A.p. Econ Syllabus

Advanced Placement Economics

Instructor: Mr. Graham Long E-mail: [email protected] Class website: sites.google.com/site/inthelongrunecon Class blog: inthelongrunecon.blogspot.com School phone: (410) 887-0808 Free period: First

“Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw the correct conclusions.” --John Maynard Keynes “Economics is a subject profoundly conducive to cliche, resonant with boredom. On few topics is an American audience so practiced in turning off its ears and minds. And none can say that the response is ill advised.” --John Kenneth Galbraith

Introduction While most Americans view economics as some sort of “business science” involving money or the stock market, at its core economics is a social science. Specifically, economics attempts to explain the central problem of existence: how do we satisfy our unlimited wants with limited resources? As the quote by John Maynard Keynes suggests, economics is primarily a way of thinking, and throughout this course you will be learning to view the world through a completely different lens. Economics itself is not a doctrine; it is not an ideology; it is a methodology with which you can look at any and all situations and derive the most optimum outcome. There are times in this course where we may have discussions with which you will disagree (indeed, the probability of that occurring is extremely high), but you will be expected to argue against those conclusions using economic data and thinking. And there will be a lot of discussions, because economics (unlike many disciplines) is applicable to your everyday life. After all, it is the study of choice, and has a day ever gone by in which you did not make a choice? However, despite this omnipresence, many people approach economics in the way described by John Kenneth Galbraith. Any discussion of economic concepts is met with glassy eyes, heads on desks, and perhaps a bit of drool. This is unfortunate, and one of the policies of this course will be to keep it grounded in as many “real world” applications as possible. This way, you do not walk out of the course feeling like economics is nothing but the study of graphs and money. As your instructor, I hope that you find the study of economics to be both fascinating and practical (unlike the people in the cartoon on the cover of this syllabus). It is also important to note that you are taking this course at a watershed moment in the history of economics; the paradigms concerning the role of government, the “ideal” structure of the economy, and the decisions of individuals and business are in a state of flux, and new ideas are being bantered about with a rapidity not seen since the Great Depression. It will be difficult (and I would argue impossible) to find a day pass during this year in which economics will not dominate the news. As scholars, I encourage you to take advantage of this, and try to relate our class discussions with what is going on in current events as much as you can. Not only will it help you learn the material better (meaning a higher A.P. Test score), but you might also (dare I say?) enjoy the content more.

Course Structure The course will be divided into two parts. In the first half of the course, you will study the principles of Microeconomics, roughly defined as the economics of individuals and firms (i.e. the individual components of an economy). In the second half of the course, you will study the principles of Macroeconomics, which is the study of the economy on a grand scale (the interactions of all the firms, individuals, and government working together). While there is some overlap between the two, and they share the same fundamental principles and assumptions, Micro and Macro are two independent units of study. Hence, there are two different A.P. Tests: one for Micro and one for Macro. The expectation is that you will take both. 1

Course Grading Your grade for the course will be comprised of the following components, with these weights: Exams and Quizzes: 40% The predominant grade for this course will come from exams and quizzes. The philosophy behind this is twofold. First, a “high stakes” environment where exams are vitally important better replicates the reality of the A.P. Exam, which is (for better or worse) the focal point of the course. Second, it will prepare students for their courses in college, which are often determined almost entirely by one or two exam grades. Students can expect a comprehensive exam at the end of every unit that will closely mirror the A.P. Exam in length and format. Additionally, small quizzes will be administered frequently as checks for understanding.

Problem Set: 20% Approximately once every two weeks (although it could be more if the spirit moves me), students will complete problem sets. These will consist of a series of questions relating to the past several days of material. These questions mirror the style of the free-response problems that students will see on the A.P. test. Students will have several days to work on these problems. The purpose of these problems is to provide further practice for students to become familiar with economic concepts, as well as the format of the test. Sets will be particularly examined for the strength of their economic reasoning, and for the accuracy of their graphs.

