curriculum map: macroeconomics course: macroeconomics...

Curriculum Map: Macroeconomics Course: Macroeconomics (LRC) Grade: 12

Course Description:

Macroeconomics La Roche College AMG 1005 Students study basic economic concepts that include, but are not limited to, supply and demand; Gross Domestic Product (GDP); national income analysis, unemployment, inflation, macroeconomic theory, monetary policy and the Federal government, international trade and the role of the political process in economic life. This is a dual enrollment class in economics offered jointly by SJHS and La Roche College for three (3) undergraduate credits and a weighted SJHS grade. This class conforms to Advanced Placement standards.

Course Textbooks, Workbooks, Materials Citations:

1. Annenberg Media. Economics USA (Twenty-eight episodes on DVD) 2. Baumol, William and Alan S. Blinder. Macroeconomics:Principles and Policy. 11th

Edition. Cengage Publishing 2011. 3. Morton, John. Advanced Placement Instructional Package: Macroeconomics

Student Activities. Joint Council on Economic Education. 1998 4. Capstone: Exemplary Lessons for High School Economics Joint Council on

Economic Education, 2009 5. Teaching the Financial Crisis Joint Council on Economic Education, 2010 6. Virtual Economics Joint Council on Economic Education, 2007 7. Focus: Understanding Economics in Civics and Government

Curriculum Map Author(s):

Rosanne Pucciarelli

Unit: Unit 1 Basic Economic Concepts Timeline: 7 Weeks Unit Description:

Students study and analyze the fundamental economic concepts such as scarcity and opportunity costs. They recognize the distinction between absolute and comparative advantage and apply the principle of comparative advantage to determine the basis on which mutually advantageous trade can take place between individuals and/or countries, and to identify comparative advantage from differences in opportunity costs. Students also explore the functions performed by an economic system and the way the tools of supply and demand are used to analyze the workings of a free market economy. Students define and describe the business cycle to better understand economic fluctuations and to recognize the dynamics of unemployment, inflation, and economic growth. Students develop a solid foundation for a thorough understanding

of macroeconomic concepts and issues.

Unit Big Ideas:

1.Limited resources and unlimited wants require choices by individuals, groups, and nations. 2.All economic systems must answer what, and how, goods and services will be produced, and who will consume those goods and services. 3.The interaction of buyers and sellers determines prices and quantities exchanged, except when influenced by governmental policies.

Unit Essential Questions:

1. What are the economic goals of any society? 2. How does a production possibilities model illustrate the economic problem of scarcity, choice, and cost? 3. What are the guideposts to economic thinking? 4. Why do people trade? 5. Why is equilibrium important in a market economy? 6. How do government price ceilings, supports, and taxation affect equilibrium price and quantity? 7. What is marginal utility and how does in determine what consumers will buy?

Unit Key Terminology & Definitions :

1. Elasticity: The relative response of one variable to changes in another variable. The phrase "relative response" is best interpreted as the percentage change. For example, the price elasticity of demand, one of the more important applications of this concept in economics, is the percentage change in quantity demanded measured against the percentage change in price. Other notable economic elasticities are the price elasticity of supply, income elasticity of demand, and cross elasticity of demand.

2. Economic growth - An increase in the total output of a nation over time. Economic growth is usually measured as the annual rate of increase in a nation's real GDP.

3. Full employment - A term that is used in many senses. Historically, it was taken to be that level of employment at which no (or minimal) involuntary unemployment exists. Today economists rely upon the concept of the natural rate of unemployment to indicate the highest sustainable level of employment over the long run.

4. Capital - All buildings, equipment and human skills used to produce goods and services.

5. Capital resources - Goods made by people and used to produce other goods and services. Examples include buildings, equipment, and machinery.

6. Government - National, state and local agencies that use tax revenues to provide goods and services for their citizens.

7. Gross domestic product (GDP) - The value, expressed in dollars, of all final goods and services produced in a year.

8. Inflation - A sustained and continuous increase in the general price level.

9. Real Gross domestic product (GDP), - GDP corrected for inflation. 10.Economic Goals: Five basic conditions of the economy that are

generally desired by society. They are typically divided into macro goals (full employment, stability and growth) and micro goals (efficiency and equity).

11.Production Possibility Curve (or Frontier) PPC -A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPC assumes that all inputs are used efficiently.

12.Productive resources - All natural resources (land), human resources (labor), and human-made resources (capital) used in the production of goods and services.

13.Specialization - The situation in which people produce a narrower range of goods and services than they consume.

14.Standard of living - A minimum of necessities, comforts, or luxuries held essential to maintaining a person or group in customary or proper status or circumstances.

15.Marginality- In economics marginality is the focus on how one thing changes if something else changes just slightly.

16.Incentives - Factors that motivate and influence the behavior of households and businesses. Prices, profits, and losses act as incentives for participants to take action in a market economy.

17.Ceteris Paribus: A Latin term meaning that all other factors are held unchanged. The ceteris paribus assumption is used to isolate the effect one economic factor has on another. Without this assumption, it would be difficult to determine cause and effect in the economy. Relaxing the ceteris paribus assumption is the primary analytical technique used in the study of economics, especially when analyzing the market. Much like a chemist adds one chemical at a time to a mixture to determine the resulting reaction, an economist relaxes one ceteris paribus assumption at a time to observe the results.

18.Production function: A mathematical way to describe the relationship between the quantity of inputs used by a firm and the quantity of OUTPUT it produces with them. If the amount of inputs needed to produce one more unit of output is less than was needed to produce the last unit of output, then the firm is enjoying increasing RETURNS to scale (or increasing MARGINAL product). If each extra unit of output requires a growing amount of inputs to produce it, the firm faces diminishing returns to scale (diminishing marginal product).

19.Absolute advantage: This is the simplest yardstick of economic performance. If one person, firm or country can produce more of something with the same amount of effort and resources, they have an absolute advantage over other producers. Being the best at something does not mean that doing that thing is the best way to use your scarce economic resources. The question of what to specialise in--and how to maximise the benefits from international trade--is best decided according to comparative advantage. Both absolute and comparative advantage may change significantly over time.

20.Comparative advantage: Paul Samuelson, one of the 20th century's greatest economists, once remarked that the principle of comparative advantage was the only big idea that ECONOMICS had produced that was both true and surprising. It is also one of the oldest theories in economics, usually ascribed to DAVID RICARDO. The theory underpins the economic case for FREE TRADE. But it is often misunderstood or misrepresented by opponents of free trade. It shows how countries can gain from trading with each other even if one of them is more efficient -

it has an ABSOLUTE ADVANTAGE - in every sort of economic activity. Comparative advantage is about identifying which activities a country (or firm or individual) is most efficient at doing.To see how this theory works imagine two countries, Alpha and Omega. Each country has 1,000 workers and can make two goods, computers and cars. Alpha's economy is far more productive than Omega's. To make a car, Alpha needs two workers, compared with Omega's four. To make a computer, Alpha uses 10 workers, compared with Omega's 100. If there is no trade, and in each country half the workers are in each industry, Alpha produces 250 cars and 50 computers and Omega produces 125 cars and 5 computers.What if the two countries specialise? Although Alpha makes both cars and computers more efficiently than Omega (it has an absolute advantage), it has a bigger edge in computer making. So it now devotes most of its resources to that industry, employing 700 workers to make computers and only 300 to make cars. This raises computer output to 70 and cuts car production to 150. Omega switches entirely to cars, turning out 250.World output of both goods has risen. Both countries can consume more of both if they trade, but at what PRICE? Neither will want to import what it could make more cheaply at home. So Alpha will want at least 5 cars per computer, and Omega will not give up more than 25 cars per computer. Suppose the terms of trade are fixed at 12 cars per computer and 120 cars are exchanged for 10 computers. Then Alpha ends up with 270 cars and 60 computers, and Omega with 130 cars and 10 computers. Both are better off than they would be if they did not trade.

21.Scarcity: Supplies of the FACTORS OF PRODUCTION are not unlimited. This is why choices have to be made about how best to use them, which is where ECONOMICS comes in. MARKET FORCES operating through the PRICE MECHANISM usually offer the most efficient way to allocate scarce resources, with GOVERNMENT planning playing at most a minor role. Scarcity does not imply POVERTY. In economic terms, it means simply that needs and wants exceed the resources available to meet them, which is as common in rich countries as in poor ones.

