AP Macroeconomics (Period 4)

AP Macroeconomics Syllabus

Course Overview
AP Macroeconomics and AP Microeconomics are taught as separate semester courses. Because the AP Exams fall in the first part of May, I teach AP Macroeconomics in the time period from the end of the winter break (this year January 8th) until three weeks before the AP exam. This gives me 15 weeks to concentrate on this material. Our school has a weird modular schedule with classes meeting three times a week for 82 minutes most days so I can cover a lot of material in each session.
The topics covered include:
A. Basic Economic Concepts requiring students to understand the existence of limited resources along with unlimited wants necessitates some form of allocation system. We introduce concepts of opportunity costs and trade-offs, specialization and exchange efficiencies, absolute and comparative advantage, fallacies such as post hoc, ergo propter hoc, the importance of property rights and the functioning of free markets, description of the business cycle.
B. Measurement of Economic Performance provides the definitions and measuring rods that are used to judge an economy’s performance including the measures of inflation unemployment and Gross Domestic Product both real and nominal. We study the circular flow model showing the interaction of the four sectors of the economy: households, business, government and international. We identify the Consumer Price Index and gross domestic product deflator.
C. In National Income and Price Determination we introduce the aggregate demand and aggregate supply model to determine and evaluate equilibrium output and price level. Aggregate demand components of consumption, investment, government expenditures and net exports. The spending multiplier and effects of crowding out are studied here as well in the context of shifts in the AD model. Aggregate supply determinants are covered as well highlighting the short and long run differences and the problems of sticky prices and wages. We then combine all the factors studied to analyze the effect of economic fluctuations in the short and long run.
D. The Financial Sector analyzes how monetary policy works through an analysis of money supply and money demand and the factors that affect each. We study the banking system including fractional reserve banking, the Federal Reserve System, the money multiplier and money creation using T-accounts. The loanable funds market is studied to see the difference with the money market and its impact on interest rates. We then study the ripple effects of interest rate on investment, investment effects on aggregate demand and the final effect on equilibrium output and price level. The distinction between nominal and real rates is explained and finally the effects of monetary policy on real output growth and inflation.
E. Inflation, Unemployment and Stabilization Policies studies how public policy affects the important economic indicators of output, price level and unemployment level in the short and long run. We study the impacts of fiscal policy and monetary policy on equilibrium values and how an economy can adjust to “shocks” to the system with and without policy actions. Short and long-run Phillips curves are studied to show the trade off between inflation and unemployment with emphasis on the significance of expectations noting the contributions of Phelps and his Nobel Prize winning work.
F. Economic Growth and Productivity studies the roles of productivity, investment in human capital, growth in the capital stock, and technical progress on long run economic growth and its effect on the standard of living. Public policy actions on these factors are also studied.
G. International Trade and Finance studies the effects on an open economy of the goods and financial interactions between countries. We study the current account and capital account balances and the effects on the foreign exchange market. The three graph model of loanable funds to net capital outflow to foreign exchange market is studied to see how market forces cause a country’s currency to appreciate or depreciate. The effect of trade restrictions on efficiency and welfare is studied as well as the effects of domestic policy actions on international finance and trade.

Text and Materials
Mankiw, N. Gregory, Principles of Economics – Fourth Edition Thomson South-Western, 2007

Mankiw, N. Gregory, Principles of Economics – Fourth Edition – Study Guide

Mankiw, N. Gregory, Principles of Economics – Fourth Edition – Macroeconomics overhead transparencies supplied with text.

Morton, John S. Advanced Placement Economics: Macroeconomics. New York: National Council on Economic Education, 2003, 3rd Edition.
Two books: Student Activities and Teacher Resources Manual.

Buchholz, Todd G., New Ideas from Dead Economists, An Introduction to Modern Economic Thought, Penguin Books, 1989, 1999

Released AP Macroeconomic Tests – 1995, 2000, 2005

AP Central Website – All Released Free Response Questions

Course Structure
In Class: Lecture style covering the material from Mankiw, N. Gregory, Principles of Economics, supplemented with overhead transparencies supplied with the text as well as video projections from the Internet. We go over the homework questions completely using the video projector and the supplied answers from the publisher website and analysis of the Activities from the Morton book.
Homework:
a. Assigned problems from Problems and Applications section from each chapter of Mankiw, N. Gregory, Principles of Economics hereafter referred to as Mankiw.
b. Activities from Morton, John S. Advanced Placement Economics: Macroeconomics - Student Activities hereafter referred to as Morton.
Assessments:
a. Unit tests comprised of selected questions from the assigned homework as well as relevant free response questions from previous AP Exams.
b. Final examination is a complete previously released AP Examination, both multiple choice and free response sections given over the course of two classes so there is a 2-hour window of completion. The final is given after the completion of the AP exams as I have 6 weeks after the exams to compute a grade for the semester.

Course Outline
Unit 0: Summer reading Time: Untimed – this is graded for the AP Microeconomics class but the knowledge is still available for this course.
Assignment: Read any five of the first ten chapters of New Ideas from Dead Economists, An Introduction to Modern Economic Thought
Assessment: Write a paper (12 point Times New Roman or Arial – minimum 3 pages, double-spaced, one inch margins.) outlining each of the chapters that you read. Then pick one of the economists and evaluate his ideas using your own thoughts and experiences, and facts garnered from newspapers, magazines, the Internet, or any other media source. You may agree or disagree with his ideas.

