Macroeconomics Workshop

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 2007-2013 ~ 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 2006-2013 ~ 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. Scarcity & trade-off Increasing opportunity cost Concave shape Quantities not Value or $ Assumptions • Fixed resources • Fixed technology • 2 goods only Economic Growth Graph #1Production 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 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 Carrots

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

17. Understanding Economic Meaning…

18. II. Economic Performance • Business Cycle • Diagram • Circular Flow • Diagram • 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 GDPCircular 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

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

25. 10:15 – 10:30

26. Graph #3AD & AS

27. Graph #3AD & AS • SR Aggregate supply (SRAS) • Upward sloping • Shifts • Input prices (cost of resources) • Tax policy • Regulation • LR Aggregate supply (LRAS) • Vertical • Shifts • Availability of resources) • Technology & productivity • Same as PPC • WAGE & RESOURCES PRICES DO NOT SHIFT LRAS • Aggregate demand (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

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

29. IV. Financial Sector

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

31. Graph #4Loanable 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 PC @ natural rate of UE Graph #5Phillips 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 • Financial Account • Purchases of real assets abroad (hotels, factories • Purchases of financial assets abroad (stocks, bonds) • Current Account • Exports and imports • Tourism • Net investment income • Net transfers

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.