A U G U S T 1 2 , 2 0 1 3
M A R T H A R U S H &
A N N E . S C H A R F E N B E R G

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



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)

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)

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

I.
II.
III.
IV.
V.
VI.
VII.
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%)







Scarcity & choice
Opportunity cost
Trade-off
Production Possibilities

Graph
Comparative Advantage

Calculation of opportunity cost & terms of trade
Economic Systems

Circular flow

 Scarcity & tradeoff
 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)

Absolute 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.
Comparative Advantage



David Ricardo ~ economic principle for trade
The ability to produce a good or service at a lower opportunity cost than another.
Specialization & Trade

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

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

1 2 3 4
Carrots

Demand ~ Consumers
Q d v. D
Supply ~ Producers
Q s v. S
Market for individual product determines price & quantity bought/sold graph
S
1
D
1
D
2
S
2
S
1
D
1

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




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

Visual of GDP
Circular Flow of Mixed Economy

What do students need to know about the Keynesian Cross?


Consumption is a function of income
MPC, MPS, & multiplier
MPC Disposable
Income
$12,000
$13,000
$14,000
$15,000
$16,000
$17,000
Consumption Saving
$12,100
$13,000
$13,800
$14,500
$15,100
$18,800
-$100
0
$200
$500
$900
$1400
--
MPS
--




Simple Spending Multiplier

1
MPS
Tax Multiplier

- MPC
MPS
Balanced Budget Multiplier

Equals 1

10:15 – 10:30

Graph #3
AD & AS

Graph #3
AD & AS

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

X n



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
Shifts



Availability of resources)
Technology & productivity
Same as PPC

WAGE & RESOURCES PRICES
DO NOT SHIFT LRAS

Vertical LR AS PPC

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

Graph #4
Loanable Funds
 Banks & customers
 S lf
~ savings, capital flows
 D lf
~ private consumers & businesses


Crowding out
Foreign
Investment

PL
LRAS
SRAS
AD
Real GDP

PL
LRAS
SRAS
AD1 AD
Real GDP

PL
LRAS
SRAS
AD1
AD
Real GDP

PL
LRAS SRAS1
SRAS
AD
Real GDP

 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 #5
Phillips Curve

US Dollars Euros
S S
Q
USD
D
Q
Euros
D


Current 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)





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?)

Balance of payments accounts record all of a country’s international transactions during a year.
a) i) ii)
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.
b) How would an increase in the real income in the U.S. affect the U.S. current account balance. Explain

Balance of payments accounts record all of a country’s international transactions during a year.
c) 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.

• 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.
46

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.
47

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.
52

Real
Interest
Rate r
1 r
2
Error Number 9
Question 1 (b)
S
LF
S’
LF
53
D
LF
Quantity of
Loanable Funds

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.
54

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.
56

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

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.
58

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.
59

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
60

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.)
63

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

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
67

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, or remain unchanged?
Remain Unchanged
68

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
69

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)
54.04-89.4
70

H T T P : / / A P C E N T R A L . C O L L E G E B O A R D . C O M / A P C / M E M B E R S /
E X A M / E X A M _ Q U E S T I O N S / 2 0 8 3 . H T M L
H T T P : / / W W W . C O U N C I L F O R E C O N E D . O R G / R E S O U R C E / A D V A
N C E D - P L A C E M E N T - E C O N O M I C S - 4 T H - E D I T I O N /
H T T P : / / W W W . R E F F O N O M I C S . C O M / T R B / I N P R O G R E S S / M A C
R O E C O N O M I C S
H T T P : / / W W W . Y O U T U B E . C O M / U S E R / A C D C L E A D E R S H I P
H T T P : / / W W W . A P L I A . C O M /
H T T P : / / W W W . Y O U T U B E . C O M / W A T C H ? V = D 0 N E R T F O - S K
H T T P : / / W W W . Y O U T U B E . C O M / W A T C H ? V = G T Q N A R Z M T O C

E C O N O M I C S C H A L L E N G E
P E R S O N A L F I N A N C E D E C A T H L O N
F E D E R A L R E S E R V E E S S A Y C O N T E S T
G R E A T R E C E S S I O N L E S S O N
E C O N O M I C D E V E L O P M E N T P R O J E C T

.
Provide an example of when or how
QUESTIONS?

Ann E. Scharfenberg
New Richmond High
School
715-243-1733 anns@newrichmond.k12
.wi.us
THANK YOU
Take time to enjoy the summer