Advanced Placement Macroeconomics Mr. Jonker Room 212

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1 Advanced Placement Macroeconomics Mr. Jonker Room 212 Phone Number/Voice Mail: Conference Period: 1 st Hour Website: Twitter: jonker.zp.t@petoskeyschools.org Course Description (From the College Board): The purpose of an AP course in macroeconomics is to give students a thorough understanding of the principles of economics that apply to an economic system as a whole. Such a course places particular emphasis on the study of national income and price-level determination, and also develops students familiarity with economic performance measures, the financial sector, stabilization policies, economic growth, and international economics. Statement of Purpose: Given the current economic conditions that exist in America, and the accelerated pace of globalization, there may be no more relevant course you could be taking at Petoskey High School in terms of your future. Over the course of the upcoming semester you will be challenged to look at the world from an entirely different perspective as you begin to explore the economic way of thinking. This course will help you hone your analytical skills as you interpret current world events in the context of core economic principles. Course Resources: Krugman, P., & Wells, R. (2006). Economics. New York: Worth Publishers..Cunningham, R., & Sawyer-Kelly, E. (2006). Study Guide to accompany Economics. New York: Worth Publishers Anderson, D. A. (2007). Economics by Example. New York: Worth Publishers. Wheelan, C. (2010). Naked Economics: Undressing the Dismal Science. New York: W,W. Norton & Company. Morton, J. S., & Goodman, R. B. (2003). Advanced Placement Economics: Students Activities (3rd ed.). New York: National Council on Economic Education AP Macroeconomics Exam Resources: Dodge, E. 5 Steps to a 5 AP Microeconomics/Macroeconomics, Edition Cracking the AP Economics Macro & Micro Exams, 2014 Edition (College Test Preparation) by Princeton Review

2 Grading: Grades will be updated online weekly. You can access your grades through my website, using your PowerSchool student ID # and the password you create. The grade breakdown is as follows: Tests/Projects/Writing Log = 60% of marking period grade Tests will be administered after each unit. They will be set-up to mimic the AP Exam. There will be multiple choice questions plus one or two free response questions (FRQs). This course will emphasize active learning strategies. We will take part in numerous simulations and group projects to learn and reinforce the course objectives. Each student will be required to purchase their own large three-ring binder (writing log). I will supply paper and we will write in the binder 3 to 5 times a week on issues relevant to Microeconomics including current events. Many days we will start class with a prompt that will require you to reflect on a recent concept, or will introduce a new concept. These writing logs will be evaluated based on the 5-point Collins Writing Scale. We will also use the writing log for practice FRQs which will be evaluated using a separate rubric. The three-ring binder will be an essential organizational tool. As a class we will divide the binder into a variety of categories in which all relevant coursework will be compiled. These will also be evaluated on a regular basis. Reading Quizzes = 20% of marking period grade 10 question reading quizzes will be administered at random after assigned readings. Homework = 20% of marking period grade Homework will be evaluated at random. Homework could involve problem sets from the text or study guide, an AP Economics student activity, practice FRQs, etc. Study Tips: Complete all assigned reading assignments Utilize the study guide that accompanies the text for extra graphing practice. Access the textbook s E-Study Center at The Advanced Placement Macroeconomics Examination: Date: Wednesday, May 11 th, 2016 (Microeconomics = Friday, May 13 th ) Content: The major content areas covered by the AP Macroeconomics Exam are identified in the table below. The following table reflects the approximate percentage of the multiplechoice section of the exam devoted to each content area: 8-12% basic economic concepts 12-16% measurement of economic performance 15-20% financial sector 20-30% inflation, unemployment, and stabilization policies 10-15% national income and price determination 5-10% economic growth and productivity 10-15% open economy: international trade and finance