Economic Memos: 20% Most nights throughout the semester, you will have some sort of reading assignment. And on most days, you will have some sort of Economic Memo or “reading check” when you come into class the next time. Memos may take one of two forms. In the first form, they will be questions in which you will be asked to summarize or explain key ideas from the previous night's reading. These are not intended to be exhaustive essays, nor are they intended to be rich in detail; in fact, they will hardly ever fill one side of a 8” x 5” index card. They differ from quizzes largely in format; quizzes are multiple choice and (occasionally) A.P. free-response style, while memos are simple writing assignments. Alternately, I will simply collect your homework assignment from the previous night and check it for accuracy.

Blog Posts: 10% Every two weeks, you will be participating in an online discussion via the class blog (address on the front of the syllabus). The purpose of these blog posts is to have you interact with your classmates, both the ones in your section and in the other section. At the beginning of each two week period (generally on a Monday) I will post some sort of question, article, or discussion topic to which you will respond. Students will go to the blog, read the stimulus as well as any comments from their peers, and submit their own. Students are expected to make TWO contributions to each question, but more are encouraged if your cup of ideas runneth over. The blog question will be closed on Friday at midnight. Also, please note that all of your posts are time stamped, so I will know who waited until Friday evening at 11:56 to make both of their posts. Please do not be this person. Posts should be approximately 200 to 300 words long (double to triple the length of this paragraph), although longer posts are welcomed. The post should also contribute to the topic in some way; a long-winded “I agree!” will not suffice. The blog is intended to be a discussion forum, so expressing differences in opinion is encouraged as long as it remains civil. My hope is that the topics we discuss will lead to much debate and interaction, and there are sure to be differences of opinion which will come forth. The blog might also help you clarify some of the topics we discussed in class, and expose you to ideas you did not have prior. Also, the posts are not graded for spelling, so you may “lol” or “j/k” to your heart's content.

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Position Papers: 10% Two times during the year, you will write a position paper explaining your beliefs on economic issues. For your first paper, you will analyze the efficiency of selling human organs. The second paper will see you evaluate the effectiveness of the New Deal. Each paper should be approximately 3-5 pages and display economic insight, reasoning, and analysis. You will likely become emotionally engaged in these topics, and will have an opportunity to state your own opinion on the topic. More information on these Position Papers will be provided in due time.

Grade Determination Grades will follow the standard A-B-C-D-E format.

A

100-90

B

80-89.99

C

70-79.99

D

60-69.99

E

<60

Note that grades are not rounded; the student earns what the student earns. Also, please be aware that extra credit opportunities will range from sparse to non-existent. If it is provided, it will not be on-demand, so students would be wise to refrain from asking for it.

Turning in Assignments Problems Sets are to be handwritten on notebook paper using blue or black ink. The reason for this is that the free-response questions on the A.P. Test are to be done in blue or black ink, and I want you to have as much experience as possible in that medium. Further, in an attempt to be as unbiased as possible during grading, I ask that you put your name on the back of the very last page of any assignment you turn in.

Late Work and Absences My policy on late work is simple: an assignment may be turned in one day late, but it loses 50% credit. Anything after one day late will not be accepted. If you are absent, and it is possible for you to do so, check the website (discussed below): all of the materials from that day will be posted so that you may download and print them from home. This way, you are less behind. If you would like to get make-up work from your instructor in person upon return from your absence, that is fine. However, I will only accommodate such requests before school, after school, or during my planning period. A request for make-up work during class will almost certainly be met with a blank stare of incredulity. If you miss an assignment because of an absence, you have as many days as you were absent (i.e. miss two class periods = have two days) to complete the work and return it.

A Note on Spelling and Grammar: Philosophically, I am not a believer in the idea of “Standard English”. There really is no fundamental reason that a sentence cannot end with a preposition. And it is only in the past one hundred years that it magically became shameful to split an infinitive. However, for better or for worse, these rules are imposed upon us from on high, and at the college level the expectation from many/most of your professors is that you will not break said rules. Therefore, your Position Papers will be graded for spelling, grammar, mechanics, etc. As mentioned before, your blog posts are free from these restrictions. All papers, regardless of the requirements for spelling, should be written with clarity.

