1. Macroeconomics Workshop
August 12, 2013
Martha Rush &
Ann E. Scharfenberg

2. Workshop Agenda
8:30-10:15 Intros; AP Macro outline, Basics 10:15-10:30 Break 10:30-11:45 AD/AS & Financial Sector 11:45-12:30 Lunch 12:30-1:15 Stabilization, Phillips Curve, Econ Growth 1:15-2:00 Open Econ, Trade, Balance of Payments 2:00-2:15 Break 2:15-3:00 AP Macro 2013 Free Response 3:00-4:00 Macroeconomic Resources

3. What did you sign up for…

4. Martha Rush 1997-today ~ Mounds View High School; AP Macro,
AP Micro, 9th grade Econ, AP Psych, Journalism
~ AP Macro reader (Mac 2)
2012 ~ 3M Economic Educator of Excellence, Junior Achievement Capstone Teacher
National Economics Challenge (2011, 2012, 2013)
Teacher Fellowships to Beijing (2005), St. Petersburg (2006), South Africa (2010), & Germany (2013)

5. Ann E. Scharfenberg 1994-today ~ New Richmond High School; AP Micro,
AP Macro, Intro to Econ, K-12 Department Chair, SS
~ AP Economics reader, table leader
2009 ~ WI SS High School Teacher of the Year
2006, 2008, 2010, 2012 ~ Traveled abroad with students (Europe)
Teacher Fellowships to Russia (2007), Romania (2008), Japan (2011), & Germany (2012)

6. Introduce yourself Your Name & Current School
Econ classes for the upcoming school year.
What would you like to get out of this session?
One fun thing about you... OR
One summer adventure, favorite way to spend time

7. Macroeconomics

8. AP Macroeconomics Basic Concepts (8-12%)
Measurement of Economic Performance (12-16%
AD and AS; SR & LR (10-15%)
Financial Sector (10-20%)
Stabilization Policies (20-30%)
Economic Growth (5-10%)
International Trade & Finance (10-15%)

9. I. Basic Economic Concepts
Scarcity & choice
Opportunity cost
Trade-off
Production Possibilities
Graph
Comparative Advantage
Calculation of opportunity cost & terms of trade
Economic Systems
Circular flow

10. Graph #1 Production Possibilities Curve (Frontier)
Scarcity & trade- off
Increasing opportunity cost
Concave shape
Quantities not Value or $
Assumptions
Fixed resources
Fixed technology
2 goods only
Economic Growth
Graph #1 Production Possibilities Curve (Frontier)

11. Microwaves & Cell Phones
Absolute Advantage
Comparative Advantage
The ability to produce more units of a good or service than another, using the same quantity of resources
The ability to produce a good or service more efficiently, using fewer resources.
David Ricardo ~ economic principle for trade
The ability to produce a good or service at a lower opportunity cost than another.
Specialization & Trade

12. Which country has the absolute advantage in cell phones?
Which country has the absolute advantage in microwaves?
What does this tell you?

13. Which country has the comparative advantage in producing cell phones?
Which country has the comparative advantage in producing microwaves?
What does this tell you?

14. Terms of Trade

15. Apples
Carrots

16. I. Basics continued Demand ~ Consumers Qd v. D Supply ~ Producers
Qs v. S
Market for individual product determines price & quantity bought/sold
graph S2 S1 S1 D2 D1 D1

17. Understanding Economic Meaning…

18. II. Economic Performance
Business Cycle
Diagram
Circular Flow
Intro to Indicators
GDP measurement
Counted or not
Income v. expenditures
Calculation; real & nominal
Unemployment
Types
Calculation; NRU; Okun’s law
Link to GDP
Inflation
CPI
GDP deflator

19. Build a Circular Flow Diagram

20. Visual of GDP Circular Flow of Mixed Economy

21. III. National Income & Price Determination

22. What do students need to know about the Keynesian Cross?
Consumption is a function of income
MPC, MPS, & multiplier
Disposable Income
Consumption
Saving
MPC
MPS
$12,000
$12,100
-$100 --
$13,000
$14,000
$13,800
$200
$15,000
$14,500
$500
$16,000
$15,100
$900
$17,000
$18,800
$1400