3 The free-response questions on the exam generally ask students to analyze a given economic situation and present and evaluate general macroeconomic principles. Students are expected to write well-organized and analytical essays and to include explanatory diagrams that clarify their analysis. Questions may require students to interpret graphs or to draw their own graphs as part of their answers. All graphs should be clearly labeled. Generally, the longer essay (50 percent of the free-response score) requires students to interrelate several content areas, while the two shorter essays (together, 50 percent of the free-response score) typically focus on a specific topic in a given content area. Format: The AP Macroeconomics Exam is two hours and 10 minutes long. In Section I, students are given 70 minutes to answer 60 multiple-choice questions; in Section II, they must answer three required free-response questions in 50 minutes. % of Grade Number of Questions Time Allotted Reading Period Section I 66 2/ minutes Section II 33 1/3 3 required 50 minutes 10 minutes Course Planner: Unit learning objectives taken from the AP Economics Teaching Toolkit developed by Linda Manning and Bill McCormick that accompanies the Krugman/Wells text. Unit I - Basic Economic Concepts with Supply and Demand (8 12% of AP Macro Exam M.C. Questions) Class Periods 15 Textbook Chapters 1,2,3, and 11 AP Student Activities 1-23 After completing this unit the students will be able to: Basic Concepts 1. Scarcity, choice, and opportunity cost Define scarcity and explain why it is the predominant economic problem Explain what the term choice means in economics Explain opportunity cost and describe the role of this concept in decision making Define absolute advantage Use PPC to show gains from trade Define and explain gains from trade Identify the allocative functions of an economic system Explain how the tools of supply and demand are used to illustrate how the free market operates B. Production possibilities curve Draw a production possibilities frontier (PPF)

4 Use the PPF to explain opportunity costs, choice, allocation of resources, productive efficiency, and economic growth 2. Comparative advantage, absolute advantage, specialization, and trade Define comparative advantage Distinguish between absolute and comparative advantage Use the concept of opportunity cost, comparative advantage, and a PPF to show gains from trade Identify conditions which permit gains from trade Identify differences in opportunity costs as the basis for comparative advantage 3. Economic systems Identify the basic economic questions that every society must answer Interpret the circular-flow diagram and understand the relationships that exist within the graphical representation Compare and contrast the three fundamental economic systems Understand the trade-offs that exist between efficiency and equity in any economic system 4. Property rights and the role of incentives Understand the role incentives play in the decision making process 5. Marginal analysis Understand the concept of trade-offs and marginal decision making and analyzing decisions at the margin Theory of Consumer Choice After completing this section the students will be able to: 1. Total utility and marginal utility Define and explain the concept of utility, total utility, and marginal utility Explain the relationship between total utility and marginal utility Define and explain the principle of diminishing marginal utility 2. Utility maximization: equalizing marginal utility per dollar Explain how consumers choose combinations of goods to maximize their utility, subject to a budget constraint Use marginal analysis to solve for a consumer s optimum goods bundle 3. Individual and market demand curves Explain how the law of diminishing returns gives rise to the demand curve Explain how consumption choices that maximize utility give rise to the individual demand curve Explain the relationship between the individual and market demand curves 4. Income and substitution effects Define and explain the income and substitution effects and discuss how they determine the downward slope of the demand curve. Supply and Demand After completing this section the students will be able to: 1. Market equilibrium Illustrate a market at equilibrium by drawing a correctly labeled supply and demand graph, identifying equilibrium price (P), and equilibrium quantity demanded (QD) and quantity supplied (QS).

5 Starting with a market at equilibrium, show the effect of increases and decreases in both supply and demand Illustrate on a correctly drawn market graph how changes in supply and demand effect market equilibrium 2. Determinants of supply and demand Differentiate between a change in quantity demanded and a change in demand; and illustrate these changes graphically and explain each in words. Differentiate between a change in quantity supplied and a change in supply; and illustrate these changes graphically and explain each in words. Identify and explain the determinants of demand Identify and explain the determinants of demand Differentiate between normal and inferior goods Differentiate between complimentary and substitute goods Explain and illustrate how changes in income effect the demand for normal and inferior goods Unit II Measurement of Economic Performance (12-16% of AP Macro Exam M.C. Questions) Class Periods 10 Textbook Chapters 23 and 24 AP Student Activities National income accounts Identify various national income accounts and explain the use of each a. Circular flow i. Construct a circular flow diagram. ii.the circular flow diagram to show how households and businesses exchange resources in the resource market and in the product market. b. Gross domestic product i. Define measurements of economic performance: GDP, unemployment and inflation. ii. Define the expenditures approach to GDP calculation. iii. Define the income approach to GDP calculation. iv. Explain the uses of the expenditures and income approach to GDP. c. Components of gross domestic product i. Identify and explain the components of GDP (consumption, investment, government spending and net exports). ii. Explain how the various components of GDP are summed to assess economic performance. iii. Explain government transfers. iv. Explain disposable income. v. Explain private savings. vi. Explain government borrowing. vii. Explain government purchases of goods and services. d. Real versus nominal gross domestic product 2. Inflation measurement and adjustment