22.Business cycle: Boom and bust. The long-run pattern of economic growth and recession. According to the Center for International Business Cycle Research at Columbia University, between 1854 and 1945 the average expansion lasted 29 months and the average contraction 21 months. Since the second world war, however, expansions have lasted almost twice as long, an average of 50 months, and contractions have shortened to an average of only 11 months. Over the years, economists have produced numerous theories of why economic activity fluctuates so much, none of them particularly convincing. A Kitchin cycle supposedly lasted 39 months and was due to fluctuations in companies' inventories. The Juglar cycle would last 8-9 years as a result of changes in investment in plant and machinery. Then there was the 20-year Kuznets cycle, allegedly driven by house-building, and, perhaps the best-known theory of them all, the 50-year kondratieff wave. hayek tangled with keynes over what caused the business cycle, and won the nobel prize for economics for his theory that variations in an economy's output depended on the sort of capital it had. Taking a quite different tack, in the late 1960s Arthur Okun, an

economic adviser to presidents Kennedy and Johnson, proclaimed that the business cycle was "obsolete". A year later, the American economy was in recession. Again, in the late 1990s, some economists claimed that technological innovation and globalisation meant that the business cycle was a thing of the past. Alas, they were soon proved wrong.

23.Opportunity Cost The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits (UTILITY) that you did without because you bought (or did) that particular something and thus can no longer buy (or do) something else. For example, the opportunity cost of choosing to train as a lawyer is not merely the tuition fees, PRICE of books, and so on, but also the fact that you are no longer able to spend your time holding down a salaried job or developing your skills as a footballer. These lost opportunities may represent a significant loss of utility. Going for a walk may appear to cost nothing, until you consider the opportunity forgone to use that time earning money. Everything you do has an opportunity cost (see SHADOW PRICE). Economics is primarily about the efficient use of scarce resources, and the notion of opportunity cost plays a crucial part in ensuring that resources are indeed being used efficiently.

24.Supply: One of the two words economists use most, along with DEMAND. These are the twin driving forces of the market economy. Supply is the amount of a good or service available at any particular PRICE. The law of supply is that, other things remaining the same, the quantity supplied will increase as the price increases. The actual amount supplied will be determined, ultimately, by what the market price is, which depends on the amount demanded as well as what suppliers are willing to produce. What suppliers are willing to supply depends on several things:the cost of the FACTORS OF PRODUCTION;technology;the price of other goods and SERVICES (which, if high enough, might tempt the supplier to switch production to those products); and the ability of the supplier accurately to forecast demand and plan production to make the most of the opportunity.

25.Supply curve: A graph of the relationship between the PRICE of a good and the amount supplied at different prices.

26.Demand:One of the two words economists use most; the other is SUPPLY. These are the twin driving forces of the market economy. Demand is not just about measuring what people want; for economists, it refers to the amount of a good or service that people are both willing and able to buy. The DEMAND CURVE measures the relationship between the PRICE of a good and the amount of it demanded. Usually, as the price rises, fewer people are willing and able to buy it; in other words, demand falls (but see GIFFEN GOODS, NORMAL GOODS and INFERIOR GOODS). When demand changes, economists explain this in one of two ways. A movement along the demand curve occurs when a price change alters the quantity demanded; but if the price were to go back to where it was before, so would the amount demanded. A shift in the demand curve occurs when the amount demanded would be different from what it was previously at any chosen price, for example, if there is no change in the market price, but

demand rises or falls. The slope of the demand curve indicates the ELASTICITY of demand. Policymakers seek to manipulate aggregate demand to keep the economy growing as fast as is possible without pushing up INFLATION. Keynesians try to manage demand through FISCAL POLICY; monetarists prefer to use the MONEY SUPPLY. Neither approach has been especially successful in practice, particularly when attempting to manage short-term demand through FINE TUNING.

27.Demand curve: A graph showing the relationship between the price of a good and the amount of DEMAND for it at different PRICES.

28.Economics:The “dismal science”, according to Thomas Carlyle, a 19th-century Scottish writer. It has been described in many ways, few of them flattering. The most concise, non-abusive, definition is the study of how society uses its scarce resources.

29.Efficiency: Getting the most out of the resources used. Factors of production. The ingredients of economic activity: land, labour, capital and enterprise.

30.Capitalism: The winner, at least for now, of the battle of economic 'isms'. Capitalism is a free-market system built on private ownership, in particular, the idea that owners of CAPITAL have PROPERTY RIGHTS that entitle them to earn a PROFIT as a reward for putting their capital at RISK in some form of economic activity. Opinion (and practice) differs considerably among capitalist countries about what role the state should play in the economy. But everyone agrees that, at the very least, for capitalism to work the state must be strong enough to guarantee property rights.

31.Communism: The enemy of CAPITALISM and now nearly extinct. Invented by KARL MARX, who predicted that feudalism and capitalism would be succeeded by the 'dictatorship of the proletariat', during which the state would 'wither away' and economic life would be organised to achieve 'from each according to his abilities, to each according to his needs'. The Soviet Union was the most prominent attempt to put communism into practice and the result was conspicuous failure, although some modern followers of Marx reckon that the Soviets missed the point.

32.Socialism: The exact meaning of socialism is much debated, but in theory it includes some collective ownership of the means of production and a strong emphasis on equality, of some sort.

Unit Student Learning Outcomes:

1. Define scarcity. 2. Define, compute and apply opportunity cost. 3. Describe the Production Possibilities Curve and construct and interpret production possibilities schedules, and graphs; relate production possibilities curves to the issues of scarcity, choice and cost. 4. Define, describe and calculate absolute and comparative advantages for production

exchange. 5. Identify, describe and discuss the functions of any economic system. 6. Compare ways societies determine allocation, efficiency, and equity

Unit Instructional Procedures, Activities & Labs:

Instructional Procedures, Activities are contained within each "core" lesson.

Unit Student Performance Tasks:

Daily reading assignments Formative Assessments In class small group assignments Written homework (at least twice a week) Summative Assessment Exam

Unit Standards:

APSS ECO. 2.1 A, 2.1 B, 2.1 C, 2.1 D, 2.1 E.

Unit Materials:

Text: Advanced Placement Instructional Package: Microeconomics Film: Economics USA Episode 1 "Resources and Scarcity", Episode 2 "Markets and Prices" and Episode 3 "Supply and Demand."

Unit Assignments:

Chapters 1-4 in Macroeconomics: Principles and Policy

STANDARDS NATIONAL: AP - Advanced Placement Standards (2006-2009) APSS-ECO.1.1.D (Advanced)

Economic Systems

APSS-ECO.2.1.A (Advanced)

Scarcity, Choice, and Opportunity Costs

APSS-ECO.2.1.B (Advanced)

Production Possibilities Curve

APSS-ECO.2.1.C (Advanced)

Comparative Advantage, Absolute Advantage, Specialization, and Exchange

APSS-ECO.2.1.D (Advanced)

Demand, Supply, and Market Equilibrium

APSS-ECO.2.1.E (Advanced)

Macroeconomic Issues: Business Cycle, Unemployment, Inflation, Growth

APSS-ECO.2.2.C.1 (Advanced)

Definition and Measurement


Types of Unemployment


Natural Rate of Unemployment

../../../../../Users/spalumbo/Shared/StateStandardDisplay.aspx?sid=200000398


















Unit: Unit 2 Measurement of Economic Performance Timeline: 6 Weeks Unit Description:

Students will get an overview of how the economy works, the unit will start with a model of the circular flow of income and products that contains the four sectors: households, businesses, government, and international . It is important to identify and 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 that students learn how gross domestic product is measured, have a clear understanding of its components, and be able to distinguish between real and nominal gross domestic product. The unit should examine the nature and causes of unemployment, the costs of unemployment, and how the unemployment rate is measured, including the criticisms associated with the measurement of the unemployment rate . It is also important to understand the concept of the natural rate of unemployment and the factors that affect it. Students should also have an understanding of inflation and how it is measured. In this section, the course should cover the costs of inflation; the main price indices, such as the consumer price index (CPI) and the gross domestic product deflator. Students should learn how these indices are constructed and used to convert nominal values into real values, as well as to convert dollar values in the past to dollar values in the present. It is also important to highlight the differences between the two price indices as a measure of inflation, as well as the problems associated with each measure.