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Class Website The web site for the class can be found at the following URL: http://sites.google.com/site/inthelongrunecon At the website you can find a variety of materials that might be useful for class. For each unit that we cover, all of the handouts that are administered in class will be compiled and put on the website for download, in case you either lose your copy or would like a clean one for study or framing on the wall. The News and Notes sections will be filled with pertinent class announcements and humorous, witty remarks from your instructor. The Calendar page displays the yearly class calendar that has the due dates for assignments. I have also marked off the holidays and school closings for your perusal. Finally, there is a section of Economic Indicators. This page lists the constantly updating vital data for the economy (stuff that will be particularly important when we get to Macroeconomics). Please try to access the site in the first week, and let me know if you have any problems viewing it. I have tested in on three web browsers (Internet Explorer 8, Mozilla Firefox, Google Chrome) and it has appeared to work in all three. If accessing either the website or blog will prove to be a challenge/impossibility to you, please come see me ASAP so that we may make other arrangements.

Class Rules and Contacting Your Instructor I find that having a list of class rules with some ten-plus items seems to be overkill and slightly ludicrous, therefore one rule will suffice: 1. Respect. This means respecting your peers by not talking when they are talking; respecting your instructor by not throwing objects at his face or in his vicinity; and respecting the classroom into which I float by eating nothing and drinking nothing (except water). And please note that respect is a two way street. Your instructor does not have carte blanche to treat you poorly, and I hold myself to expectations of professionalism.1 I am always open to answering questions outside of class, and please do not hesitate to contact me with problems/concerns/spirited discussion. I am at school obscenely early, so you may find me before school from 6:15 on (although you are not allowed in until 7). You may also make an appointment with me to stay afterschool Monday through Thursday for any length of time necessary. My planning time during school is first period. My room number is 209, so if you need to find me, that is the first place to look; second place to look is Dunkin' Donuts2. In the event that I am not in my room, I leave sticky notes next to my computer. Simply write your message on a sticky note and put it on my computer screen. I check my e-mail religiously, so any other problems may be addressed by sending me a message to [email protected] I will respond as quickly as I can up to 10:00 pm (my bed time).

1 Without trying to appear too stuffy, of course. 2 Just kidding. (I think)

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APPENDIX

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Economic Commandments

Page 6

Formal Course Structure (as submitted to College Board)

Pages 7-14

Economics Jokes

Pages 15-16

Course Agreement

Page 17

THE TEN COMMANDMENTS OF A.P. ECONOMICS

I. Thou shalt make thine graphs at least half the page in size. II. Thou shalt use blue or black ink on thine graphs. III. Thou shalt be neat on thine graphs, for it pleases those who grade. IV. Thou shalt follow current events, for it will teach thine much about economics. V. Thou shalt read every night thou art asked.

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VI. Thou shalt ask questions if thou art confused; confusion leads to clarity leads to truth. VII. Thou shalt do the practice problems thou art given, for they help sharpen thy focus. VIII. Remember the A.P. exam day, and keep it in thy mind. IX. Do not covet thy neighbor's answers. X. Honor Fridays, and be prepared for Fun Facts to Know and Share

Course Overview and Description Note: This is is how the course was approved by the College Board for the audit; I am giving it to you as a way to see where we are going throughout the year. It might also prove useful as a study/note taking guide. As you read in your textbook, pay particular attention to the italicized words.

The premise of Advanced Placement Economics is that students benefit from a systematic study of economic behavior. Guided by the theories, principles, methodologies, and applications of macroeconomics and microeconomics, students will analyze the complexities of economic interactions and decision-making. Success in Advanced Placement Economics is defined as sufficient achievement to earn potential college credit on the Advanced Placement Economics Examination for Macroeconomics and/or Microeconomics. This level of achievement requires mastery of content, superior levels of processing, applications of test-taking strategies, and highly developed skills of expression. Student achievement in Advanced Placement Economics will be the equivalent of success in college-level introductory economics courses. Advanced Placement Economics is designed to provide able, motivated students learning experiences that integrate challenging subject matter and dynamic instruction. Such approaches to learning will actively engage students, utilize their curiosity, and employ strategies appropriate for adolescent learners. Upon completion of Advanced Placement Economics, students will have demonstrated achievement as knowledgeable, skilled, and perceptive learners. They will have applied economic principles in academic, business, and political contexts, developed advanced thinking skills, and made substantial progress towards personal and academic success. Course Text: Mankiw, N. Gregory. Principles of Economics. Fort Worth: Harcourt College Publishers, 2001. Supplementary Texts: Anderson, David A. Economics by Example. New York: Worth Publishers, 2007. Bade, Robin and Michael Parkin. Foundations of Economics: A.P. Edition. Boston: Pearson Addison-Wesley, 2007. Doti, James L. and Dwight R. Lee. The Market Economy: A Reader. Los Angeles: Roxbury Publishing Company, 1991. Hubbard, R. Glenn, and Anthony P. O'Brien. Economics. Upper Saddle River, New Jersey: Pearson Prentice Hall, 2008. Krugman, Paul, and Robin Wells. Economics. New York: Worth Publishers, 2009. Various current event newspaper/magazine articles from The Economist, Rolling Stone, Business Week, CNN, Time, etc.