6 a. Price indices i. Explain how price indices are computed: CPI, PPI, GDP deflator. ii. Identify and explain uses of price indices. b. Nominal and real values i. Define nominal and real measurements and differentiate between each. ii. Convert nominal values to real values and real to nominal. iii. Use a base year to adjust values to current dollars. c. Costs of inflation i. Identify and explain costs of inflation: shoe leather costs, menu costs, and unit of account costs. 3. Unemployment a. Definition and measurement i. Explain how unemployment is calculated. b. Types of unemployment. i. Define various types of unemployment. Frictional structural, cyclical. c. Natural rate of unemployment i. Define the natural rate of unemployment and explain how this measurement is used to evaluate economic performance. Unit III National Income and Price Determination (10-15% of AP Macro Exam M.C. Questions) Class Periods 10 Textbook Chapter 27 AP Student Activities Aggregate Demand a. Determinants of aggregate demand i. List and define determinants of AD: consumption spending, investment spending, government spending, and net export spending. ii. List and define determinants of consumption spending. iii. List and define determinants of investment spending. iv. List and define determinants of government spending. v. List and define determinants export spending. vi. List and define determinants of import spending. vii. Use a correctly labeled diagram to illustrate how the changes in determinants of AD cause the AD curve to shift. b. Multiplier and crowding-out effects i. Define marginal propensity to consume (MPC) and marginal propensity to save (MPS). ii. Compute MPC and MPS. iii. Explain the autonomous spending multiplier. iv. Explain the relationship between the size of the autonomous spending multiplier and shifts in AD, and the change in real GDP. v. Use a diagram to illustrate the effect of a change in spending of GDP. vi. Identify and explain the relationship between MPC (and MPS) and

7 slope of the AD curve. vii. Define crowding out. viii. Explain how deficit spending may not result in an increase in GDP as large as the spending multiplier would predict-i.e., crowding out. ix. Explain the impact of policies on AD. 2. Aggregate Supply a. Short-run and long-run analyses i. Differentiate between short-run AS (SRAS) and long-run AS (LRAS). b. Sticky versus flexible wages and prices i. Define the concept of sticky wages. ii. Define and explain the reasons that wages and prices might be sticky: minimum wage, lack of knowledge about the market wage, contracts, menu costs. c. Determinants of aggregate supply (long run and short run) i. Define short-run aggregate supply (SRAS). ii. List and explain determinants of SRAS: input prices (including nominal wages), productivity, change in taxes and subsidies and changes in government regulation. iii. Define long-run aggregate supply (LRAS). iv. List and explain determinants of LRAS (potential GDP): changes in factors of production including land, labor, capital (physical and human), entrepreneurship, and technology. v. Define factors of production: land, labor, capital, technology, and entrepreneurship. vi. Explain why these determinants are referred to as supply shocks and the impact that these shocks have upon price level and real GDP. vii. Explain impact of policies on long-run and short-run AS. 3. Macroeconomic equilibrium a. Real output and price level i. Use the AS/AD model to explain the determination of the equilibrium price level and real GDP. ii. Use the AS/AD model to explain the determination of short-run macroeconomic equilibrium. iii. Use the AS/AD model to explain the determination of long-run macroeconomic equilibrium. iv. Use the AS/AD diagram to identify the impact of changes in AD and AS. b. Short and long run i. Explain the impact of discretionary monetary policies on a recessionary gap. ii. Explain the impact of discretionary fiscal policies on an inflationary gap. iii. Explain the impact of discretionary monetary policies on an inflationary gap

8 iv. Explain the Classical adjustment to a n inflationary gap. c. Actual versus full-employment output i. Define full-employment output/full employment. d. Economic fluctuations i. Explain the difference between actual and full employment output. ii. Explain the recessionary gap. iii. Explain an inflationary gap. Unit IV Financial Sector (15-20% of AP Macro Exam M.C. Questions) Class Periods 13 Textbook Chapters 26,29,30, and 31 AP Student Activities Money, banking, and financial markets a. Definition of financial assets: money, stocks, bonds i. Identify and define forms of money. ii. Describe the role of money and the forms of money. iii. Define the monetary base. iv. Explain how the actions of banks and the central bank determine the money supply. Explain how the Central bank uses open market operations to adjust the monetary base. v. Define money, bonds and stocks. vi. Identify the role of each in the role of financial markets. *Note that the AP will not refer to the Federal Reserve or the Fed; but to the central bank. b. Time value of money (present and future value) i. Use the concept of time value of money to compute the present value and future value of a financial asset at a given interest rate. c. Measures of money supply i. List and define measures and uses of money supply: M1, M2, and M3. d. Banks and creation of money i. Explain how banks create money by making loans. ii. Show how the money multiplier and the fractional reserve system regulate the amount of money created. iii. Identify how T-accounts are used for accounting purposes. e. Money demand i. Identify the sources of money demand: transaction, speculative, precautionary. ii. List and define the determinants of money demand: changes in real aggregate spending, changes in technology, changes in institutions. iii. Explain how the nominal quantity of money and the velocity of money can be used to determine the nominal GDP. iv. Explain how investment demand links changes in interest rates and changes in aggregate demand.