Unit Big Ideas:

1. Inflation causes uncertainty and anxiety 2. There are high human costs to unemployment.


1. What are the measures of national economic performance? 2. How can we measure the level of real performance? 3. Who is helped and who is harmed by inflation? 4. How does a circular flow describe the economy of the United States? 5. What is meant by unemployment?


1. Consumer Price Index: An index of prices of goods and services typically purchased by urban consumers. The Consumer Price Index, commonly known by its abbreviation, CPI, is compiled and published monthly by the Bureau of Labor Statistics (BLS), using price data obtained from an elaborate survey of 25,000 retail outlets and quantity data generated by the Consumer Expenditures Survey. The CPI is unquestionably one of the most widely recognized macroeconomic price indexes, running second only to the Dow Jones averages in the price index popularity contest. It is used not only as an indicator of the price level and inflation, but also to convert nominal economic indicators to real terms and to adjust wage and income payments (such as Social Security) for inflation. 2. Constant GDP: The total market value, measured in constant prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that constant gross domestic product is measured in constant prices, the prices for a specific base year. Constant gross

domestic product, also termed real gross domestic product, adjusts gross domestic product for inflation. 3. Inflation: A persistent increase in the average price level in the economy. Inflation occurs when the AVERAGE price level (that is, prices IN GENERAL) increases over time. This does NOT mean that ALL prices increase the same, nor that ALL prices necessarily increase. Some prices might increase a lot, others a little, and still other prices decrease or remain unchanged. Inflation results when the AVERAGE of these assorted prices follows an upward trend. Inflation is the most common phenomenon associated with the price level. 4. Unemployment: The general condition in which resources are willing and able to produce goods and services but are not engaged in productive activities. While unemployment is most commonly thought of in terms of labor, any of the other factors of production (capital, land, and entrepreneurship) can be unemployed as well. The analysis of unemployment, especially labor unemployment, goes hand-in-hand with the study of macroeconomics that emerged from the Great Depression of the 1930s. 5. Gross Domestic Product and National Income: Gross domestic product (GDP) is the total market value of all final goods and services produced within the political boundaries of an economy during a given period of time, usually a year. National income (NI) is the total income earned by the citizens of the national economy resulting from their ownership of resources used in the production of final goods and services during a given period of time, usually one year. While the vast majority of domestic production is undertaken by domestic factors of production (national income is about 80% of gross domestic product) key differences do exist. The six main differences between gross domestic product and national income are (1) capital consumption adjustment, (2) indirect business taxes, (3) business transfer payments, (4) net foreign factor income, (5) government subsidies, and (6) statistical discrepancy. 6. Cost of Living: The amount of income or money needed to acquire a given quantity of goods and services or to achieve a given living standard. This cost of living notion is closely intertwined with inflation, the economy's price level, and the concept of purchasing power. The cost of living is typically indicated by a price index such as the 7. Consumer Price Index (CPI). The CPI, for example, measures the changing cost of a specific market basket of goods. An increase in the CPI indicates that the cost of this market basket has increased, and presumably so too has the cost of living. In fact, labor union wages, benefits paid to Social Security recipients, and similar income sources are regularly adjusted for changes in the cost of living using the CPI. 8. GDP Deflator: A price index based on the calculation of real gross domestic product that's used as an indicator of average prices in the economy. Those loveable economists who spend their days and nights compiling and estimating the size of our economic pie provide estimates of gross domestic product in both nominal dollars and real dollars. 9. Consumption Expenditures: The common term for expenditures by the household sector on gross domestic product. In general consumption expenditures include the wide assortment of goods and services purchased by the household sector that provide satisfaction of wants and needs. Consumption expenditures are divided into three categories -- durable, nondurable, and services. 10. Investment: The sacrifice of current benefits or rewards to pursue an activity with expectations of greater future benefits or rewards. Investment is typically used to mean the purchase of capital by business in anticipation of the profit. By increasing the quantity or quality of resources, investment is a source of economic growth. While

investment, in principle is diverse, in practice, the official government measure, as reported by the Department of Commerce, includes businesses' purchases of capital and consumers' purchases of new houses. 11. Government Purchases of Goods and Services: Expenditures on final goods and services (that is, gross domestic product) undertaken by the government sector. The official entry for government purchases in the National Income and Product Accounts maintained by the Bureau of Economic Analysis is termed government consumption expenditures and gross investment. Government purchases are used to operate the government (administrative salaries, etc.) and to provide public goods (national defense, highways, etc.). Government purchases do not include other government spending for transfer payments. These are expenditures on final goods by all three levels of government: federal, state, and local governments. 12. Net Exports of Goods and Services: The official item in the National Income and Product Accounts maintained by the Bureau of Economic Analysis measuring net exports by the foreign sector. Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports and negative when exports are less than imports. In recent years, net exports of goods and services have been negative. 13. Circular Flow: The continuous movement of production, income, and resources between producers and consumers. This flow moves through product markets as the gross domestic product of our economy and is then the revenue received by the business sector in payment for this production. This stream of revenue then flows through resource markets as payments by businesses for the resources employed in production. The payments received by resource owners, however, is nothing more than the income of the household sector. The resource owners of the household sector use this income to purchase goods and services through the product markets, coming full circle to where we began. 14. Leakage: A line used in the injection-leakage model representing the relation between non-consumption uses of income (that is, leakages) and national income. The three leakages are saving, taxes, and imports. The foundation of the leakages line is the saving line, which is then enhanced by adding taxes and imports. The other part of the injection-leakage model is a line representing injections. The intersection of the injection and leakage lines identifies equilibrium aggregate output, or Keynesian equilibrium. A non-consumption expenditure on gross domestic product, including investment expenditures, government purchases, and exports. Injections are combined with leakages in the injection-leakage model used to identify equilibrium aggregate output in Keynesian economics. The notion of injection is best viewed through the circular flow, in which investment expenditures, government purchases, and exports are "injected" into the main flow between output, factor payments, national income, and consumption. 15. Factors of Production: The four basic factors used to produce goods and services in the economy--labor, capital, land, and entrepreneurship. These are also called resources or scarce resources. The term "factors of production" is quite descriptive of the function these "resources" perform. Labor, capital, land, and entrepreneurship are the four "factors" or items use in the "production" of goods and services. So there you have it "factors" of "production." 16. Full Employment: In principle, this is when all of our economy's resources are being used to produce output. This is one of the five economic goals, specifically one of the three macro goals (the other two are economic growth and stability). In