24. Multipliers Simple Spending Multiplier Tax Multiplier1
MPS
Tax Multiplier
- MPC
Balanced Budget Multiplier
Equals 1

25. 10:15 – 10:30

26. Graph #3 AD & AS

27. Graph #3 AD & AS Aggregate demand (AD) Shifts in AD
wealth effect
real interest rate effect
foreign purchases effect
Shifts in AD C
Δ Income; Δ taxes or transfer payments  ΔDI I
Level of optimism; Interest rates (inverse) G
Discretionary G spending Xn
Foreign income
Consumer tastes
Δ Exchange rate
SR Aggregate supply (SRAS)
Upward sloping
Shifts
Input prices (cost of resources)
Tax policy
Regulation
LR Aggregate supply (LRAS)
Vertical
Availability of resources)
Technology & productivity
Same as PPC
WAGE & RESOURCES PRICES DO NOT SHIFT LRAS

28. LRAS & PPC (recessionary gap)
Vertical LR AS
PPC

29. IV. Financial Sector

30. Graph #3 Money Market Bonds & interest rates
Federal Reserve changes money supply
Reserve Requirements
Discount rate
OMO
Buy bonds = bigger MS
Sell bonds = smaller MS
Bonds & interest rates

31. Graph #4 Loanable Funds Banks & customers Slf ~ savings, capital flows
Dlf ~ private consumers & businesses
Crowding out
Foreign Investment

32. 11:45 – 12:30

33. V. Stabilization Policies

34. The Perfect World
LRAS PL
SRAS AD
Real GDP

35. The Recession
LRAS PL
SRAS
AD1 AD
Real GDP

36. AD Inflation
LRAS PL
SRAS
AD1 AD
Real GDP

37. Stagflation
LRAS
SRAS1 PL
SRAS AD
Real GDP

38. SR Phillips Curve illustrates trade-off between inflation & unemployment rate
Move along SR PC when AD shifts
Shift SR PC when expected inflation rate changes
Vertical LR natural rate of UE
Graph #5 Phillips Curve

39. VII. Open Economy

40. Graph #6 ~ Foreign Exchange Market
US Dollars
Euros S S
Euros/Dollar
Dollars/Euro D D
QUSD
QEuros

41. Balance of Payments Current Account Financial Account
Exports and imports
Tourism
Net investment income
Net transfers
Financial Account
Purchases of real assets abroad (hotels, factories
Purchases of financial assets abroad (stocks, bonds)

42. Balance of Payments Current account + financial account = 0
If it doesn’t, there is a change in government reserves
A foreign transaction counts as a “credit” for the U.S. if the USD is used (who gets paid?
A foreign transaction counts as a “debit” for the U.S. if a foreign currency is used (Who gets paid?)

43. 2008 Q2 FRQ
Balance of payments accounts record all of a country’s international transactions during a year.
Two major subaccounts in the balance of payment are the current account and the capital financial account. In which of these subaccounts will each of the following transaction be recorded?
a U.S. resident buys chocolate from Belgium
a U.S. manufacturer buys computer equipment from Japan.
How would an increase in the real income in the U.S. affect the U.S. current account balance. Explain

44. 2008 Q2 FRQ
Balance of payments accounts record all of a country’s international transactions during a year.
Using a correctly labeled graph of the foreign exchange market for the United States dollar, show how an increase in the United States firms’ direct investment in India will affect the value of the United States dollar relative to the Indian rupee.

46. The AP Macroeconomics Exam:Expectations
Preliminary Rubric
Expected Response
When answering the Macroeconomics or Microeconomics free response
questions, a student should respond clearly and concisely. Including paragraphs
or even full-sentence responses is not always necessary; however,
it is important to address the verb prompts appropriately (see next slide).
A written response that presents conflicting answers is likely to lead to the
loss of points.

47. The AP Macroeconomics Exam: Expectations – Cont’d
Verb Prompts
“Show” means to use a diagram to illustrate your answer. Correct labeling of all elements including the axes of the diagram is necessary to receive full credit.
“Explain” means to take the reader through all of the steps or linkages in the line of
economic reasoning. Graphs and symbols are acceptable as part of the explanation.
“Identify” means to provide a specific answer that might be a list or a label on a graph, without any explanation or elaboration.
“Calculate” means to use mathematical operations to determine a specific numerical response, along with providing your work.

52. Error Number 9 Question 1 (b)
Question: Assume that personal savings in the United States
increase. Using a correctly labeled graph of the loanable funds
Market, show the impact of the increase in personal savings on the
real interest rate.
Questions is worth two points: One point for proper labeling of
graph and the S and D curves; one point for showing shift of S
and change in real interest rate.
Error number 9 applies to the second point.