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MICROECONOMICS COURSE PLAN Unit 1: Basic Economic Concepts (1 week) This unit establishes a foundation for economic reasoning that will be used throughout the course. Included in this unit are fundamental economic principles and basic concepts such as scarcity, opportunity cost, specialization and exchange. The unit emphasizes the terminology of economics and introduces graphing analysis. Hypothetical and real-world applications are used as precursors to the applications of these concepts in later units. Readings: Mankiw, Principles of Economics: pages 3-15, 19-28-47-59 Indicator and supporting objectives: Students will analyze the basic economic problem and related concepts in order to apply economic reasoning to hypothetical and real-work situations. • • • • •

Apply basic economic concepts Apply the concept of scarcity Describe opportunity cost Compare traditional, command and market systems Analyze relationships between specialization and exchange

Key Terms: absolute advantage, alternatives, command economy, comparative advantage, costs and benefits, economics, efficient, explicit cost, graphing, implicit cost, incentives, inefficient, macroeconomics, margin, market economy, microeconomics, mixed economy, opportunity cost, production possibilities curve, scarcity, trade-offs, traditional economy

Unit 2: The Nature and Function of Markets (5 weeks) This unit requires students to apply economic reasoning to fundamental behaviors in the marketplace. Students will analyze the self-interested behaviors of buyers and sellers, how these behaviors can be used to predict the consequences of choice and intervention, and how these behaviors support economic efficiency. Students will also analyze the effectiveness and equity of our tax system. Readings: Mankiw, Principles of Economics, pages 65-89, 93-114, 463-77 Indicator and Supporting Objectives: Indicator 1: Students will analyze the roles and behaviors of consumers and producers in a competitive marketplace in order to determine the effects of supply and demand. • Analyze demand as a market force • Analyze the effects of budget constraints, consumer preferences, and utility on demand • Analyze supply as a market force • Analyze the interaction of supply and demand • Analyze the effects of elasticity on competitive markets • Assess the impact of market forces on real life economic situations Reading: Mankiw, Principles of Economics: pages 65-89, 93-114, 463-77

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Key Terms: Ceteris paribus, complementary goods, consumer budget constraint, consumer surplus, cross price elasticity of demand, demand, demand curve, demand schedule, determinants of demand, determinants of supply, diminishing marginal utility, elastic, elasticity co-efficient, equilibrium, Giffen good, income effect, income elasticity of demand, indifference curve, inelastic, inferior good, law of demand, law of supply and demand, long-run, marginal rate of substitution, marginal utility, mid-point method, momentary, normal good, optimum choice, price elasticity, price elasticity of supply, producer surplus, shift in demand, shift in supply, short-run, shortage, substitution effect, substitute goods, supply, supply curve, supply schedule, surplus, total revenue test for price elasticity, total utility, unit elasticity, utility maximization, variable Indicator 2: Students will analyze interactions of supply and demand in order to evaluate the effectiveness of market operations and public policies in maximizing economic welfare. • Describe how consumers and producers interact to maximize market efficiency • Analyze the effects of price controls on market outcomes • Evaluate the effectiveness of price controls and taxes as means of influencing market outcomes Reading: Mankiw, Principles of Economics: pages 117-28, 141-58 Key Terms: Cost, deadweight loss, efficiency, equity, price ceiling, price floor, tax incidence, total surplus, welfare economics, consumer surplus, producer surplus, tax wedge Indicator 3: Students will analyze taxation in order to evaluate the effectiveness and equity of current tax policies • Analyze types and purposes of taxes • Analyze vertical equity and horizontal equity systems of taxation • Utilize tax incidence to evaluate tax equity • Evaluate the impacts of excise taxes Reading: Mankiw, Principles of Economics: pages 243-63 Key Terms: ability to pay principle, benefits principle, crowding out effect, effective tax rate, excise tax, flat tax, flypaper theory of tax incidence, horizontal equity, nominal tax rate, progressive taxes, proportional taxes, regressive taxes, tax incidence, vertical equity

Unit 3: Theory of the Firm: Production, Costs and Revenue (3 weeks) This unit applies concepts such as scarcity, opportunity costs, and incentives toward the behaviors of firms in our economic system. Students will analyze the variables for a variety of firms in the short run and long run to explain decision making which seeks to minimize costs and maximize profits. Included within this unit is attention to the efficiency of firms and evaluations of the impacts of their decisions on the entire economy. Indicators and Supporting Objectives: Indicator 1: Students will analyze costs of production in order to determine how individual firms acquire optimal output. • Analyze various costs incurred by firms • Compare long-run costs and short-run costs Reading: Mankiw, Principles of Economics: pages 269-87.

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Key Terms: accounting profit, allocative efficiency, average fixed cost, average total cost, constant return to scale, diseconomies of scale, economic loss, economic profit, economies of scale, efficient scale, fixed cost, law of diminishing returns, marginal cost, marginal product, production function, productive efficiency, total cost, total fixed cost, total variable cost, variable cost Indicator 2: Students will analyze variables for perfect competition in order to determine relationships among costs, price, and revenue. • • • •

Analyze costs, price, and revenue for perfect competition in the short run Analyze costs, price, and revenue for perfect competition in the long run Determine advantages and disadvantages of firms that operate in perfect competition Analysis of how a perfectly competitive industry moves from the short profit/loss into Into long-run equilibrium

Reading: Mankiw, Principles of Economics: pages 66-7, 291-311. Key Terms: break-even point, law of diminishing marginal returns, long-run adjustment, marginal revenue, normal profit, P=MC=ATC, P=MR=D, perfect (pure) competition, profit maximization, shut-down point Indicator 3: Students will analyze variables for monopolies and imperfect competition in order to determine relationships among costs, price, and revenue. • • • • • •

Distinguish market structures Analyze costs, price, and revenue for monopolies Determine potential negative social consequences of monopoly pricing Analyze public policies directed at monopolistic firms Analyze costs, price, and revenue for oligopolies Analyze costs, price, and revenue for monopolistic competition

Reading: Mankiw, Principles of Economics: pages 315-91. Key Terms: Advertising, arbitrage, anti-trust legislation, barriers to entry, business-stealing externality, cartel, collusion, costplus pricing, differential oligopoly, dominant strategy, excess capacity, fair return price, game theory, homogeneous oligopoly, imperfect competition, kinked demand curve, markup, monopolistic competition, monopoly, Nash equilibrium, natural monopoly, nonprice competition, oligopoly, overt collusion, P>MC=MR, perfect price discriminiation, predatory pricing, price discrimination, price leadership, price maker, price taker, prisoners’ dilemma, product-variety externality, public ownership, regulation, resale price maintenance, socially optimal price, tying

Unit 4: Factor Markets (3 weeks) This unit applies acquired understandings of supply and demand, behaviors of different market structures, and the impacts of intervention to analysis of factor markets. Students will determine that, as firms seek maximum profits through minimizing costs, labor and other suppliers of resources seek the highest wages and rent possible. The

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economist can apply rules and theories to understand these complex relationships and their consistency with economic reasoning. Indicator and Supporting Objectives: Indicator 1: Students will analyze the relationships among cost, revenue and profit in order to determine optimal allocations of resources. • Analyze derived demand • Apply the rules and theories that govern a firm’s allocation of resources Reading: Mankiw, Principles of Economics: pages 397-414 Key Terms: derived demand, determinants of productivity, diminishing marginal returns, factor market, factors of production, marginal physical product, marginal product of labor, marginal resource costs, marginal revenue product, MRP=MRC, production function, value of the marginal product Indicator 2: Students will assess the impacts of wages, rent, and interest rates in order to determine optimal firm decisions regarding costs. • Analyze a firm’s decisions regarding wages and levels of employment in both perfect and imperfect markets •