practice, our economy is considered to be at full employment when the unemployment rate is around 5 to 5 1/2 percent and the capacity utilization rate is about 85 percent. This unemployment rate includes structural and frictional unemployment. 17. Transfer Payment: A payment made without any corresponding production or expectations of production. Unless otherwise noted (such as business transfer payments), the term transfer payments generally refers to payments by the government sector to the household sector. The three most important transfer payments in our economy are for Social Security, unemployment compensation, and welfare. The intent of these transfers payments is to redistribute income, and thus the goods and services that can be had with the income. Transfer payments surface as income received but not earned (IRBNE) added to national income to derived personal income. 18. Structural Unemployment: Unemployment caused by a mismatch between workers' skills and skills needed for available jobs. Structural unemployment essentially occurs because resources, especially labor, are configured (trained) for a given technology but the economy demands goods and services using another technology. Employers seek workers who have one type of skill and workers who seek employment have a different type of skill. This mismatch in skills, which is largely the result of technological progress, creates unemployment of the structural variety. Structural unemployment is one of four unemployment sources. The other three are cyclical unemployment, seasonal unemployment, and frictional unemployment. 19. Frictional Unemployment: Unemployment attributable to the time required to match production activities with qualified resources. Frictional unemployment essentially occurs because resources, especially labor, are in the process of moving from one production activity to another. Employers are seeking workers and workers are seeking employment, the two sides just haven't matched up. Hence unemployment of the frictional variety increases. This mismatch is largely the result of limited information, which is often compounded by geographic separation between producer and resource. Frictional unemployment is one of four unemployment sources. The other three are cyclical unemployment, seasonal unemployment, and structural unemployment. 20. Cyclical Unemployment: Unemployment attributable to a general decline in macroeconomic activity, especially expenditures on gross domestic product, that occurs during a business-cycle contraction. When the economy dips into a contraction, or recession, aggregate demand declines, so less output is produced and fewer workers and other resources are employed. Hence unemployment of the cyclical variety increases. Cyclical unemployment is one of four unemployment sources. The other three are seasonal unemployment, frictional unemployment, and structural unemployment. 21. Growth Rate: The percentage change in a variable from one year to the next. The growth rate, in effect, measures how much the variable is growing over time. In that economists (as well as regular human people) are quite interested in economic growth, progress, and a lessening of the scarcity problem, growth rates for different economic variables are closely scrutinized. Among the most important are: real gross domestic product, population, and per capita income. Growth rates are important not only for the analysis of long-run progress (economic growth, economic development), but also short-run instability (business cycles) 22. Potential Real Gross Domestic Product: The total real output (real gross domestic product) that the economy could produce if resources are fully employed. In other words, the economy is operating ON the production possibilities frontier. Full employment is generally indicated by achieving what is termed the natural

unemployment rate, which is an unemployment rate in the neighborhood of about 5%. If the economy is at full employment then actual gross domestic product is equal to potential gross domestic product and the actual unemployment rate is equal to the natural unemployment rate. The macroeconomy is thus living up to its potential, at least in terms of producing wants-and-needs satisfying goods and services. 23. Economic Goals: Five basic conditions of the economy that are generally desired by society. They are typically divided into macro goals (full employment, stability and growth) and micro goals (efficiency and equity). 24. Business Cycle: The recurring, but irregular, pattern of business cycles can be divided into two basic phases -- expansion and contraction. An expansion is a period of increasing economic activity and a contraction is a period of declining economic activity. These two phases are marked by two transitions. The transition from expansion to contraction is termed a peak and the transition from contraction to expansion is termed a trough. The early portion of an expansion is often referred to as a recovery.


At the completion of this unit, students will be able to: 1. Define GDP and explain why the value of production, income and expenditures are the same for an economy Expenditure Approach/Income Approach 2. Explain the circular flow model and use the model to explain how households, firms, government and international markets interact (to constitute GDP) 3. Distinguish between nominal GDP and real GDP. 4. Explain and describe limitations of real GDP as a measure of economic well being. 5. Explain what the consumer price index is and how it is calculated. 6. Explain limitations of the CPI 7. Use the CPI to explain inflation and to calculate real values (wages, interest rates, prices) 8. Define unemployment rate and its relationship with GDP Describe sources and types of unemployment.


Instructional Procedures, Activities are contained in the "core" lessons.



Unit Standards:

APSS ECO. 2.2 A1-A4, 2.2 B1-B4, 2.2 C1-C4.

Unit Materials:

Macroeconomics, Principles and Policy Advanced Placement Instructional Package (APIP) Films: Economics USA: Episode 4 "Booms and Bust" and Episode 7 "Inflation"

Unit Assignments:

Chapters 5, 6, and 7 in Macroeconomics: Principles and Policy.

Unit Notes:

This is a great deal of material to cover but the bulk of it is rote and not terrifically difficult or intellectually demanding.

STANDARDS NATIONAL: AP - Advanced Placement Standards (2006-2009) APSS-ECO.2.2.A (Advanced)

National Income Accounts

APSS-ECO.2.2.A.1 (Advanced)

Circular Flow


Gross Domestic Product


Components of Gross Domestic Product


Real Versus Nominal Gross Domestic Product


Inflation Measurement and Adjustment

APSS-ECO.2.2.B.1 (Advanced)

Price Indices


Nominal and Real Values


Costs of Inflation


Unemployment

Unit: Unit 3 National Income and Price Determination Timeline: 8 Weeks Unit Description:

This section introduces students to the aggregate supply and aggregate demand model to explain the determination of equilibrium national output and the general price level, as well as to analyze and evaluate the effects of public policy. It is important to discuss the aggregate demand and aggregate supply concepts individually to provide students a firm understanding of the mechanics of the aggregate demand and aggregate supply model. The aggregate demand and aggregate supply analysis often begins with a general discussion of the nature and shape of the aggregate demand and aggregate supply curves and the factors that affect them. A





















detailed study of aggregate demand may begin by defining the four components of aggregate demand: consumption, investment, government spending, and net exports. It also examines why the aggregate demand curve slopes downward and how changes in the determinants affect the aggregate demand curve. The spending-multiplier concept and its impact on aggregate demand, and how crowding out lessens this impact, should be demonstrated as well. The course can then present the definition and determinants of aggregate supply, the different views about the shape of the aggregate supply curve in the short run and in the long run, and highlight the importance of the shape in determining the effect of changes in aggregate demand on the economy. It is also important to understand the notion of sticky-price and sticky-wage models and their implication for the aggregate supply curve in comparison to flexible prices and wages. Students should understand the distinction between nominal and real interest rates. Students should also be introduced to the quantity theory of money, and examine and understand the effect of monetary policy on real output growth and inflation. Students should be able to use the aggregate demand and aggregate supply model to determine equilibrium income and price level and to analyze the impact of economic fluctuations on the economy’s output and price level, both in the short run and in the long run.

Unit Big Ideas:

1. "In the long run, we are all dead." John Maynard Keynes. 2. The market economy, while the most efficient way to allocate resources, creates inequality.


1. What are the different models that explain the status of the national economy? 2. How does each of the models suggest a method and strategy for dealing with national economic problems? 3. How does the AS/AD model compare with the Aggregate Expenditure Model (Keynesian Model) as they attempt to explain the national economy? 4. How does the AS/AD model compare with the Keynesian model as they attempt to explain the national economy?


1. Aggregate Demand-The total amount that all consumers, business firms, government agencies, and foreigners spend on final goods and services. 2. Consumer Expenditure (C)- the total amount spent by consumers on newly produced goods and services (excluding purchases of new homes which are considered investment (I). 3. Investment Spending (I)- the sum of the expenditures of business firms on new plant and equipment and households on new homes. Financial "investments" are not included, nor are resales of existing assets. 4. Government Purchases (G)- refer to the goods and services purchased by all levels of government. 5. Net Exports or X-M- the difference between exports (X) and imports (IM.) It indicates the difference between what we sell to foreigners and what we buy from them. 6. Consumption Function-shows the relationship between total consumer expenditures and total disposable income in the economy, holding all other determinants of consumer spending constant. 7. Marginal Propensity to Consume- the ratio of the change of consumption relative to the change in disposable income that produces the change in consumption. On a graph, it appears as the slope of the consumption function. 8. Scatter Diagram- a graph showing the relationship between two variables. Each

year is represented by a point in the diagram, and the coordinates of each year's point show the values of the two variable in that year. 9. Aggregate Supply Curve- Shows, for each possible price level, the quantity of goods and services that all the nation's businesses are willing to produce during a specified period of time, holding all other determinants of aggregate quantity supply constant. 10. Productivity- the amount of output produced by a unit of input. 11. Self-Correcting Mechanism-refers to the way money wages react to either a recessionary gap or an inflationary gap. Wage changes shift the aggregate supply curve, and therefore change equilibrium GDP and the equilibrium price level. 12. The interest-rate effect is defined as a decrease in households’and businesses’plans to buy capitaland consumer durables because a price level increase will increase the interest rate. A price level increase decreases the purchasing power of money.With a smaller amount of real money available,financial institutions raise the interest rate. 13. The wealth effect is defined as a decrease in thereal value of cash balances as the price levelincreases.Faced with this decrease in real wealth,people decrease consumption and increase savingsto restore their real wealth to the desiredlevel.An alternative term is the real balance effect. 14. The net export effect is defined as a decrease in domestic output demanded with an increase in the domestic price level because domestic products are more expensive to foreign buyers and foreign goods are less expensive to domestic consumers.