53. Error Number 9 Question 1 (b)
Real
Interest
Rate
SLF
S’LF r1 r2
DLF
Quantity of
Loanable Funds

54. Error Number 1 Question 1 (c)(ii)
Question: (c) Based on the real interest rate change identified in
part (b),
(i) will interest-sensitive expenditures increase, decrease,
or remain unchanged?
(ii) what will happen to the rate of economic growth? Explain.
(From part (b), the real interest rate decreased.)
Increase because the capital stock increases.

56. Error Number 8 Question 1 (d)
Question: Assume that the real interest rate of the euro zone
increases relative to the real interest rate of the United States.
Draw a correctly labeled graph of the foreign exchange market
for the euro and show the impact of the change in the real
interest rate in the euro zone on each of the following.
(i) Demand for the euro. Explain.
(ii) Value of the euro relative to the United States dollar
Question is worth three points: One point for proper labeling
of graph and the S and D curves; one point for showing shift
of D and change in value of euro; and one point for the “Explain.”
Error number 8 applies to the second point.

57. Error Number 8 Question 1 (d)
e=Dollars
per
euro
S of euros e2 e1
D’ for euros
D for euros
Quantity of
euros

58. Error Number 3 Question 1(d)
Question: Assume that the real interest rate of the euro zone
increases relative to the real interest rate of the United States.
Draw a correctly labeled graph of the foreign exchange market
for the euro and show the impact of the change in the real
interest rate in the euro zone on each of the following.
(i) Demand for the euro. Explain.
(ii) Value of the euro relative to the United States dollar
Question is worth three points: One point for proper labeling of graph and the S and D curves; one point for showing shift of D and change in value of euro; and one point for the “Explain.”
Error number 3 applies to the third point.

59. Error Number 3 Question 1(d)
The demand for the euro increases because investors buy euros in order to purchase financial assets with higher return in the eurozone.

60. Error Number 5 Question 1 (e)
Question: (e) Assume that the United States current account balance is zero. Based on the change in the value of the euro identified in part (d)(ii), will the United States current account balance now be in surplus, be in deficit, or remain at zero?
(In part (d)(ii), the euro appreciated, so the dollar depreciated.)
Surplus

63. Error Number 2 Question 2 (e)
Question: (e) Assume instead that no discretionary policy actions are taken. Will short-run aggregate supply increase, decrease,or remain the same in the long run? Explain.
(A recession had previously been assumed in the question.)
Increase because wages will fall in a recession.
(Alternatively, input prices and/or inflationary expectations fall.)

66. Error Number 4 Question 3 (b)
Question: (a) Draw a correctly labeled graph of a short-run Phillips curve.
(b) Using your graph in part (a), show the effect of an
increase in the expected rate of inflation.
Inflation
SRPC’
SRPC
Unemployment

67. Error Number 7 Question 3 (c)
Question: What is the effect of the increase in the expected rate of inflation on the long-run Phillips curve?
No Change

68. Error Number 6 Question 3 (d) (ii)
Question: (d) Given the increase in the expected rate of inflation
from part (b),
(i) will the nominal interest rate on new loans increase, decrease,
or remain unchanged?
(ii) will the real interest rate on new loans increase, decrease,
Remain Unchanged

69. Error Number 10 Question 3, part (e)
Question: Assume that the nominal interest rate is 8 percent. Borrowers and lenders expect the rate of inflation to be 3 percent, and the growth rate of real gross domestic product is 4 percent. Calculate the real interest rate.
5 percent

70. Top Ten Errors on the 2013 AP Macro Exam
FRQ Question Averages
(Population)
Question 1: 4.88/10 (48.8%)
Question 2: 3.45/5 (68.9%)
Question 3: 2.85/6 (47.5%)
Range of Error Rates on Individual Points
(Sample of n≈1000)

71. 2:00 – 2:15

72. Macro Resources

73. Extensions Economics Challenge Personal Finance Decathlon
Federal Reserve Essay Contest
Great Recession Lesson
Economic Development Project

74. Share take aways…
Provide an example of when or how .
QUESTIONS?

75. THANK YOU Take time to enjoy the summer
Ann E. Scharfenberg
New Richmond High School
.wi.us
THANK YOU Take time to enjoy the summer