9 v. Explain how changes in aggregate demand affect output and price level. vi. Explain how financial markets and the loanable funds market determine the real interest rate (Chapter 26). f. Money market i. Use the money market model to determine equilibrium in the money market. ii. Using a diagram of the money market, illustrate how to determine equilibrium. iii. Use the money market model to explain how the central bank can regulate the interest rate by manipulating the money supply. iv. Using a diagram of the money market, show how central bank policy tools can be used to regulate the interest rate by manipulating the money supply. v. Explain how equilibrium nominal interest rates are vi. determined in the money market. Explain how changes in the interest rate affect interestsensitive expenditures, aggregate demand, real output, and the price level. g. Loanable funds market i. Using a diagram of the loanable funds market, show how the interaction of the supply of and demand for loanable funds create an equilibrium interest rate and quantity of loanable funds. ii. Differentiate between the money market and the loanable funds market. iii. Explain how equilibrium real interest rates are determined in the loanable funds market. iv. List and describe the determinants of nominal vs. real interest rates. v. Identify and explain the relationship between domestic interest rates and currency values. vi. Explain the relationship between the domestic currency value and trade (exports and imports). vii. Explain the relationship among government budget deficits, the loanable funds market and currency value. viii. Explain the relationship between the loanable funds market and currency value. ix. Explain the relationship between the savings rate and the real interest rate. x. Explain the relationship between the real interest rate and the xi. xii. international flow of funds. Explain the relationship between the international flow of funds and currency value. Explain the money-creation process (through bank loans). And bank deposits

10 xiii. Identify and apply the money supply multiplier to explain how an increase in bank deposits create an increase in the money supply. xiv. Identify and explain the maximum amount of money that can be created by a given amount of bank deposits. xv. Explain the leakages that limit the size of the money supply multiplier. xvi. Explain the effect on the money supply of an open market operation. xvii. Explain the effect on the money supply of bank deposit form cash held by the public. xviii. Explain why the effect of an open market operation is larger than a deposit made out of cash held by the public. xix. Using the loanable funds market, explain the relationship between government deficits and the real interest rate. xx. Explain the relationship between real interest rates and economic growth. xxi. Explain the relationship between investment spending and xxii. capital stock. Distinguish between short run impact of change in investment spending on aggregate demand and the long-run impact of the resulting change in capital stock. xxiii. Explain the impact of the money supply of a cash deposit into demand deposit accounts. xxiv. Define components of M1. xxv. Distinguish between money multiplier and GDP expenditures multiplier. 2. Central bank and control of the money supply Illustrate and explain the impact of central bank policy tools on the money supply and the equilibrium nominal interest rate. a. Tools of central bank policy i. Identify the tools of the central bank system in regulating the money supply. b. Quantity theory of money i. Define the quantity theory of money. ii. Explain the effect of monetary policy on real output growth and inflation. c. Real versus nominal interest rates i. Define nominal interest rates. ii. Define real interest rates. iii. Differentiate between real and nominal interest rates. iv. Explain impact of the central bank s purchase of bonds through money market. v. Identify international flows of funds and explain how vi. changes in these flows impact the foreign exchange market. Illustrate the impact of international capital flows on the foreign exchange market.

11 Unit V Inflation, Unemployment, and Stabilization Policies (20-30% of AP Macro Exam M.C. Questions) Class Periods 20 Textbook Chapters 32,33, and 34 AP Student Activities Fiscal and monetary policies (Chapters 29 and 31) a. Distinguish between money and income. b. Distinguish between short-run and long-run effects. c. Analyze effects of discretionary fiscal and/or monetary policy in AD/AS framework. d. Analyze the impact of government spending when the economy is blow full employment, and illustrate on a diagram. e. Explain the impact of government spending when the economy is below full-employment-using loanable funds market diagram, show increase in income and the resulting increase demand for money, the subsequent increase in the real interest rate, and the decrease in interest-sensitive expenditures. f. Explain and illustrate impact of reduction in corporate taxes in the short and long run. g. Recognize when results may be indeterminate and why. h. Explain and illustrate long-run economic growth with AD/AS diagram and with PPF diagram i. Distinguish between fiscal and monetary policies. j. Explain and illustrate the short- and long-run effects of discretionary monetary policy. k. Explain and illustrate the short- and long-run effects of discretionary fiscal policy. l. Recognize economy operating below full employment. m. Distinguish between aggregate supply in the short run and the long run. n. Determine appropriate fiscal policies to reduce the rate of unemployment. o. Distinguish between recessionary gap and inflationary gap and monetary/fiscal policies appropriate for each. p. Explain and illustrate the effect of government borrowing on real interest rates, using the loanable funds market, or through the relationship between income and money demand. q. Explain and illustrate linkage between expansionary fiscal policy and higher interest rate. r. Explain and illustrate crowding out of private spending that results from higher interest rates due to government borrowing, s. Explain central bank tools and their impact on money market. t. Using AD/AS model and diagrams, explain and illustrate linkages from determinants of AS and AD to a domestic recessionary/inflationary gap, fiscal and monetary policies to correct the domestic problem.

12 u. Using appropriate diagrams, explain and illustrate the effect on international trade of fiscal and monetary policies to correct a recessionary/inflationary gap. 2. Inflation and unemployment a. Types of Inflation i. Identify sources of demand-pull inflation. ii. Identify sources of cost-push inflation. iii. Explain sustained inflation. iv. Identify impact of inflation on asset holders and debtors (i.e., winners and losers). v. Explain and illustrate how fiscal and monetary policy can be used to mitigate inflation. vi. Explain the impact of inflation on nominal interest rates and the value of currency. b. The Phillips curve: short run versus long run (Chapter 32) i. Explain and illustrate the short-run Phillips curve. ii. Explain what would cause the Phillips curve to shift. iii. Explain and illustrate the long-run Phillips curve. iv. Explain the shape of the Phillips curve. v. Explain relationship between changes in aggregate demand and the short run Phillips curve. vi. vii. Explain relationship between short-run aggregate Explain why the Phillips curve is vertical in the long run c. Role of expectations i. Explain the effect of inflation expectation on the short-run Phillips curve. Unit V Economic Growth and Productivity (5-10% of AP Macro Exam M.C. Questions ) Class Periods 6 Textbook Chapter 25 AP Student Activities Economic growth and productivity a. Explain what economists mean by long-run growth. b. Illustrate and explain how changes in factors of production such as capital impact long-run growth using the AD/AS framework. c. Explain and illustrate how changes in factors of production impact longrun growth using the production possibilities frontier framework. d. Define productivity. e. Explain productivity and how it impacts long-run growth. 2.Investment in human capital a. Explain human capital. b. Distinguish human capital from physical capital and financial capital.

13 c. Explain and illustrate the role of human capital formation in raising productivity and economic growth. 3. Investment in physical capital a. Define physical capital. b. Distinguish physical capital from human capital and financial capital. c. Explain and illustrate the role of physical capital accumulation in raising productivity and economic growth. 4. Research and development and technological progress a. Explain the impact of R&D and technological progress on productivity and economic growth. 5. Growth policy a. Identify monetary and fiscal policies designed to impact long-run growth. b. Explain and illustrate how monetary and fiscal policies affect long-run growth. c. Explain and illustrate how monetary and fiscal policies affect short-run growth. Unit VI Open Economy: International Trade and Finance (10-15% of AP Macro Exam M.C. Questions) Class Periods 10 Textbook Chapter - 35 AP Student Activities Balance of payments accounts a. Balance of trade i. Define balance of trade. ii. Define components of capital account. b. Current account i. Define current account. ii. Identify components of current account. c. Capital account i. Define capital account. ii. Identify components of capital account. 2. Foreign exchange market a. Foreign exchange market i. Explain the foreign exchange market. ii. Draw foreign exchange market diagram. b. Demand for and supply of foreign exchange i. Define demand and supply for currencies. ii. Identify determinants of demand for a currency. iii. Identify determinants of supply of currency. c. Exchange rate determination i. Using a foreign exchange market diagram, illustrate how exchange rate equilibrium is determined. ii. Explain the determination of exchange rate determination when demand and/or supply changes d. Currency appreciation and depreciation

14 i. Explain how market forces and governmental policy affect the demand and supply of currency in foreign exchange markets and lead to currency appreciation or depreciation. 3. Net exports and capital flows a. Explain how currency appreciation or depreciation affects net exports. b. Explain how changes in net exports and capital flows affect the financial markets and the product (goods) markets. 4. Links to financial and goods markets a. Explain how changing capital flows affect exchange rates. b. Explain how domestic public policy impacts international trade and international finance transactions. c. Explain links from interest rates to asset demand, to currency value, to trade flows.