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

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macroeconomics workshop

Macroeconomics Workshop

August 12, 2013

Martha Rush &

Ann E. Scharfenberg

workshop agenda
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

martha rush
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)

ann e scharfenberg
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)

introduce yourself
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

ap macroeconomics
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%)
i basic economic concepts
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
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 #1Production Possibilities Curve (Frontier)
microwaves cell phones
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

slide12

Which country has the absolute advantage in cell phones?

Which country has the absolute advantage in microwaves?

What does this tell you?

slide13
Which country has the comparative advantage in producing cell phones?

Which country has the comparative advantage in producing microwaves?

What does this tell you?

slide15

Apples

1 2 3 4 5 6 7 8 9 10 11

1 2 3 4

Carrots

i basics continued
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
ii economic performance
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
what do students need to know about the keynesian cross
What do students need to know about the Keynesian Cross?

Consumption is a function of income

MPC, MPS, & multiplier

multipliers
Multipliers
  • Simple Spending Multiplier
    • 1

MPS

  • Tax Multiplier
    • - MPC

MPS

  • Balanced Budget Multiplier
    • Equals 1
graph 3 ad as1
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
graph 3 money market
Graph #3Money 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
Graph #4Loanable Funds

Banks & customers

Slf ~ savings, capital flows

Dlf ~ private consumers & businesses

Crowding out

Foreign Investment

the perfect world
The Perfect World

LRAS

PL

SRAS

AD

Real GDP

the recession
The Recession

LRAS

PL

SRAS

AD1

AD

Real GDP

ad inflation
AD Inflation

LRAS

PL

SRAS

AD1

AD

Real GDP

stagflation
Stagflation

LRAS

SRAS1

PL

SRAS

AD

Real GDP

graph 5 phillips curve
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
graph 6 foreign exchange market
Graph #6 ~ Foreign Exchange Market

US Dollars

Euros

S

S

Euros/Dollar

Dollars/Euro

D

D

QUSD

QEuros

balance of payments
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
balance of payments1
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?)

2008 q2 frq
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
2008 q2 frq1
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.

the ap macroeconomics exam expectations
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.
the ap macroeconomics exam expectations cont d
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.

error number 9 question 1 b
Error Number 9Question 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.

error number 9 question 1 b1
Error Number 9Question 1 (b)

Real

Interest

Rate

SLF

S’LF

r1

r2

DLF

Quantity of

Loanable Funds

error number 1 question 1 c ii
Error Number 1Question 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.

error number 8 question 1 d
Error Number 8Question 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.

error number 8 question 1 d1
Error Number 8Question 1 (d)

e=Dollars

per

euro

S of euros

e2

e1

D’ for euros

D for euros

Quantity of

euros

error number 3 question 1 d
Error Number 3Question 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.

error number 3 question 1 d1
Error Number 3Question 1(d)

The demand for the euro increases because investors buy euros in order to purchase financial assets with higher return in the eurozone.

error number 5 question 1 e
Error Number 5Question 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

error number 2 question 2 e
Error Number 2Question 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.)

error number 4 question 3 b
Error Number 4Question 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

error number 7 question 3 c
Error Number 7Question 3 (c)

Question: What is the effect of the increase in the expected rate of inflation on the long-run Phillips curve?

No Change

error number 6 question 3 d ii
Error Number 6Question 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

error number 10 question 3 part e
Error Number 10Question 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

top ten errors on the 2013 ap macro exam
Top Ten Errors on the2013 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)

54.04-89.4

macro resources
Macro Resources

http://apcentral.collegeboard.com/apc/members/exam/exam_questions/2083.html

http://www.councilforeconed.org/resource/advanced-placement-economics-4th-edition/

http://www.reffonomics.com/TRB/INPROGRESS/Macroeconomics

http://www.youtube.com/user/ACDCLeadership

http://www.aplia.com/

http://www.youtube.com/watch?v=d0nERTFo-Sk

http://www.youtube.com/watch?v=GTQnarzmTOc

extensions
Extensions

Economics Challenge

Personal Finance Decathlon

Federal Reserve Essay Contest

Great Recession Lesson

Economic Development Project

share take aways
Share take aways…

Provide an example of when or how .

QUESTIONS?

thank you take time to enjoy the summer
Ann E. Scharfenberg

New Richmond High School

715-243-1733

anns@newrichmond.k12.wi.us

THANK YOUTake time to enjoy the summer