Mater Academy Charter High SchoolSchool Year 2011-2012

AP Macroeconomics SyllabusMs. De la Torre's Class

Room 137

AP Macroeconomics emphasizes economics principles as applied to the economy as a whole. AP

Macroeconomics is a course to qualify secondary school students who wish to complete coursework

equivalent to a one-semester college, introductory class. Each student lis.expected to take the APMacroeconomics Exam that is administered in May (Thursday, May 17th

, 2012). Basically the AP exam

determines whether a student understands enough of the subject area m1atter to be given (3) college

credits.

The following is a brief discussion of the main topics of-the course according to the Course description

from the College Board.

Topics

I. Basic Economic ConceptsA macroeconomics course introduces students to fundamental economic conceptssuch as scarcity and opportunity costs. Students understand the distinction betweenabsolute and comparative advantage and apply the principle of comparative advantageto determine the basis on which mutually advantageous trade can take place betweenindividuals and/or countries and to identify comparative advantage from differencesin opportunity costs. Other basic concepts that are explored include the functionsperformed by an economic system and the Waythe tools of supply and demand areused to analyze the workings of a free-market economy. The course should alsointroduce the concept of the business cycle to give students an overview of economicfluctuations and to highlight the dynamics of unemployment, inflation and economicgrowth. Coverage of these.concepts provides students with the foundation for athorough understanding of macroeconomic concepts and issues.

II. Measurement of Econornic PerformanceTo provide an overview of how the economy works, the course should start witha model of the circular flow of income and products that contain the four sectors:households, businesses, government and international. It is important to identifyand examine the key measures of economic performance: gross domestic product,unemployment and inflation.

In studying the concept of gross domestic product, it is also important thatstudents learn how gross domestic product is measured, have a clear understandingof its components and be able to distinguish between real and nominal grossdomestic product.

The course should examine the nature and causes of unemployment, the costsof unemployment and how the unemployment rate is measured, including thecriticisms associated with the measurement of the unemployment rate. It is alsoimportant to understand the concept of the natural rate of unemployment and thefactors that affect it. Students should also have an understanding of inflation and howit is measured. In this section, the course should cover the costs of inflation and the

Macroeconomics

main price indices, such as the consumer price index (Cl'I) and the gross domesticproduct deflator. Students should learn how these indices are constructed and usedto convert nominal values into real values, as well as to convert dollar values in thepast to dollar values in the present. It is also important to highlight the differencesbetween the two price indices as a measure of inflation, as well as the problemsassociated with each measure.

III. National Income and Price Determination IThis section introduces the aggregate supply and aggregate demand model to explainthe determination of equilibrium national output and the general price level, as wellas to analyze and evaluate the effects of public policy. It is important to discuss theaggregate demand and aggregate supply concepts individually to provide studentswith a firm understanding of the mechanics of the aggregate demand and aggregatesupply model.

The aggregate demand and aggregate supply analysis often begins with a generaldiscussion of the nature and shape of the aggregate demand and aggregate supplycurves and the factors that affect them. A detailed study of aggregate demand maybegin by defining the four components of aggregate demand: consumption, investment,government spending and net exports. It also examines why the aggregate demandcurve slopes downward and how changes in the determinants affect the aggregatedemand curve. The spending-multiplier concept and its impact on aggregate demand,and how crowding out lessens this impact, should be demonstrated as well. The coursecan then present the definition and determinants of aggregate supply and the differentviews about the shape of the aggregate supply curve in the short run and in the longrun and highlight the importance of the shape in determining the effect of changes inaggregate demand on the economy. It is also important to understand the notion ofsticky-price and sticky-wage models and their implication for the aggregate supplycurve in comparison to flexible prices and wages.

Students should be able to use the aggregate demand and aggregate supplymodel to determine equilibrium income and price level and to analyze the impact ofeconomic fluctuations on the economy's output and price level, both in the short runand in the long run.

IV. Financial SectorTo understand how monetary policy works, students must understand the definitionsof both the money supply and money demand and the factors that affect each of them.Here the course introduces students to the definition of money and other financialassets such as bonds and stocks, the time value of money, measures of the moneysupply, fractional reserve banking and the Federal Reserve System. In presenting themoney supply, it is important to introduce the process of multiple-deposit expansionand money creation using T-accounts and the use of the money multiplier. In learningabout monetary policy, it is important to define money demand and examine itsdeterminants. Having completed the study of money supply and money demand, thecourse should proceed to investigate how equilibrium in the money market determinesthe equilibrium interest rate, how the investment demand curve provides the link

@ 2010 The College Board. Visit the College oard on the Web: www.collegeboard.com.

Macroeconomics

between changes in the interest rate and changes in aggregate demand, and howchanges in aggregate demand affect real output and price level. Students should havean understanding of financial markets and the working of the loanable funds marketin determining the real interest rate. It is also important that students develop aclear understanding of the differences between the money market and the loanablefunds market. I

Having an understanding of the financial markets, students should identify andexamine the tools of central bank policy and their impact on the money supply andinterest rate. Students should understand the distinction between nominal and realinterest rate. Students should also be introduced to the quantity thbciry of moneyand examine and understand the effect of monetary policy on real !output growthand inflation.

V. Inflation, Unemployment, and Stabilization PoliciesPublic policy affects the economy's output, price level and level of employment, bothin the short run and in the long run. Students should learn to analyze the impacts offiscal policy and monetary policy on aggregate demand and aggregate supply, as wellas on the economy's output and price level both in the short run and in the long run. Itis also important to understand how an economy responds to a short-run shock andadjusts to long-run equilibrium in the absence of any public policy actions.

With both monetary and fiscal policies now incorporated in the analysis ofaggregate demand and aggregate supply, an understanding of the interactionsbetween the two is essential. Students should also examine the economic effects ofgovernment budget deficits, including crowding out; consider the issues involved indetermining the burden of the national debt; and explore the relationships betweendeficits, interest rates and inflation. The course should distinguish between theshort-run and long-run impacts of monetary and fiscal policies and trace theshort-run and long-run effects of supply shocks. Short-run and long-run Phillipscurves are introduced to help students gain an understanding of the inflation-unemployment trade-off and how this trade-off may differ in the short and long run.In this section, the course identifies the causes of inflation and illustrates them byusing the aggregate demand and aggregate supply model. A well-rounded coursealso includes an examination of the significance of expectations, includinginflationary expectations.

VI. Economic Growth and ProductivityThe course should introduce the framework and examine how long-run economicgrowth occurs. Students should understand the role of productivity in raising realoutput and the standard of living, as well as the role of investment in human capitalformation and physical capital accumulation, research and development, andtechnical progress in raising productivity. Having learned the determinants ofgrowth, students should examine how public policies influence the long-runeconomic growth of an economy.

© 2010 The College Board. Visit the College Board on the Web: www.collegeboard.com.

Macroeconomics

VII. Open Economy: International Trade and FinanceAn open economy interacts with the rest of the world both through the goods marketand the financial markets, and it is important to understand how a dountry's trans-actions with the rest of the world are recorded in the balance of payments accounts.Students should understand the meaning of trade balance, the distinction between thecurrent account balance and the capital account balance, and the i ! plications for theforeign exchange market.

The course should also focus on the foreign exchange market and examine howthe equilibrium exchange rate is determined. Students should understand howmarket forces and public policy affect currency demand and currency supply inthe foreign exchange markets and lead to currency appreciation 0 depreciation.How capital flows affect exchange rates and how appreciation or depreciation of acurrency affects a country's net exports should be an integral part of the presentation.Having learned the mechanics of the foreign exchange markets, st1udents should thenunderstand how changes in net exports and capital flows affect financial and goodsmarkets. I

It is important to examine the effects of trade restrictions, how the internationalpayments system hinders or facilitates trade, how domestic policy actions affectinternational finance and trade, and how international exchange rates affect domesticpolicy goals.

Topic OutlineBelow is an outline of the major content areas covered by the AP MacroeconomicsExam. The percentages indicated reflect the approximate percentage devoted to eachcontent area in the multiple-choice section of the exam. The outline is a guide and isnot intended as an exhaustive list of topics.

Content AreaPercentage Goals of Exam

(multiple-choice section)

1. Basic Economic Concepts (8-12%)A. Scarcity, choice and opportunity costsB. Production possibilities curveC. Comparative advantage, absolute advantage, specialization and exchangeD. Demand, supply and market equilibriumE. Macroeconomic issues: business cycle, unemployment, inflation, growth

@ 2010 The College Board. Visit the CoIl ge Board on the Web: www.collegeboard.com.

II. Measurement of Economic Performance , (12-16%)A. National income accounts

1. Circular flow2. Gross domestic product3. Components of gross domestic product4. Real versus nominal gross domestic product

B. Inflation measurement and adjustment1. Price indices2. Nominal and real values3. Costs of inflation

C. Unemployment1. Definition and measurement2. Types of unemployment3. Natural rate of unemployment

III. National Income and Price Determination (10-15%)A. Aggregate demand

1. Determinants of aggregate demand2. Multiplier and crowding-out effects

B. Aggregate supply1. Short-run and long-run analyses2. Sticky versus flexible wages and prices3. Determinants of aggregate supply

C. Macroeconomic equilibrium1. Real output and price level2. Short and long run3. Actual versus full-employment output4. Economic fluctuations

Content Area

Macroeconomics

Percentage Goals of Exam(multiple-choice section)

IV. Financial Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15-20%)A. Money, banking and financial markets

1. Definition of financial assets: money, stocks, bonds2. Time value of money (present and future value)3. Measures of money supply4. Banks and creation of money5. Money demand6. Money market7. Loanable funds market

B. Central bank and control of the money supply1. Tools of central bank policy2. Quantity theory of money3. Real versus nominal interest rates

@ 2010 The College Board. Visit the College Board OD the Web: www.collegeboard.com.

Content Area

Macroeconomics

Percentage Goals of Exam(multiple-choice section)

V. Inflation, Unemployment, and Stabilization Policies (20-30%)A. Fiscal and monetary policies

1. Demand-side effects2. Supply-side effects3. Policy mix4. Government deficits and debt

B. Inflation and unemployment1. Types of inflation

a. Demand-pull inflationb. Cost-push inflation

2. The Phillips curve: short run versus long run3. Role of expectations

VI. Economic Growth and Productivity (5-10%)A. Investment in human capitalB. Investment in physical capitalC. Research and development, and technological progressD. Growth policy

VII. Open Economy: International Trade and Finance (10-15%)A. Balance of payments accounts

1. Balance of trade2. Current account3. Capital account

B. Foreign exchange market1. Demand for and supply of foreign exchange2. Exchange rate determination3. Currency appreciation and depreciation

C. Net exports and capital flowsD. Links to financial and goods markets

@ 2010 The College Board. Visit the ColI ge Board on the Web: www.cclleqeboard.com.

Mater Academy Charter High SchoolSchool Year 2011-2012

AP Macroeconomics SyllabusMs. De la Torre's Class

Room 137

Basic Textbook

• McConnell, Campbell, and Brue, Stanley. "Economics", is" ed. McGraw-Hili/Irwin, 2005

Additional Textbooks

• McConnell, Campbell, Brue, Stanley, and Flynn, Sean. "Economics, Principles, Problems, andPolices", 18th ed. McGraw-Hili/Irwin, 2009

• Musgrave, Frank, and Kacapyr, Elia. "AP Microeconomics/Macroeconomics". 3rd ed. Barron's,

2009.

• Dodge, Eric R. "5 steps to a 5, AP Microeconomics/Macroeconomics".McGraw- Hill, 2008-2009

• Anderson, David. "Cracking the APEconomics Macro & Micro Exams". The Princeton Review.

2010 Ed.

Additional Readings

• Wall Street Journal

• Local newspaper articles

• Magazine articles

Unit One: Basic Economic Concepts

[CRt}

A. Scarcity, choice, and opportunity costB. Production possibilities curveC_ Comparative advantage, absolute advantage, specialization,

and exchangeD. Demand, supply, and market equilibriumE. Macroeconomic issues: business cycle, unemployment,

inflation, growth

Chapters Included in Unit OneMcConnell, Chapters 1,2,3,6

CRt-The courseprovides instructionin basic economicconcepts.

Unit Two: Measurement of EconomicPerformanceAP Outline

[CR2]

National income accounts1. Circular flow2. Gross domestic product3. Components ofgross domestic product4. Real versus nominal gross domestic product

2. Inflation measurement and adjustment1. Price :indices2. Nominal and real values3. Costs of inflation

3. Unemployment1. Definition and measurement2. Types of unemployment3. Natural rate ofunemployment

Ghap~~rslnGluciecljn.UnitTwoM:cCOILTlell,Chapters7,8

Unit Three: National Income and PriceDeterminationAP Outline

[CR3]

A Aggregate demand1. Determinants of aggregate demand2. Multiplier and crowding out effects

B. Aggregate supply1. Short-run and long-run analyses2. Sticky versus flexiblewages and prices3. Determ:inants of aggregate supply

C. Macroeconomic equilibrium1. Real output and price level2. Short and long run3. Actual versus fullemployment output4. Economic fluctuations

Chapters Included in Unit ThreeMcConnell,Chapters 9 and11

Unit Four: Financial Sector

CR2- The courseprovides instructionin measurements ofeconomicperformance.

CR9--The courseteaches studentshow to generate,interpret, label. andanalyze graphs,charts, and data todescribe and explaineconomic concepts.

CR8- The coursepromotes theunderstanding ofaggregateeconomic activity;the utilization ofresources withinand acrosscountries; and thecatical evaluationof determinants ofeconomic progressand economicdecisions made bynolicvmakers.

CR3--The courseprovides instructionin national incomeand pricedetermination.

-7_<~A Fiscal and monetary policies .

1. Demand-side effects2. Supply-side effects3. Policy mix4. Government deficits and debts

B. Inflation and unemployment1. Types of inflation2. Demand-pull inflation3. Cost-push inflation4. The Phillips Curve: short run versus long run5. Role of expectations

.) . ·Chaptersinduded in Unit Five .McConnell,Chapters12,15, 16, andl S

[CR4]

A. Money, banking, and financial markets1. Definition of financial assets: money, stocks, bonds2. Time value of money (present and future value)3. Measures of money supply4. Banks and the creation of money5. Money demand6. Money market7. Loanable funds market

B. Central bank and control of the money supply1. Tools of central bank policy2. Quantity theory of money3. Real versus nominal interest rates

Chapters Included in Unit FourMcConnell, Chapters 13,14,15, and 29

Unit Five: Inflation, Unemployment, andStabilization Policies

Unit Six: Growth and Productivity[CR6]

A. Investment in human capitalB. Investment in physical capitalC. Research and development, and technological developmentD. Growth policyE. Productivity

CR4- The courseprovidesinstruction in thefinancial sector.

CR5- The courseprovides instructionin inflation,unemployment, andstabilization policies.

CRG-- The courseprovidesinstruction ineconomic growthand productivity.

g~aPteIslncludedinUilitSixMcCollilell,•.•Qhapter·.17

Unit Seven: International Trade and Finance[IGR7J

Balance of payrneiltSaccounts1. Balance of trade

2. Current account3. Capital account

B. Foreign exchange market1. Demand for and supply of foreign exchange2. Exchange rate determination I3. Currency appreciation and depreciation

C. Net exports and capital flows ID. Links to financial and goods markets

Chapters Included in Unit Seven-McConnell,Chapters 6,37, and 38

CR7- The courseprovides instructionin the open economy(International trade

... andfinance). ...