Unit 0: Basic Concepts Time: This material is covered in the AP Microeconomics class and is expected to be available for this course as well.
Key Topics: Scarcity, choice, opportunity costs, the invisible hand, efficiency, market failure standard of living, inflation vs. unemployment, business cycle, the circular flow diagram, microeconomics vs. macroeconomics, positive vs. normative analysis, production possibilities curve, property rights and marginal analysis.
Readings: Mankiw, Principles of Economics, chapters 1, 2 & 3
Homework: Mankiw chap. 1 # 1-10, chap. 2 #1-6, chap. 3 #1-7; Morton Activity 1,2,4,6.

Unit 1: The Data of Macroeconomics Time: 2 weeks
Key Topics: The economy’s income and expenditure circular flow diagram, definition and components of GDP, real vs. nominal GDP, GDP deflator, consumer price index, correction of indices for inflation, real vs. nominal interest rates.
Readings: Mankiw, Principles of Economics, chapters 23 & 24.
Homework: Mankiw chap. 23 #1-6, 8,9, chap. 24 #1, 33-8. Morton Activity

Unit 2: The Real Economy in the Long Run Time: 2 weeks
Key Topics: Productivity and its determination through physical capital, human capital, natural resources and technological knowledge, public policy and growth, investment from abroad, education, health and nutrition, property rights, free trade, population growth, research and development, technical progress, Malthusian prediction.
Readings: Mankiw, Principles of Economics, chapter 25
Homework: Mankiw chap.25 #1-8, 10 Morton Activity





Unit 3: Savings, Investment and the Financial Sector Time: 2 weeks
Key Topics: Financial institutions, bond market, stock market, banks, mutual funds, national income accounts Y=C + I + G + Xn, market for loanable funds, government deficits and surpluses, government debt, present value of money, managing risk, asset valuation.
Readings: Mankiw, Principles of Economics, chapters 26 & 27.
Homework: Mankiw chap.26 #1, 3-8, chap. 27 #1,2, 4-8. Morton Activity

Unit 4: Unemployment Time: 1 week
Key Topics: Measuring unemployment, unemployment rate, labor-force participation rate, frictional unemployment, unemployment insurance, minimum wage laws, unions and collective bargaining, theory of efficiency wages.
Readings: Mankiw, Principles of Economics, chapter 28.
Homework: Mankiw chap.28 # 1, 3-10. Morton Activity

Unit 5: Money and Prices Time: 2 ½ weeks
Key Topics: Functions of money, kinds of money, Federal Reserve System, FOMC, banks and the money supply, money creation and fractional-reserve banking using T-accounts, open market operations, reserve requirements, discount rate, classical theory of inflation, money supply, demand and monetary equilibrium, money velocity, hyperinflation, costs of inflation,
Readings: Mankiw, Principles of Economics, chapters 29 & 30
Homework: Mankiw chap. 29 # 1, 2, 4-10; chap. 30 #1-10; Morton Activity

Unit 6: Macroeconomics of an Open Economy Time: 2 ½ weeks
Key Topics: Exports, imports, net exports, net capital outflow, U.S. trade deficit, real and nominal exchange rates, purchasing power parity, supply and demand of loanable funds and for foreign exchange, government policy effects,
Readings: Mankiw, Principles of Economics, chapters 31 & 32
Homework: Mankiw chap. 31 # 11-10, chap. 32 # 1-9, Morton Activity

Unit 7: Short run economic fluctuations Time: 3 weeks
Key Topics: Recession, depression, business cycles, classical theories, aggregate demand and downward slope, wealth effect, interest rate effect, exchange rate effect, shifts in AD, aggregate supply, long run verticality, shifts in AS including supply “shocks”, AS upward slope in short run, monetary policy and AD, fiscal policy and AD, multiplier, crowding out, changes in taxes, active stabilization, built-in stabilization, Phillips Curve, shifts in the Phillips Curve, long run and short run Phillips curves,
Readings: Mankiw, Principles of Economics, chapters 33-35.
Homework: Mankiw chap. 33 #1-3, 5-10, 12, chap. 34 # 1-11, chap. 35 # 1-8, Morton Activity

AP Macroeconomics Examination Review
I do extensive review of microeconomics three weeks before the AP exam is given. The Economics exams are at the end of the two-week AP window and because my students take multiple AP courses, their time during the exam period for study is at a premium. I have to concentrate my review in the week preceding the onset of the exam period. The review for the macroeconomics consists of take home released AP exams from 2000 and 2005, which we then correct in class. Since they have just finished learning this material most of the class time is spent reviewing microeconomics.

Final Assessment: Semester final given after the AP Examination period is over. Final exam is the released 1995 AP exam, both multiple choice and free response sections.

After the AP Examinations are over.
There is about a 4 ½ week period after the exams are over until the end of school. I utilize this time for four activities:
a. We study chapter 36 in the Mankiw book which covers 5 debates in macroeconomic policy:
1. Should monetary and fiscal policymakers try to stabilize the economy?
2. Should monetary policy be made by rule rather than discretionary?
3. Should the central bank aim for zero inflation?
4. Should the government balance its budget?
5. Should the tax laws be reformed to encourage saving?

b. We revisit the summer assignment and the students have to evaluate their arguments in light of the knowledge gained in class. They can either support or refute their original position using theory and data that they have accumulated during the course of the semesters.

c. We did not have time to evaluate current events because of the pressure to cover all the necessary coursework for the AP exams, so we take this time to investigate current events from any media source. Each student has to prepare individually or in pairs an analysis of some current event using economic theory and data.

d. I ask each student to prepare a critique of the courses as to the preparation they received to succeed on the AP exams. They should include content and presentation matters and try to give constructive criticism where possible.