1. Explain the factors that constitute a downward sloping Aggregate Demand (AD) Income, real interest rates, and net exports effects. 2. Explain the factor that influences the AD. 3. Explain the factors that constitute an upward sloping Aggregate Supply (AS) curve. 4. Explain the factors that influence the aggregate supply curve Use the AS/AD model to explain fluctuations in the economy. Aqs=Aqd constitutes equilibrium in the economy (LR) 5. Explain distinctions between potential GDP and actual GDP. Relationship between potential GDP and investment and capital; labor markets Aqs=Aqd constitutes equilibrium in the economy and now compare/contrast with real GDP. (LR) 6. Explain distinctions between natural rate of employment or full employment and actual rate of unemployment Relationship between AS/AD model and unemployment 7. Introduce and explain aggregate expenditure model (Keynesian Income Expenditure Model) with fixed prices. 8. Distinguish between autonomous expenditures and induced expenditures and how it influences GDP 9. Explain how GDP adjust to equilibrium. 10. Describe and explain the expenditure multiplier. 11. Derive AD form the expenditure model


Daily reading assignments Formative Assessments In class small group assignments Written homework (at least twice a week) Summative Assessment

Exam

Unit Standards:

APSS. ECO. 2.3 A1-A2, 2.3 B1-B3, 2.3 C1-C3.

Unit Materials:

Text: Macroeconomics: Principles and Policy Advanced Placement Instructional Package (APIP) Films: Economics USA: Episodes 5 "John Maynard Keynes" and Episode 14 "Stabilization Policy."

Unit Assignments:

Chapters 8 and 9 in Macroeconomics: Principles and Policy.

STANDARDS NATIONAL: AP - Advanced Placement Standards (2006-2009) APSS-ECO.2.3.A.1 (Advanced)

Determinants of Aggregate Demand


Multiplier and Crowding-out Effects


Short-run and Long-run Analysis


Sticky Versus Flexible Wages and Prices


Determinants of Aggregate Supply


Real Output and Price Level


Short and Long Run


Actual Versus Full-Employment Output


Economic Fluctuations

Unit: Unit 4 The Financial Sector Timeline: 4 Weeks Unit Description:

To understand how monetary policy works, students must understand the definitions of 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 financial assets, such as bonds and stocks, the time value of money, measures of the money supply, fractional reserve banking, and the Federal Reserve System . In presenting the money supply, it is important to introduce the process of multiple-deposit expansion and money creation using T-accounts, and the use of the money multiplier . In learning about monetary policy, it is important to define money demand and examine its determinants . Having completed the study of money supply



















and money demand, the course should proceed to investigate how equilibrium in the money market determines the equilibrium nominal interest rate . Using the investment demand curve, the students should establish the link between changes in the real interest rate and changes in aggregate demand and understand how changes in aggregate demand affect real output and price level . Students should have an understanding of financial markets and the working of the loanable funds market in determining the real interest rate . It is also important that students develop a clear understanding of the differences between the money market and the loanable funds market

Unit Big Ideas:

1. Money has no value. 2. Ben Bernanke is the "master of the universe."


1. What is monetary policy? 2. How do banks operate? 3. How does the FED promote a fully employed economy? 4. What does velocity have to do with monetary policy?


1. Money: Anything that is generally accepted in exchange as payment for goods and services. The emphasis is on "any," because any item or asset can serve as money so long as it is generally accepted in payment throughout an economy. While the key function of money is acting as a medium of exchange, money also functions as a store of value, standard unit of account, and standard of deferred payment. 2. Money Creation: The process in which banks increase the amount of funds in checkable deposits by using reserves to make loans. Money creation is an important process in the economy because it means that the government does not have total control over the money supply. 3. Money Characteristics: Almost any item, any asset, any "thing" can function as money so long as it is generally accepted as payment. In fact, a lot of different "things" have been used as money over the centuries. While a number of "things" have been used as money, some have worked better than others. Those "things" that didn't work so well were replaced by other "things" that worked better. Those "things" that worked best tended to have four basic characteristics: (1) durability, (2) divisibility, (3) transportability, and (4) noncounterfeitability. 4. Money Supply: The quantity of money balances that exists in the economy. The money supply is controlled by the Federal Reserve System through its monetary policy. 5. Monetary Policy: The Federal Reserve System's use of the money supply to stabilize the business cycle. As the nation's central bank, the Federal Reserve System determines the total amount of money circulating around the economy. In principle, the Fed can use three different "tools"--open market operations, the discount rate, and reserve requirements--to manipulate the money supply. In practice, however, the primary tool employed is open market operations. To counter a recession, the Fed would undertake expansionary policy, also termed easy money. To reduce inflation, contractionary policy is the order of the day, and goes by the name tight money. 6. Money Market: A financial market that trades U.S. Treasury bills, commercial paper and other short-term financial instruments. This market is often used by businesses when they need short-term funds to bridge the gap between paying operating costs and collecting revenue from product sales. As such, the term "money" in money market indicates that businesses are using highly liquid instruments to raise the money need for operating expenses.

7. Money Demand: The quantity of money balances that the public wants to hold. The are three basic motives for holding money: for transactions, as a precaution, and for speculation. 8. Federal Open Market Committee: A part of the Federal Reserve System that's specifically responsible for directing open market operations, and is more generally charged with guiding the nation's monetary policy. The FOMC includes the 7 members of the Fed's Board of Governors and 5 of the 12 presidents of Federal Reserve District Banks. The chairman of the Federal Reserve System is also the chairman of the FOMC. The FOMC meets every 45 days to evaluate monetary policy.erm federal funds rate Definition: The interest rate that banks charge each other when loaning bank reserves through the federal funds market. This is a key interest rate in the economy because helps to determine banks' minimum cost of getting funds. If the federal funds rate is higher, then banks are likely to raise the interest rates they charge, like the prime rate, home mortgage rate, or rate on car loans. 9. Federal Reserve System: THE central bank of the United States. It includes a Board of Governors, 12 District Banks, 25 Branch Banks, and assorted committees. The most important of these committees is the Federal Open Market Committee, which directs monetary policy. The Fed (as many like to call it) was established in 1913 and modified significantly during the Great Depression of the 1930s. It's duties are to maintain the stability of the banking system, regulate banks, and oversee the nation's money supply. 10. Fractional-Reserve Banking: A system in which banks keep less than 100 percent of their deposits in the form of bank reserves and use the rest for interest-paying loans. Banks in the U. S., as well as those in most other modern countries, practice this system of fractional-reserve banking. 11. Real Interest Rate: The market, or nominal interest rate, after adjusting for inflation. This is the interest rate lenders receive and borrowers pay expressed in real dollars. There two ways to think about the real interest rate, (1) the historical, after-the-fact, interest rate and (2) the desired interest rate lenders and borrowers have in mind when entering into a loan. The first one tells us the purchasing power of any interest payments received or paid. The second way of looking at the real interest rate is based on expectations of the future. 12. Moral Suasion: Government policy in which policy makers or leaders encourage or discourage particular behavior using information requests of consumers, business, and others, without formal actions such as laws or regulations. The use of moral suasion can be somewhat effective during short-term crises situations, such as wars, energy shortages, or financial instability. Moral suasion is occasionally used for monetary policy when the Federal Reserve System doesn't want to, or have the time to, use other monetary policy tools.


1. Define money and describe its functions 2. Describe the monetary system and explain the functions of banks, balance sheets required and excess reserves. 3. Understand money creation and destruction through loans and repaying loans, deposit money multiplier effect, loanable fund market and LR interest rates. 4. Describe and explain the time value of money bond market, money demand and money market and SR interest rates. 5. Describe the functions of the Federal Reserve System. Organization Tools of the FED; open market operations; required reserves; discount rates Creation of nominal interest rates by the FED.


Instructional Procedures, Activities are to be found within each "core" lesson.