Analyze factors that affect wage levels

•

Analyze factors that impact rent

•

Determine the relationship between interest rates and investment decisions

Reading: Mankiw, Principles of Economics: pages 405-34 Key Terms: compensating differential, economic rent, efficiency wages, equilibrium wage rate, human capital, interest, labor union, minimum wage, monopsony, nominal interest rate, real interest rate, rent, W=MRP

Unit 5: The Impact of Government upon Microeconomics (2 weeks) This unit requires students to apply economic understandings of the individual and market toward government economic actions. Essential concepts for this unit include distinctions between public and private goods and externalities that may or may not require government intervention. Questions related to the propriety and degrees of government intervention are raised, requiring students to apply analytical and evaluative skills. Indicators and Supporting Objectives: Indicator 1: Students will analyze perspectives regarding public goods in order to evaluate public policies • Describe the characteristics of public goods • Develop criteria for evaluating the effectiveness of government programs Reading: Mankiw, Principles of Economics: pages 225-40 Key Terms: common resources, cost-benefit analysis, private goods, private sector, public goods, public sectors, rivalry (shared consumption)

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Indicator 2: Students will analyze externalities in order to evaluate solutions for problems of positive and negative externalities • Describe examples of positive and negative externalities • Determine how private and public enterprises solve the problems of externalities • Analyze the effectiveness of government and alternative policies designed to correct problems caused by positive and negative externalities Reading: Mankiw, Principles of Economics: pages 205-22. Key Terms: Coase theorem, externalities, GDP, Pigovian tax MACROECONOMICS COURSE PLAN Unit 6: Measurement of Economic Performance (2 weeks) This unit serves as an introduction to the means by which macroeconomics determines the status of the national economy. Additionally, students will examine critical factors of economic performance such as inflation and unemployment. It is critical for students to understand these measurements and factors since they will form the basis of economic problems and policies that are studied in subsequent units. Readings: Mankiw, Principles of Economics, pages 23-5, 493-525, 579-92, 641-51, 701-07 Indicator and supporting objectives: • • • •

Students will analyze economic measurements in order to determine processes for measuring economic growth. Analyze the circular flow model Apply the various tools that measure economic growth Determine the impacts of inflation and unemployment Determine the relationship between unemployment and inflation and the phases of the business cycle

Key Terms: business cycle, capital goods, circular flow, consumer price index, consumption, contractionary phase, cyclical unemployment, depression, discouraged workers, disposable personal income, expansionary phase, expenditures approach, factor markets, frictional unemployment, GDP deflator, GDP=C+I+G+NX, government purchases, gross domestic product, earnings and cost approach, inflation, inflation rate, intermediate goods, investment, labor force, labor-force participation rate, national income, natural rate of employment, natural resources, net national product, net exports, nominal GDP, nominal interest rate, peak phase, personal income, personal outlay, personal savings, price index, producer price index, product markets, real GDP, real interest rate, recession, seasonal unemployment, structural unemployment, trough, unemployment insurance, unemployment rate, potential gdp

Unit 7: National Income and the Determination of Price (8 weeks) This unit applies what students have learned about economic measurements to analysis of the national economy as a whole. Students will analyze the interaction of aggregate demand and aggregate supply to construct models of macroeconomic performance. Students will use these models to analyze fiscal and monetary policies and predict the impacts of these policies on the macroeconomy. Students will then apply their understandings of models and policy tools to evaluate the effectiveness of differing macroeconomic theories in promoting economic growth and

