Advanced Placement

Economics

Instructor: Mr. Graham Long

E-mail: glong@bcps.org
Class website: sites.google.com/site/inthelongrunecon
Class blog: inthelongrunecon.blogspot.com
School phone: (410) 887-0808
Free period: First
 “Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking
which helps its possessor to draw the correct conclusions.”
--John Maynard Keynes

“Economics is a subject profoundly conducive to cliche, resonant with boredom. On few topics is
an American audience so practiced in turning off its ears and minds. And none can say that the
response is ill advised.”
--John Kenneth Galbraith

Introduction
While most Americans view economics as some sort of “business science” involving money or the
stock market, at its core economics is a social science. Specifically, economics attempts to explain the
central problem of existence: how do we satisfy our unlimited wants with limited resources?

As the quote by John Maynard Keynes suggests, economics is primarily a way of thinking, and
throughout this course you will be learning to view the world through a completely different lens.
Economics itself is not a doctrine; it is not an ideology; it is a methodology with which you can look at
any and all situations and derive the most optimum outcome. There are times in this course where we
may have discussions with which you will disagree (indeed, the probability of that occurring is
extremely high), but you will be expected to argue against those conclusions using economic data and
thinking. And there will be a lot of discussions, because economics (unlike many disciplines) is
applicable to your everyday life. After all, it is the study of choice, and has a day ever gone by in
which you did not make a choice?

However, despite this omnipresence, many people approach economics in the way described by John
Kenneth Galbraith. Any discussion of economic concepts is met with glassy eyes, heads on desks, and
perhaps a bit of drool. This is unfortunate, and one of the policies of this course will be to keep it
grounded in as many “real world” applications as possible. This way, you do not walk out of the course
feeling like economics is nothing but the study of graphs and money. As your instructor, I hope that
you find the study of economics to be both fascinating and practical (unlike the people in the cartoon
on the cover of this syllabus).

It is also important to note that you are taking this course at a watershed moment in the history of
economics; the paradigms concerning the role of government, the “ideal” structure of the economy, and
the decisions of individuals and business are in a state of flux, and new ideas are being bantered about
with a rapidity not seen since the Great Depression. It will be difficult (and I would argue impossible)
to find a day pass during this year in which economics will not dominate the news. As scholars, I
encourage you to take advantage of this, and try to relate our class discussions with what is going on in
current events as much as you can. Not only will it help you learn the material better (meaning a
higher A.P. Test score), but you might also (dare I say?) enjoy the content more.

Course Structure
The course will be divided into two parts. In the first half of the course, you will study the principles of
Microeconomics, roughly defined as the economics of individuals and firms (i.e. the individual
components of an economy). In the second half of the course, you will study the principles of
Macroeconomics, which is the study of the economy on a grand scale (the interactions of all the firms,
individuals, and government working together). While there is some overlap between the two, and they
share the same fundamental principles and assumptions, Micro and Macro are two independent units of
study. Hence, there are two different A.P. Tests: one for Micro and one for Macro. The expectation is
that you will take both.

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 Course Grading
Your grade for the course will be comprised of the following components, with these weights:

Exams and Quizzes: 40%

The predominant grade for this course will come from exams and quizzes. The philosophy behind this is two-
fold. First, a “high stakes” environment where exams are vitally important better replicates the reality of the A.P.
Exam, which is (for better or worse) the focal point of the course. Second, it will prepare students for their
courses in college, which are often determined almost entirely by one or two exam grades.

Students can expect a comprehensive exam at the end of every unit that will closely mirror the A.P. Exam in
length and format. Additionally, small quizzes will be administered frequently as checks for understanding.

Problem Set: 20%

Approximately once every two weeks (although it could be more if the spirit moves me), students will complete
problem sets. These will consist of a series of questions relating to the past several days of material. These
questions mirror the style of the free-response problems that students will see on the A.P. test. Students will
have several days to work on these problems.

The purpose of these problems is to provide further practice for students to become familiar with economic
concepts, as well as the format of the test. Sets will be particularly examined for the strength of their economic
reasoning, and for the accuracy of their graphs.

Economic Memos: 20%

Most nights throughout the semester, you will have some sort of reading assignment. And on most days, you
will have some sort of Economic Memo or “reading check” when you come into class the next time. Memos
may take one of two forms. In the first form, they will be questions in which you will be asked to summarize or
explain key ideas from the previous night's reading. These are not intended to be exhaustive essays, nor are they
intended to be rich in detail; in fact, they will hardly ever fill one side of a 8” x 5” index card. They differ from
quizzes largely in format; quizzes are multiple choice and (occasionally) A.P. free-response style, while memos
are simple writing assignments. Alternately, I will simply collect your homework assignment from the previous
night and check it for accuracy.