Unit Standards:

APSS. ECO. 2.4 A1-A7, 2.4 B1-B3

Unit Materials:

Text: Advanced Placement Instructional Package (APIP) Film: Economics USA: Episodes 8 "The Banking System" and Episode 9 "The Federal Reserve"

Unit Assignments:

Chapters 12 and 13 in Macroeconomics: Principles and Policy


Definition of Financial Assets: Money, Stocks, Bonds


Time Value of Money (present and future value)


Measures of Money Supply


Banks and Creation of Money


Money Demand


Money Market


Loanable Funds Market


Central Bank and Control of the Money Supply


Tools of Central Bank Policy


Quantity Theory of Money


Real Versus nominal Interest Rates























Unit: Unit 5 Inflation, Unemployment, and Stabilization Policies Timeline: 4 Weeks Unit Description:

Public policy can affect the economy’s output, price level, and level of employment, both in the short run and in the long run . Students should learn to analyze the impacts of fiscal policy and monetary policy on aggregate demand and on aggregate supply, as well as on the economy’s output and price level, both in the short run and in the long run . It is also important to understand how an economy responds to a shortrun shock and adjusts to long-run equilibrium in the absence of any public policy actions . With both monetary and fiscal policies now incorporated in the analysis of aggregate demand and aggregate supply, an understanding of the interactions between the two is essential . Students should also examine the economic effects of government budget deficits, including crowding out; consider the issues involved in determining the burden of the national debt; and explore the relationships between deficits, interest rates, and inflation . The course should distinguish between the short-run and long-run impacts of monetary and fiscal policies and trace the shortrun and long-run effects of supply shocks . Short-run and long-run Phillips curves 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 by using the aggregate demand and aggregate supply model . A well-rounded course also includes an examination of the significance of expectations, including inflationary expectations .

Unit Big Ideas:

1. The national debt is a burden to our children. 2. The national debt crisis is overstated. 3. Politics and ideologies predicate the response to the national debt. 4. Monetary and fiscal policy mix is the reality of United States economic policy.


1. What are the different combinations of fiscal and monetary policy? 2. What are the effects of using monetary policy and/or fiscal policy on interest rates, price stability, and employment and national income? 3. What are the various policies used to promote national output, employment and price stability? 4. How do economists measure inflation? 5. What causes (and does not cause) inflation? 6. What is the trade off between unemployment and inflation? 7. What is the role of expectations in accelerating (or decelerating) inflation?


1. Phillips curve: An historical inverse relationship between the rate of unemployment and the rate of inflation in an economy. Stated simply, lower unemployment in an economy is correlated with a higher rate of inflation. While there is a short run tradeoff between unemployment and inflation, it has not been observed in the long run. Accordingly, the Phillips curve is now seen as too simplistic, with the unemployment rate supplanted by more accurate predictors of inflation. 2. Budget Deficit: An excess of budgetary expenditures over revenues. The federal government is well known for its inclination to operate with a budget deficit. But it is

not alone. Consumers also find themselves in this position on many occasions. When a budget deficit occurs, the excess spending is financed through borrowing. For the federal government this involves issuing government securities. 3. Crowding Out: A decline in investment caused by expansionary fiscal policy. When government counteracts a recession with an increase in spending or a reduction in taxes (both resulting in an increase in the federal deficit) interest rates tend to increase. Higher interest rates then inhibit business investment in capital goods. To the extent that crowding out occurs, economic growth is reduced if government has not seen fit to offset the loss in business investment with public investment in infrastructure, education, or other growth promoting expenditures. 4. Conservative: A political view that favors -- (1) limited government, (2) extensive reliance on markets, (3) strong national defense, (4) protection and promotion of existing cultural ideals and beliefs, and (5) economic rewards. Conservatives tend to be strong advocates of free enterprise and find philosophical agreement with neoclassical economics, new classical economics, rational expectations, and monetarism theories that call for limited government intervention in the economy. 5. Liberal: A political view that favors--(1) paternalistic government, (2) correction of market failure with government intervention, (3) equal opportunities for all citizens regardless of race, age, gender, ethnic origin (4) redistribution of income and wealth, and (5) regulation and control by government over businesses. 6. Federal Deficit: An excess of federal government spending over tax collections. The federal deficit has been the subject of on-again, off-again debates for a number of years. The main points of the debate are: (1) the potential crowding out of investment in capital goods, (2) the use of borrowed funds for either "consumption" or "investment" government purchases, and (3) the constraints imposed on fiscal policy. 7. Expectations: What people or businesses anticipate will happen, especially in terms of markets and prices. Expectations are one of the five demand determinants and one of the five supply determinants that are assumed constant when the demand and supply curves are constructed. Changes in expectations then cause shifts of the demand and supply curves when they change. Expectations are also important to the study of inflation and the aggregate market. 8. Supply Shock: A disruption of market equilibrium (that is, a market adjustment) caused by a change in a supply determinant and a shift of the supply curve. A supply shock can take one of two forms--an supply increase or a supply decrease. An increase in supply is illustrated by a rightward shift of the supply curve and results in an increase in equilibrium quantity and a decrease in equilibrium price. A decrease in supply is illustrated by a leftward shift of the supply curve and results in a decrease in equilibrium quantity and an increase in equilibrium price. 9. Monetarism: A school of economic thought pioneered by Milton Friedman based on the central role of money in the macroeconomy and as a economic policy tool. 10. Monetize the Debt: Financing the national debt by printing new money, which causes inflation due to a larger money supply. 11. Misery Index: The sum of the unemployment rate and the inflation rate. For example, a 5 percent unemployment rate and a 3 percent inflation rate gives us a misery index of 8. This index was developed during the 1970s when inflation and unemployment were both moving in the upward direction.


1. Explain fiscal policy measures in response to (a) recessions; (b) inflationary periods; (c) stagflation Use AS/AD analysis Explain monetary policy measure in response to (a) recessions; (b) inflationary periods; (c) stagflation

2. Use AS/AD analysis Show and explain the Keynesian transmission (interest rate changes to investment changes to changes in AD) 3. Show how monetary policy can offset or complement fiscal policy goals. 4. Using a SR Phillips Curve Analysis, describe the short run trade off of inflation and unemployment Distinguish between the short run and the long run Phillips curve. 5. Describe the shifting tradeoff between inflation and unemployment 6. Explain the role of expectations and how expected inflation influences the short run trade off. 7. Compare and contrast the trade offs using the Phillips curve analysis with that of using the AS/AD model. 8. Discuss how budget deficits affect the aggregate economy in the short run and long run.


Instructional Procedures, Activities are to be found in each "core" lesson.



Unit Standards:

APSS. ECO 2.5 A1-A4 2.5 B1-B3

Unit Materials:

Text: Advanced Placement Instructional Package (APIP) Films: Economics USA: Episodes 6 "Fiscal Policy," Episode 12 "Federal Deficits" and Episode 13 "Monetary Policy." PBS Frontline "Ten Trillion and Counting"

Unit Assignments:

Chapters 14 and 15 in Macroeconomics: Principles and Policy


Demand-side Effects


Supply-Side Effects


Policy Mix


Government Deficits and Debt


Types of Inflation












The Phillips Curve: Short Run Versus Long Run


Role of Expectations

Unit: Unit 6 International Trade and Finance Timeline: 3 Weeks Unit Description:

An open economy interacts with the rest of the world both through the goods market and the financial markets, and it is important to understand how a country’s transactions 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 the current account balance and the financial account (formerly known as capital account) balance, and the implications for the foreign exchange market . The course should also focus on the foreign exchange market and examine how the equilibrium exchange rate is determined . Students should understand how market forces and public policy affect currency demand and currency supply in the foreign exchange markets and lead to currency appreciation or depreciation . How financial capital flows affect exchange rates, and how appreciation or depreciation of a currency affects a country’s exports and imports should be an integral part of the presentation . Having learned the mechanics of the foreign exchange markets, students should then understand how changes in net exports and financial capital flows affect financial and goods markets . It is important to examine what the effects of trade restrictions are, how the international payments system hinders or facilitates trade, how domestic policy actions affect international finance and trade, and how international exchange rates affect domestic policy goals.

Unit Big Ideas:

1. U.S. trade policy stresses open markets. 2. There are winners and losers in the competition for global trade.


1. Why do nations engage in international trade? 2. Why do nations sometimes impose restrictions on international trade? 3. How do exchange rates affect international trade? 4. What is the effect of international markets on the US economy in terms of price stability, employment, and economic growth? 5. What is a trade deficit?


1. Protectionism: The economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) "fair competition" between imports and goods and service produced domestically. 2. Specialization: The condition in which resources are primarily devoted to specific tasks. This is one of THE most important and most fundamental notions in the study of economics. Civilized human beings have long recognized that limited resources can be more effectively used in the production the goods and services that satisfy unlimited wants and needs if those resources specialize. 3. Absolute Advantage: The general ability to produced more goods using fewer





resources. This idea of absolute advantage is important for trading that occurs between both people and nations. A nation can get an absolute advantage from an advanced level of technology or higher quality resources. For a person, an absolute advantage can result from natural abilities or the acquisition of human capital (education, training, or experience). (Review) 4. Comparative Advantage: The ability to produced one good at a relatively lower opportunity cost than other goods. (Review) 5. Tariffs: Taxes that are usually on imports, but occasionally (very rarely) on exports. This is one form of trade barrier that's intended to restrict imports into a country. Unlike non-tariff barriers and quotas which increase prices and thus revenue received by domestic producers, a tariff generates revenue for the government. 6. Quota: A limit on the quantity of some sort of activity. Two of the more noted quotas are for employment and imports. They are one form of trade barriers that's usually intended to reduce the competition faced by a domestic producer. 7. Dumping: Selling the same good to a foreign country at a lower price, often below production cost, than that charged to the domestic buyers. Dumping usually occurs because -- (1) producers in one country are trying to stay competitive with producers in another country, (2) producers in one country are trying to eliminate the producers in another country and gain a larger share of the world market, (3) producers are trying to get rid of excess stuff that they can't sell in their own country, (4) producers can make more profit by dividing sales into domestic and foreign markets, then charging each market whatever price the buyers are willing to pay. 8. Subsidy: A payment from government to individuals or businesses without any expectations of production. 9. The Bretton Woods System: A system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid-20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states. 10. International Monetary Fund: An agency of the United Nations established in 1945 to monitor and stabilize foreign exchange markets. Close to 150 of the world's nations (which is just about all of them) belong to the IMF. The IMF was set up to keep countries from manipulating their exchange rates in such a way as to gain a competitive trading advantage over others. Their strategies of control have changed over the decades, but they currently use a managed float where exchange rates are allowed to fluctuate with changing market conditions, but only within certain ranges. The IMF also plays an active role in providing the "international" currency needed to participate in foreign trade through its system of Special Drawing Rights. 11. Exchange Rate Mechanism: The system used to link the euro to the currencies of European Union member nations that do not immediately participate in the use of the euro. Linkages with these non-participating European Union member nations is voluntary, but designed to ease their transition into full-blown use of the euro. 12. Gold Standard: Use of gold as the standard for valuing a nation's currency.


1. Explain why nations trade (distributive practice from beginning of course, emphasis on comparative advantage and terms of trade.) 2. Explain benefits of trade. 3. Explain trade barriers (tariffs and quotas) and how they reduce trade Give arguments for/against barriers. 4. Explain the balance of trade and how the balance of trade determines the

international borrowing and lending. 5. Explain exchange rates and how they are determined and why they fluctuate Explain and link foreign trade to the AS/AD model. 6. Explain and link how monetary/fiscal policy affects international trade and the balance of payment


Unit Instructional Procedures and Activities are to be found within each "core" lesson.



Unit Standards:

APSS. ECO. 2.7 A1-A3, 2.7 B1-B3, 2.7 C, 2.7 D

Unit Materials:

Text: Advanced Placement Instructional Package (APIP) Films: Economics USA: Episode 27 "International Trade" and Episode 28 "Exchange Rates."

Unit Assignments:

Chapters 17, 18 and 19 in Macroeconomics: Principles and Policy


Balance of Trade


Current Account


Capital Account


Demand for and Supply of Foreign Exchange


Exchange Rate Determination


Currency Appreciation and Depreciation


Net Exports and Capital Flows


Links to Financial and Goods Markets

















Unit: Unit 7 The Great Recession Timeline: 2 Weeks Unit Description:

Every student has been affected by the Great Recession and they need to understand how this happened and what the future for them holds. Though its roots are quite complex, the proximate cause of the recession was a series of sharp declines in aggregate demand—first in housing, a component of I, starting in 2006, and then in consumer spending, C, starting with a vengeance in September 2008. By mid-February 2009, virtually every component of aggregate demand, C + I + G + (X-IM), was in decline. Why did this happen? While the lines of causation are complicated, it all began with the bursting of the “housing bubble” in 2006 or 2007. House prices in the U.S. roughly doubled from 2000 until 2006-2007, and then began a sharp decline that is unprecedented since the Great Depression. The fall in houses prices decimated the home-building industry. Since spending on houses is part of Investment the multiplier process began pulling real GDP down. At first, this downward pull was offset by rising net exports, X - IM, another component of aggregate demand, so total demand did not fall much. But everything fell apart after September 2008, when consumer spending dropped suddenly, business investment followed suit, job losses mounted, and the recession spread worldwide, thus damaging U.S. exports.

Unit Big Ideas:

1. "Greed is good" 2. We're too big to fail!


1. What were the underlying factors that caused the Great Recession? 2. What are subprime mortgages and what role did they play in the financial meltdown? 3. What was the government's response to the crisis? 4. What is TARP? 5. What is meant by "too big to fail?"


1. Asset-backed security:A security whose value and income payments are derived from and backed by a specified pool of underlying assets.Pooling the assets into financial instruments allows shares to be sold to general investors and may be intended to reduce risk.The pools of underlying assets can include common payments from credit cards,auto loans,and mortgage loans. 2. Bank run (bank panic):A series of unexpected cash withdrawals caused by a sudden decline in confidence or fear that the bank will fail,that is,many depositors withdraw cash almost simultaneously.Because the cash reserve a bank keeps on hand is only a small fraction of its deposits,a large number of withdrawals in a short period of time can deplete available cash and force the bank to close and possibly go out of business. 3. Bond:A loan to a government or corporation in return for a promised repayment at a specified interest rate. 4. Capital:The wealth—cash or other financial assets—used to establish or maintain a business.Within companies,it is often characterized as working capital or fixed capital. 5. Central bank:The principal monetary authority of a nation,which performs

several key functions,including issuing currency and influencing the supply of credit in the economy.The Federal Reserve is the central bank of the United States. 6. Commercial bank:A bank that offers a broad range of deposit accounts,including checking and savings deposits,and extends loans to individuals and businesses. 7. Common stock:An ownership share of a corporation.A common stock offers no guarantee that it will hold its value or pay dividends. 8. Credit:What individuals and institutions borrow.When you borrow money,you promise to pay in the future.A“line of credit" is permission from a bank to borrow money up to an established limit. 9. Credit crunch:A situation created when banks and other lenders suddenly and significantly reduce their lending to each other,to individuals,and to businesses,because they are uncertain about how much money they will have to lend and whether the borrowers will be able to pay loans back. 10. Credit default swap:A type of insurance against a security falling in value.For example,an owner of a mortgage-backed security pays a fee to an institution or investor in return for the promise of much larger payment if the mortgage-backed security falls in value.The risk of default has been“swapped”to the seller of the credit default swap in return for fees. 11. Debt:Money owed;also known as liability.Default:Failure to meet the terms of a credit or loan agreement. 12. Equity:Ownership interest in an asset after liabilities are deducted.For example,the value of your house after deducting the total amount of your mortgage. 13. Fannie Mae and Freddie Mac:Government-created financial institutions that buy mortgages from banks and then sell those mortgages as investment products.They were created to help make more money available for banks to make more home loans.Because of the housing crisis,both independent companies were on the verge of collapse and were taken over by the federal government in September 2008.Fannie Mae was created in 1938 and Freddie Mac in 1970. 14. Quantitative easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by creating purchasing power to buy financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value. 15. Subprime Lending (also referred to as near-prime, non-prime, and second-chance lending) means making loans to people who may have difficulty maintaining the repayment schedule. These loans are characterized by higher interest rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk. 16. The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector that was signed into law by U.S. President George W. Bush on October 3, 2008. It was a component of the government's measures in 2008 to address the subprime mortgage crisis. The TARP program originally authorized expenditures of $700 billion. The Dodd–Frank Wall Street Reform and Consumer Protection

