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Summit High School - Peter Ponce

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COURSE OUTLINE

Unit 1: Basic Economic Concepts

• How the economy works

Unit 2: Measure of Economic Performance

• How the economy is measured and analyzed

Unit 3: National Income and Price Determination

• Economic policy - how the economy is manipulated

Unit 4: International Finance

• Effects of foreign production on the domestic economy

Unit 5: Economic Growth

• Policy debate about how an economy develops more wealth

Download the course syllabus in PDF format

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EXAM SCHEDULE

Unit 1:

Unit 2:

Unit 3:

Unit 4-5:

AP Macroeconomics Exam:

Final Exam:

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Unit 1: Supply & Demand

Students are required to graph and script in response to hypothetical changes in the market for a fictional, secret, and groundbreaking development, "Product M."         

Unit 2: Aggregate Demand & Aggregate Supply

Students are required to graph and explain the changes in an overall economy using tools of aggregate measurement (the Multiplier, Productivity, etc.).         

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KEY GRAPHS & NOTES (This section is now complete)

Unit 1: Economic Goals

This presentation outlines the 8 Economic Goals as listed in the text, then examines key statistics that illustrate them, as well as other relevant information.

Unit 1: The Production Possibilities Curve

This presentation illustrates the basic choices available in a trade-off, simplifying to two key products.  It then progresses to the Production Possibilities Curve, now comparing Capital and Consumer Goods.  This is illustrated using Constant Opportunity Cost, then Increasing Opportunity Cost, then finally with issues of Efficiency/Inefficiency and Growth.

Unit 1: Features of Capitalism

This presentation outlines the 5 essential features of a Capitalist economy.  It includes general descriptions of each feature and how they relate to the portions of a human hand.

Unit 1: The Circular Flow of the Economy

This diagram exhibits how products change hands in a market-oriented economy.  It shows the two types of markets - Product and Resource - and classifies them according to what is exchanged, both as products and as money.  Understanding this diagram is essential to comprehending the general trade process, supply and demand, and the measurement and accounting of the economy.

Unit 1: Prices

This graph places the Supply Curve and the Demand Curve together, showing all the major concepts that relate to their interaction.  These concepts generally exist separately, but this graph places them together for the sake of illustration.

Unit 1: The Circular Flow Revisited

This diagram builds on the previous Circular Flow diagram but adds government to the interaction.  Government pulls taxes from both Households and Businesses and then redirects them in the form of goods and services.  The diagram also distinguishes the public sector - government-based activity - from the private sector - "conventional" interaction between households and businesses.

Unit 1: Income Measurement

This set of graphs represent the two main methods for examining Income Distribution - Functional and Personal.  Functional Distribution of Income typically employs a pie graph - what's important is that it examines the SOURCE of income.  Personal Distribution of Income typically employs a bar graph, comparing five classes ("quintiles") of households, and their share of total income.

Unit 1: The Lorenz Curve

This graph illustrates income inequity in a capitalist economy.  The blue line represents a 1:1 situation of perfect equality, in terms of % of income distributed among % of population.  The real world, however, is unequal, and this situation is illustrated by the green curve.  The more "bowed" the green curve, the more inequity.  Government redistributes income in a capitalist economy to reduce the inequity and take distribution more toward the ideal blue line.

Unit 2: Aggregate Expenditures and Leakage-Injection Graphs

These graphs illustrate the Keynesian approach to economic growth & decline related to Real GDP.  The upper graph, which is also called "The Keynesian Cross," shows how changes in the components of Aggregate Expenditures (Consumer Spending, Gross Investment, Government Spending, and Net Exports) result in changes in the level of Real GDP.  Additionally, this graph exhibits the "Multiplier Effect," where a change in, for example, Investment can result in a greater change in Real GDP, depending upon the Marginal Propensities to Consume and Save in the economy. 

The lower graph illustrates the same principles from the perspective of Savings, as a leakage from Real GDP, versus Investment, as an injection into Real GDP.  Theoretically, if increases in income are saved, GDP drops, but if those savings are invested, GDP will then increase.

Unit 2: The Multiplier Effect

This presentation outlines major topics and concepts covered in Chapter 10 of McConnell & Brue.  It's mainly designed to show how the GDP Multiplier is calculated and how it determines changes in Real GDP based on changes in Aggregate Expenditures.  This presentation also includes tips on constructing Expenditures-Output and Leakage-Injection graphs that properly reflect Real GDP changes.  This page outlines the Multiplier principles and calculation in a more succinct format.

Unit 2: Aggregate Demand and Aggregate Supply

This graph shows the "mainstream," Keynesian-derived approach to Aggregate Demand and Aggregate Supply in the economy.  All relevant labels & intersections are identified in the key at the bottom  Aggregate Demand looks essentially the same as Demand, except that it is slightly curved.  Aggregate Supply has a more pronounced curve, indicating that it eventually levels at the extremes.  Ideally, the AD intersects AS at the Full Employment level, represented by the dotted line.  From the Keynesian perspective, increases in AD should cause increases in AS, as long as Gross Investment remains high.  From the Classical perspective, increases in AS will cause increases in AD.  Either way, the goal of the economy is for both curves to move steadily to the right, increasing output & wealth while maintaining a stable price level.

Unit 3: Discretionary Fiscal Policy/Monetary Policy

This pair of charts outlines the basic machinations of Fiscal Policy by the federal government and Monetary Policy by the Federal Reserve.  On the left side of each chart are the techniques for Expansionary Policy in response to recession; on the right side are the techniques of Contractionary Policy in response to inflation.  Note that the spillover effects of fiscal policy will cause interest rates to run counter (in theory) to the objectives of the Fed.

Unit 3: The Money Market

This graph illustrates the supply and demand for money.  Note that the Money Supply curve is perfectly inelastic--that is, it does not vary with respect to Interest Rates.  Money Demand varies inversely with respect to Interest Rates because of Asset Demand.  Generally, Money Demand will shift as a result of spillover effects from Fiscal Policy.  As you know, the Federal Reserve controls the position of the Money Supply.

Unit 3: The Banking System

This chart outlines the basic process by which banks obtain funds, either through deposits or the sale of stock shares, then loan those funds out to businesses and households.  The implications of this process are two-fold:

1) banks feed the market, allowing businesses to produce more and households to consume more; and 2) banks depend on the market for their own health - if borrowers default on their loans, the banks will fail.  This will ultimately harm the depositors and the stockholders.  Stockholders should assume this risk, but depositors need confidence in the banks.  This process is the major reason why the FDIC insures deposits and why the Fed will monitor banks.

Unit 3: The Bank Balance Sheet

This document shows a simplified version of a typical bank's balance sheet.  Assets must equal Liabilities Plus Net Worth.  On the Liabilities/NW side are listed Demand Deposits, Time Deposits, and Capital Stock.  Capital Stock is the only component of Net Worth shown here.  Both categories of deposits are Liabilities--they also represent M1 (Demand Deposits) and M2/M3 (Time Deposits) Money Supply.  On the Assets side, several items are listed, but the most important are Reserves [both Required and Excess], Loans, and Securities.  These 3 components are the keys to monetary policy and the Fed's influence on the economy.

Unit 3: Monetary Policy Effects

This chart illustrates the short- and long-term effects of Fed monetary policy, particularly as it relates to international markets.  To understand these effects, you'll need to understand this graph of the Loanable Funds Market, which illustrates changes in the real interest rate as a result of supply and demand for loans.  Study these points for a summary of potential unintended effects and problems with monetary policy.

Unit 3: Economic Policy and AD/AS

This graph illustrates the 3 basic areas of AD/AS equilibrium based on different aggregate demand curves.  It also outlines the different policy approaches (Keynesian, Classical, Monetary) when the economy moves into recession or inflation.  Keep in mind that AS shifts, too.  AS shocks (leftward shifts) typically have no viable policy remedy.  AS increases are considered ideal to the Classical economist.  The Keynesian sees AS increases either as

1) results of proper AD policy, or 2) shifts that require growth in AD.  Monetary policy typically favors AS increases and seeks to match the productivity gain with corresponding growth in the Money Supply.

Unit 4: Introduction to International Trade

This presentation provides an overview of international trade in the modern U.S. economy.  Slide 2, "The Trade Process," shows the basic processes through which international trade occurs.  In the solid triangle, Country 1 imports products.  In the dotted triangle, Country 1 exports products.  The parallelogram in the center represents the exchange of currencies.  The outer box, where the ultimate exchange of products happens, is what's most important to the creation of wealth that international trade facilitates.  If the exchange rates in the center float, the entire cycle may ebb and flow from dotted to solid and back again, but should remain in overall balance, theoretically.  The remaining slides present foundation information for understanding global trade.

Unit 4: Comparative Advantage

This page contains graphic and text information describing Comparative Advantage.  It includes formulas for determining opportunity cost (assuming constant OC) for both Output and Input problems.

Unit 4: Currency Exchange

This page contains graphic and text information describing the nature of Currency Exchange with floating exchange rates.  To consider Currency Exchange, you must consider the Supply & Demand for BOTH currencies being compared relative to one another.  This page assumes the US Dollar is one currency and outlines both Appreciation and Depreciation of this currency.

Unit 5: Advanced AD-AS Graphing

This graph adds Long-Run Aggregate Supply (LRAS) to the AD-AS graph.  What was AS becomes Short-Run Aggregate Supply (SRAS).  LRAS sits at the Full Employment level of output, and it is the focus of Equilibrium for both SRAS and AD.  LRAS resists movement but will shift right with further investment and productivity.  SRAS can shift LRAS if it's persistent.  Any shift of LRAS automatically shifts SRAS.  AD is still independent of the AS curves, and its status as leader or follower of them depends on your perspective as an economist.

Unit 5: The Phillips Curve

This graph illustrates the Keynesian principle that decreases in unemployment correlate to increases in unemployment.  Obviously, policy-makers should avoid the extreme ends of the curve, but the middle area where a small amount of unemployment (natural unemployment) coincides with a small amount of inflation (say, 2-3%) has been the target of Keynesians over time.  This thinking works in the short run, but over time, the Phillips Curve shifts upward, causing stagflation--higher inflation and unemployment together.

Unit 5: Supply-Side Economics

This page gives a breakdown of the basic theory underlying the Supply-Side policies of the 1980s, often termed "Reaganomics."  The theory makes a number of assumptions: 1) that supply creates demand, 2) that since high taxes hinder production incentive, lower taxes will enhance production incentive, 3) that tax rates are too high on the Laffer Curve, and 4) that the Laffer Curve works, and that it does NOT shift from time-to-time, as the Phillips Curve does.

Unit 5: The Equation of Exchange

This page outlines the basic theory behind the Equation of Exchange, the key principle underlying Milton Friedman's theory of Monetarism.  Monetarists believe money is key to maintaining output, but they do NOT favor active monetary policy.  First, government policies should allow the forces of the free market to produce efficiently (Q).  The velocity of money (V) will remain stable.  The money supply, therefore, must grow at the same rate as productivity.  Thus, Q will be fully consumed because of a sufficient money supply, and P remains stable.  This would allow the economy to achieve both stability and growth.

Unit 5: Economic Growth

This presentation breaks down the basic issues associated with growth: What It Is, How It Happens, What We See, What We Don't See, etc.  This is information is not really new information, but instead, it encapsulates previous information into one seamless package.

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