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 TeacherNational 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 leader2009 ~ WI SS High School Teacher of the Year2006, 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... OROne summer adventure, favorite way to spend time
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 & choiceOpportunity costTrade-offProduction PossibilitiesGraphComparative AdvantageCalculation of opportunity cost & terms of tradeEconomic SystemsCircular flow
10 Graph #1 Production Possibilities Curve (Frontier) Scarcity & trade- offIncreasing opportunity costConcave shapeQuantities not Value or $AssumptionsFixed resourcesFixed technology2 goods onlyEconomic GrowthGraph #1 Production Possibilities Curve (Frontier)
11 Microwaves & Cell Phones Absolute AdvantageComparative AdvantageThe ability to produce more units of a good or service than another, using the same quantity of resourcesThe ability to produce a good or service more efficiently, using fewer resources.David Ricardo ~ economic principle for tradeThe 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?
18 II. Economic Performance Business CycleDiagramCircular FlowIntro to IndicatorsGDP measurementCounted or notIncome v. expendituresCalculation; real & nominalUnemploymentTypesCalculation; NRU; Okun’s lawLink to GDPInflationCPIGDP deflator
22 What do students need to know about the Keynesian Cross? Consumption is a function of incomeMPC, MPS, & multiplierDisposable IncomeConsumptionSavingMPCMPS$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
27 Graph #3 AD & AS Aggregate demand (AD) Shifts in AD wealth effectreal interest rate effectforeign purchases effectShifts in ADCΔ Income; Δ taxes or transfer payments ΔDIILevel of optimism; Interest rates (inverse)GDiscretionary G spendingXnForeign incomeConsumer tastesΔ Exchange rateSR Aggregate supply (SRAS)Upward slopingShiftsInput prices (cost of resources)Tax policyRegulationLR Aggregate supply (LRAS)VerticalAvailability of resources)Technology & productivitySame as PPCWAGE & RESOURCES PRICES DO NOT SHIFT LRAS
28 LRAS & PPC (recessionary gap) Vertical LR ASPPC
38 SR Phillips Curve illustrates trade-off between inflation & unemployment rate Move along SR PC when AD shiftsShift SR PC when expected inflation rate changesVertical LR natural rate of UEGraph #5 Phillips Curve
40 Graph #6 ~ Foreign Exchange Market US DollarsEurosSSEuros/DollarDollars/EuroDDQUSDQEuros
41 Balance of Payments Current Account Financial Account Exports and importsTourismNet investment incomeNet transfersFinancial AccountPurchases of real assets abroad (hotels, factoriesPurchases 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 reservesA 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 FRQBalance 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 Belgiuma 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 FRQBalance 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 RubricExpected ResponseWhen answering the Macroeconomics or Microeconomics free responsequestions, a student should respond clearly and concisely. Including paragraphsor 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 theloss 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 ofeconomic 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 Statesincrease. Using a correctly labeled graph of the loanable fundsMarket, show the impact of the increase in personal savings on thereal interest rate.Questions is worth two points: One point for proper labeling ofgraph and the S and D curves; one point for showing shift of Sand change in real interest rate.Error number 9 applies to the second point.
53 Error Number 9 Question 1 (b) RealInterestRateSLFS’LFr1r2DLFQuantity ofLoanable Funds
54 Error Number 1 Question 1 (c)(ii) Question: (c) Based on the real interest rate change identified inpart (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 zoneincreases relative to the real interest rate of the United States.Draw a correctly labeled graph of the foreign exchange marketfor the euro and show the impact of the change in the realinterest 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 dollarQuestion is worth three points: One point for proper labelingof graph and the S and D curves; one point for showing shiftof 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=DollarspereuroS of eurose2e1D’ for eurosD for eurosQuantity ofeuros
58 Error Number 3 Question 1(d) Question: Assume that the real interest rate of the euro zoneincreases relative to the real interest rate of the United States.Draw a correctly labeled graph of the foreign exchange marketfor the euro and show the impact of the change in the realinterest 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 dollarQuestion 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 anincrease in the expected rate of inflation.InflationSRPC’SRPCUnemployment
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 inflationfrom 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)