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stability. Indicators and supporting objectives: Indicator 1: Students will analyze aggregate demand in order to determine its role in economic decision-making. • Define demand and identify the determinants of demand • Describe aggregate demand • Analyze the slope and shifts in the aggregate demand Reading: Mankiw, Principles of Economics, pages 67-74, 707-12 Key Terms: aggregate demand, aggregate demand curve, exchange effect, interest rate effect, real balances effect, wealth effect Indicator 2: Students will analyze aggregate supply in the short run and the long run in order to determine its role in economic decision-making. • Define supply and identify the determinants of supply • Analyze aggregate supply in the short run • Analyze aggregate supply in the long run Key Terms: aggregate supply, aggregate supply curve, horizontal range, intermediate range, long-run aggregate supply, misperceptions theory, short-run aggregate supply, sticky-wage theory, sticky-price theory, vertical range Indicator 3: Students will analyze the interaction of aggregate demand and aggregate supply in order to relate the AD/AS model to the Aggregate Expenditures model. • Define equilibrium of demand and supply and explain changes in equilibrium • Determine equilibriums of aggregate demand and aggregate supply (AD/AS) • Determine the impacts of demand and supply shocks • Compare and contrast the Classical and Keynesian economic approaches • Analyze the Aggregate Expenditures approach Reading: Mankiw, Principles of Economics, pages 75-9, 712-720 Key Terms: Adam Smith, aggregate expenditure function, autonomous, capital, classical economics, consumption, consumption function, consumption schedule, David Ricardo, disposable income, exogenous shock, expected rate of return, induced consumption, inflationary gap, investment function, invisible hand, John Maynard Keynes, Keynesian, Keynesian equilibrium, laissez faire, marginal propensity to consume, marginal propensity to save, multiplier effect, Philips Curve, real interest rate, recessionary gap, supply shock, Say’s Law, full employment level of output Indicator 4: Students will analyze the effects of fiscal policy in order to determine its impact on the economy. • Determine the relationship of fiscal policy to economic performance • Distinguish between discretionary and automatic stabilizers • Analyze the tools of fiscal policy • Determine the effects of expansionary and contractionary fiscal policies on the economy • Determine the role of macroeconomic conditions in establishing a fiscal policy Key Terms:

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automatic stabilizer, contractionary, crowding out effect, discretionary stabilizer, expansionary, fiscal policy, expenditure multiplier = 1 divided by 1 – MPC (1/MPS), marginal propensity to consume, multiplier effect, marginal propensity to save Indicator 5: Students will analyze the effects of monetary policy in order to determine its impact on the economy. • • • • • •

Analyze the role of money Analyze the quantity theory of money Analyze the role of banks and the banking system Analyze the structure, methods and independence of the Federal Reserve System Analyze the tools of monetary policy Analyze the combined effects of fiscal and monetary policies

Key Terms: Classical dichotomy, commodity, demand deposits, discount rate, discount window operations, “easy-money” policy, equilibrium interest rate, excess reserves, federal funds market, federal funds rate, Federal Open Market Committee, Federal Reserve System, fiat Fisher effect, fractional reserve, inflation tax, liquidity, M1, M2, M3, medium of exchange menu costs, monetary equation of exchange, monetary neutrality, monetary policy, money, money multiplier, nominal variables, open market operations, quantity equation, quantity theory of money MV=PQ, real variables, reserve ratio, reserve requirement, shoeleather costs, standard of value/unit of account, theory of liquidity preference, “tight-money” policy, velocity of money Indicator 6: Students will evaluate differing theoretical approaches to macroeconomic performance. • Analyze the trade-off between inflation and unemployment to macroeconomic performance • Determine the impact of supply shocks on the inflation/unemployment trade-off • Analyze the relationship between increased productivity and economic growth • Evaluate competing economic theories Key Terms: Adam Smith, classical economics, David Ricardo, Demand-side Economics, economic growth, invisible hand, John Maynard Keynes, Keynesian, Laffer Curve, laissez faire, monetarist, neo-classical economics, Phillips Curve, rational expectation, sacrifice ratio, Say’s Law, Supply shocks, supply-side economics

Unit 8: The United States and the International Economy (2 weeks) Readings: Mankiw, Principles of Economics, pages 179-200, 658-76, 679-95. Indicator and supporting objectives:

• • • • • •

Students will analyze factors that impact trade and trade issues in order to apply economic decision-making in the international economy. Analyze factors that affect trade decisions Compare impacts of differing trade policies Distinguish between balance of trade and balance of payments Distinguish between nominal and real currency exchange rates Analyze the factors that influence international exchange rates Analyze the effects of monetary and fiscal policy on exchange rates and balances

Key Terms: absolute advantage, appreciation, balance of payments, budget deficit, capital account balance, capital flight, closed

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economy, comparative advantage, comparative disadvantage, consumption possibilities curve, current account balance, depreciation, exchange rates, nominal exchange rate, open economy, protectionist policies, purchasingpower parity, quota, real exchange rate, specialization, tariffs, trade barriers, trade deficit, trade policy, trade surplus