Blog Posts: 10%

Every two weeks, you will be participating in an online discussion via the class blog (address on the front of the
syllabus). The purpose of these blog posts is to have you interact with your classmates, both the ones in your
section and in the other section.

At the beginning of each two week period (generally on a Monday) I will post some sort of question, article, or
discussion topic to which you will respond. Students will go to the blog, read the stimulus as well as any
comments from their peers, and submit their own. Students are expected to make TWO contributions to each
question, but more are encouraged if your cup of ideas runneth over. The blog question will be closed on Friday
at midnight. Also, please note that all of your posts are time stamped, so I will know who waited until Friday
evening at 11:56 to make both of their posts. Please do not be this person.

Posts should be approximately 200 to 300 words long (double to triple the length of this paragraph), although
longer posts are welcomed. The post should also contribute to the topic in some way; a long-winded “I agree!”
will not suffice. The blog is intended to be a discussion forum, so expressing differences in opinion is
encouraged as long as it remains civil. My hope is that the topics we discuss will lead to much debate and
interaction, and there are sure to be differences of opinion which will come forth. The blog might also help you
clarify some of the topics we discussed in class, and expose you to ideas you did not have prior.

Also, the posts are not graded for spelling, so you may “lol” or “j/k” to your heart's content.

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Position Papers: 10%
Two times during the year, you will write a position paper explaining your beliefs on economic issues. For your
first paper, you will analyze the efficiency of selling human organs. The second paper will see you evaluate the
effectiveness of the New Deal. Each paper should be approximately 3-5 pages and display economic insight,
reasoning, and analysis. You will likely become emotionally engaged in these topics, and will have an
opportunity to state your own opinion on the topic.

More information on these Position Papers will be provided in due time.

Grade Determination
Grades will follow the standard A-B-C-D-E format.
A 100-90
B 80-89.99
C 70-79.99
D 60-69.99
E <60
Note that grades are not rounded; the student earns what the student earns.

Also, please be aware that extra credit opportunities will range from sparse to non-existent. If it is provided, it
will not be on-demand, so students would be wise to refrain from asking for it.

Turning in Assignments
Problems Sets are to be handwritten on notebook paper using blue or black ink. The reason for this is that the
free-response questions on the A.P. Test are to be done in blue or black ink, and I want you to have as much
experience as possible in that medium.

Further, in an attempt to be as unbiased as possible during grading, I ask that you put your name on the back of
the very last page of any assignment you turn in.

Late Work and Absences

My policy on late work is simple: an assignment may be turned in one day late, but it loses 50% credit.
Anything after one day late will not be accepted. If you are absent, and it is possible for you to do so, check the
website (discussed below): all of the materials from that day will be posted so that you may download and print
them from home. This way, you are less behind. If you would like to get make-up work from your instructor in
person upon return from your absence, that is fine. However, I will only accommodate such requests before
school, after school, or during my planning period. A request for make-up work during class will almost
certainly be met with a blank stare of incredulity.

If you miss an assignment because of an absence, you have as many days as you were absent (i.e. miss two class
periods = have two days) to complete the work and return it.

A Note on Spelling and Grammar:

Philosophically, I am not a believer in the idea of “Standard English”. There really is no fundamental reason that
a sentence cannot end with a preposition. And it is only in the past one hundred years that it magically became
shameful to split an infinitive. However, for better or for worse, these rules are imposed upon us from on high,
and at the college level the expectation from many/most of your professors is that you will not break said rules.
Therefore, your Position Papers will be graded for spelling, grammar, mechanics, etc. As mentioned before,
your blog posts are free from these restrictions.

All papers, regardless of the requirements for spelling, should be written with clarity.

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Class Website
The web site for the class can be found at the following URL: http://sites.google.com/site/inthelongrunecon

At the website you can find a variety of materials that might be useful for class. For each unit that we cover, all
of the handouts that are administered in class will be compiled and put on the website for download, in case you
either lose your copy or would like a clean one for study or framing on the wall. The News and Notes sections
will be filled with pertinent class announcements and humorous, witty remarks from your instructor. The
Calendar page displays the yearly class calendar that has the due dates for assignments. I have also marked off
the holidays and school closings for your perusal. Finally, there is a section of Economic Indicators. This page
lists the constantly updating vital data for the economy (stuff that will be particularly important when we get to
Macroeconomics).

Please try to access the site in the first week, and let me know if you have any problems viewing it. I have tested
in on three web browsers (Internet Explorer 8, