
§ 5 Determinants (Shifters) of Demand
§ Normal Goods vs. Inferior Goods
§ Substitutes and Complements
Supply
§ Law of Supply
§ Market Supply Curve
§ 6 Determinants (Shifters) of Supply
Equilibrium and Efficiency (Graph)
§ Equilibrium Price and Equilibrium Quantity
§ Disequilibrium: Surplus and Shortage
Government Policies (Graphs)
§ Price Floors (Above Equilibrium)
§ Price Ceilings (Below Equilibrium)
§ Subsidies
§ Taxes
§ Tariffs
Unit 2: Macro Measures
Origins of Macroeconomics
§ National Income Accounting
Measuring Growth
§ Gross Domestic Product (GDP)
§ Not included in GDP
§ Intermediates Goods
§ Non-production transactions
§ Household production
§ Income approach and factor payments
§ Expenditures approach (C+I+G+Xn)
§ Nominal vs. Real GDP
§ Percent change in GDP and GDP per Capita
Measuring Unemployment
§ Labor force and unemployment rate
§ Types of Unemployment
§ Frictional, Structural, Cyclical
§ Natural Rate of Unemployment (NRU) and
§ Full employment, no cyclical
§ Criticisms of Unemployment Rate
§ Discouraged workers
§ Part-time workers
Measuring Prices
§ Inflation and purchasing power
§ Inflation rate
§ Helped vs. hurt by unanticipated inflation
§ Consumer Price Index (CPI)
§ Base Year and market basket
§ Quantity Theory of Money
§ Criticisms of CPI
§ Substitution bias
§ New and improved products
§ GDP Deflator
The Business Cycle
§ Peak, Recession/Contraction, Trough, Recovery/Expansion
Unit 3: AD, AS, Fiscal Policy, and Growth
Aggregate Demand
§ Inverse relationship between price level and Real GDP demanded
§ 4 Shifters (C+I+G+Xn)
Short-Run Aggregate Supply
§ Wages and resource prices don’t change in SR
§ Direct relationship between PL and output
§ 4 Shifters of AS
§ Resource prices and supply shock
§ Government actions (taxes/regulation)
§ Productivity
§ Inflationary expectations
Long-Run Aggregate Supply (LRAS)
§ Wages and resource prices change in LR
§ No relationship between PL and Output
§ Connection to full employment
Shifting Curves
§ Demand Pull Inflation
§ Cost Push Inflation
§ Stagflation
Recessionary Gap
§ Actual GDP< Potential GDP
§ Return to Long-run assuming flexile wages
Inflationary Gap
§ Actual GDP> Potential GDP
§ Return to Long-run
Keynesian Economics
§ Government stimulus and deficit spending
§ Rationale: Sticky wages, dead in long run
Classical Economics
· Rationale: Government causes misallocation
3 Ranges of AS curve
§ Keynesian, Intermediate, Classical
Phillips Curve
§ Relationship between inflation and unemployment
§ Movements along the curve vs. shifts
§ Long-run Phillips curve
§ Connect to AD/AS model and business cycle
Fiscal Policy (Government spending and taxes)
· Discretionary vs. Non-discretionary
· Expansionary vs. Contractionary
· Taxation and disposable income
· Multiplier Effect
· Marginal Propensity to Consumer (MPC)
· Marginal Propensity to Save (MPS)
· Spending multiplier (1/MPS)
· Tax multiplier (MPC/MPS)
Problems with Fiscal Policy
· Deficit spending and national debt
· Time lags and politics
· Crowding Out
· Net Export Effect
Growth Policy
· Shifters of the LRAS
· The effects of investment and capital stock
· Supply-side economic policy
Unit 4: Money, Banking, and Monetary Policy
Money System vs. Barter System
Commodity vs. Fiat Money
Three Functions of Money
· Medium of Exchange, Unit of Account, Store of Value
Banking
· Real vs. Nominal interest rate
· Fractional Reserve System (money creation)
· Balance Sheet
· Assets vs. Liabilities
· Demand Deposits
· Required reserves and excess reserves
Money Market- Supply and Demand of Money
· Demand for Money and liquidity
· Shifter of Money Demand
· Supply of Money
Monetary Policy
· Purpose of a Central Bank (The Fed)
· Expansionary vs. Contractionary Policy
Three Tools of the Fed
1. Reserve Requirement and Money Multiplier
2. Discount Rate
3. Open Market Operations
· Bonds, Securities, Treasury Bills
· Federal Funds Rate (target rate)
Demand and Supply of Loanable Funds
· Shifts that change real interest rate
· Crowding Out
Unit 5: Trade and FOREX
Balance of Payments
· Current Account
· Balance of trade (surplus and deficit)
· Remittance
· Capital (Financial) Account
· Foreign Direct Investment
· Net Capital Outflow
Foreign Exchange (FOREX)
· Exchange Rates
· Appreciation vs. Depreciation
· Shifters of Currency Demand and Supply
Exchange rates and international trade
· Appreciation will decrease net exports
· Depreciation will increase net exports