Economics Jokes Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take an animal." Man picks one up and begins to walk away. "Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an economist for a government think tank," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce that?" "Well," says the shepherd, "put down my dog and I will tell you." A mathematician, an accountant and an economist apply for the same job. The interviewer calls in the mathematician and asks "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly." Then the interviewer calls in the accountant and asks the same question "What do two plus two equal?" The accountant says "On average, four - give or take ten percent, but on average, four." Then the interviewer calls in the economist and poses the same question "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, "What do you want it to equal"? Three macroeconomists went out hunting, and came across a large deer. The first macroeconomist fired, but missed, by a meter to the left. The second macroeconomist fired, but also missed, by a meter to the right. The third macroeconomist didn't fire, but shouted in triumph, "We got it! We got it!" A civil engineer, a chemist and an economist are traveling in the countryside. Weary, they stop at a small country inn. "I only have two rooms, so one of you will have to sleep in the barn," the innkeeper says. The civil engineer volunteers to sleep in the barn, goes outside, and the others go to bed. In a short time they're awakened by a knock. It's the engineer, who says, "There's a cow in that barn. I'm a Hindu, and it would offend my beliefs to sleep next to a sacred animal." The chemist says that, OK, he'll sleep in the barn. The others go back to bed, but soon are awakened by another knock. It's the chemist who says, "There's a pig in that barn. I'm Jewish, and cannot sleep next to an unclean animal." So the economist is sent to the barn. It's getting late, the others are very tired and soon fall asleep, Bu 15

they're awakened by an even louder knocking. They open the door and are surprised by what they see: It's the cow and the pig! Three economists and three mathematicians were going for a trip by train. Before the journey, the mathematicians bought 3 tickets but economists only bought one. The mathematicians were glad their stupid colleagues were going to pay a fine. However, when the conductor was approaching their compartment, all three economists went to the nearest toilet. The conductor, noticing that somebody was in the toilet, knocked on the door. In reply he saw a hand with one ticket. He checked it and the economists saved 2/3 of the ticket price. The next day, the mathematicians decided to use the same strategy- they bought only one ticket, but economists did not buy tickets at all! When the mathematicians saw the conductor, they hid in the toilet, and when they heard knocking they handed in the ticket. They did not get it back. Why? The economists took it and went to the other toilet. A woman hears from her doctor that she has only half a year to live. The doctor advises her to marry an economist and to live in South Dakota. The woman asks, "Will this cure my illness"? The doctor answers, "No, but the half year will seem pretty long". Three guys decide to play a round of golf: a priest, a psychologist, and an economist. They get behind a *very* slow two-some, who, despite a caddy, are taking all day to line up their shots and four-putting every green, and so on. By the 8th hole, the three men are complaining loudly about the slow play ahead and swearing a blue streak. The priest says, "Holy Mary, I pray that they should take some lessons before they play again." The psychologist says, "I swear there are people that like to play golf slowly." The economist says, "I really didn't expect to spend this much time playing a round of golf." By the 9th hole, they have had it with slow play, so the psychologist goes to the caddy and demands that they be allowed to play through. The caddy says O.K., but then explains that the two golfers are blind, that both are retired firemen who lost their eyesight saving people in a fire, and that explains their slow play, and would they please not swear and complain so loud. The priest is mortified; he says, "Here I am a man of the cloth and I've been swearing at the slow play of two blind men." The psychologist is also mortified; he says, "Here I am a man trained to help others with their problems and I've been complaining about the slow play of two blind men." The economist ponders the situation-finally he goes back to the caddy and says, "Listen, the next time could they play at night?" An engineer, a physicist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The engineer says, "Let's smash the can open with a rock." The physicist says, "Let’s build a fire and heat the can. That will cause pressure inside to build and the top will pop off." 16

The economist says, "Let's assume that we have a can-opener..." My signature below provides that I and my student,______________________________, have read the above syllabus and are aware of the requirements of A.P. Economics at Catonsville High School. I understand that my daughter/son will be required to take the A.P. Micro and Macro Economics Exams scheduled for May 13th, 2010. I further know how to contact the instructor of this course and have provided means of instructor contact as well.

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