Act reduced the amount authorized to $475 billion. By October 11, 2012, the Congressional Budget Office (CBO) stated that total disbursements would be $431 billion and estimated the total cost, including grants for mortgage programs that have not yet been made, would be $24 billion. 17. Leverage: The use of credit or loans to enhance speculation in the financial markets. Suppose, for example, that you take the $1,000 in your bank account to your stock broker and purchase $1,000 worth of stocks, bonds, or whatever. 18. Bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is "trade in high volumes at prices that are considerably at variance with intrinsic values" 19. Risk Premium: This has two very closely related uses. First, it's what risk averse people are willing to pay to avoid a risky situation. For example, if you would be equally happy with a guaranteed $900 or a 50-50 chance of getting either $500 or $1,500, then you're risk premium is $100. Second, it's the extra percentage points added to an interest rate to compensate for the risk of a loan. As a general rule, each 1 percent chance of default on a loan adds a risk premium of about 1 percent to the interest rate. 20. Securitization: The financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS). 21. Federal Home Loan Bank: This was originally the federal government entity responsible for chartering and regulating savings and loan associations. However, it has evolved into a group of 12 privately owned, government regulated banks that promote community development and home ownership by providing funds to lending agencies (that is, banks) that are used for home mortgage loans.


1. Explain why a mortgage backed security becomes riskier when the values of the underlying houses decline. 2. Explain how a collapse in house prices might lead to a recession. 3. Explain how a collapse of the economy's credit-granting mechanisms might lead to a recession. 4. Explain the basic idea behind the TARP legislation. 5. Explain how the stagnation of wages lead to the subprime crisis.





Unit Standards:

APSS. ECO. 2.2 through 2.7

Unit Materials:

The Warning: PBS Frontline Maxed Out: Magnolia Films The Ascent of Money: PBS

Unit Assignments:

Chapter 20 in Macroeconomics: Principles and Policy

Unit Notes:

This unit is an excellent way to tie together all the essential elements in modern macro theory and practice. In addition, this unit will bring the students to a deeper understanding of how the financial crisis changed Americans' lives.

STANDARDS NATIONAL: AP - Advanced Placement Standards (2006-2009) APSS-ECO.2.1.E (Advanced)

Macroeconomic Issues: Business Cycle, Unemployment, Inflation, Growth


Price Indices


Costs of Inflation


Definition and Measurement


Types of Unemployment


Natural Rate of Unemployment


Economic Fluctuations


Definition of Financial Assets: Money, Stocks, Bonds


Banks and Creation of Money


Loanable Funds Market


Demand-side Effects


Supply-Side Effects


Role of Expectations

(* standards consolidated from Topic level)

Unit: Unit 8 Economic Growth and Productivity Timeline: 2 Weeks



























Unit Description:

This unit introduces students to the concept and meaning of long-run economic growth and examine how economic growth occurs . Students should understand the role of productivity in raising real output and the standard of living, and the role of investment in human capital formation and physical capital accumulation, research and development, and technical progress in promoting economic growth . Having learned the determinants of growth, students should examine how public policies influence the long-run economic growth of an economy.

Unit Big Ideas:

1. The only way to provide for a high standard of living is to have a more productive labor force. 2. Research and technical development, while expensive the short run, yield a higher standard of living in the long run.


1. What is economic growth? 2. What factors can result in economic growth? 3. What government policies have been used (and can be used) to stimulate economic growth?


1. Capital: One of the four basic categories of resources, or factors of production. It includes the manufactured (or previously produced) resources used to manufacture or produce other things. Common examples of capital are the factories, buildings, trucks, tools, machinery, and equipment used by businesses in their productive pursuits. Capital's primary role in the economy is to improve the productivity of labor as it transforms the natural resources of land into wants-and-needs-satisfying goods. 2. Convergence (also sometimes known as the catch-up effect) is the hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. As a result, all economies should eventually converge in terms of per capita income. Developing countries have the potential to grow at a faster rate than developed countries because diminishing returns (in particular, to capital) are not as strong as in capital-rich countries. Furthermore, poorer countries can replicate the production methods, technologies, and institutions of developed countries. 3. Baumol's Cost Disease (also known as the Baumol Effect) is a phenomenon described by William J. Baumol and William G. Bowen in the 1960s. It involves a rise of salaries in jobs that have experienced no increase of labor productivity in response to rising salaries in other jobs which did experience such labor productivity growth. This seemingly goes against the theory in classical economics that wages are closely tied to labor productivity changes. 4. Innovation: The introduction and dissemination of a new idea, product, or technological process throughout society and the economy. The innovation process should be contrasted with the act of invention, which is the creation of something new, but not the dissemination. Innovations are often thought of as applying to physical products and technology. However, it applies to all aspects of society and the economy--physical, tangible, ideological, cultural, and social. Innovation often leads to the widespread use of new products (such as computers and DVD players), but it also creates new cultural, social, and economic institutions (such as government agencies, forms of business organizations, and social trends). Innovations are considered to be a primary source of economic growth. 5. Invention: The creation of a new idea, product, or technological process. The act

of invention should be contrasted with the process of innovation, with is the dissemination new things throughout society. The distinction is important because inventions do not benefit society until they are distributed throughout the economy as innovations. 6. Investment: The sacrifice of current benefits or rewards to pursue an activity with expectations of greater future benefits or rewards. Investment is typically used to mean the purchase of capital by business in anticipation of the profit. By increasing the quantity or quality of resources, investment is a source of economic growth. 7. Multinational Company: A business that operates in two or more countries. With increased foreign trade, many businesses in the United States, as well as other nations, have found it worthwhile to open offices, branch plants, distribution centers, etc., around the globe. Almost all of the "big boys," like General Motors, Sony, IBM, British Petroleum, Mitsubishi, and Exxon, are multinational companies. As multinational companies grow bigger and extend their operations world-wide, some people feel that they lose their sense of country loyalty or national identity. 8. Property Rights: The legal ownership of resources, which entitles the owner to receive the benefits or pay the cost of the resources' productive activities. The notion of property rights came originally from the ownership of land (and the natural resources of the land), but it's equally important for labor and capital resources. In other words, your labor ownership gives you the right to be paid a wage for your work. 9. R&D or Research and Development: Refers to a specific group of activities within a business. The activities that are classified as R&D differ from company to company, but there are two primary models. In one model, the primary function of an R&D group is to develop new products; in the other model, the primary function of an R&D group is to discover and create new knowledge about scientific and technological topics for the purpose of uncovering and enabling development of valuable new products, processes, and services. Under both models, R&D differs from the vast majority of a company's activities which are intended to yield nearly immediate profit or immediate improvements in operations and involve little uncertainty as to the return on investment (ROI). The first model of R&D is generally staffed by engineers while the second model may be staffed with industrial scientists. R&D activities are carried out by corporate (businesses) or governmental entities.


1. Explain the concept of economic growth. 2. Define and explain the relationship among capital, investment, saving and economic growth. 3. Understand how investment and savings decision are made to determine real interest rates. 4. Show how government influences the real interest rate, investment and savings. 5. Explain how the labor market contributes to economic potential and growth. 6. Identify sources of economic growth and theories of economic growth. 7. Use AS/AD analysis to describe effects of economic growth. 8. Describe policies that might promote economic growth





Unit Standards:

APSS. ECO. 2.6 A, 2.6 B, 2.6 C, 2.6 D

Unit Materials:

Text: Advanced Placement Instructional Package (APIP) Films: Economics USA: Episode 3 "U.S. Economic Growth," Episode 24 "Reducing Poverty," and Episode 25 "Economic Growth."

Unit Assignments:

Chapter 7 in Macroeconomics: Principles and Policy

STANDARDS NATIONAL: AP - Advanced Placement Standards (2006-2009) APSS-ECO.2.6.A (Advanced)

Investment in Human Capital


Investment in Physical Capital


Research and development, and Technological Progress


Growth Policy









curriculum map: macroeconomics course: macroeconomics...

Documents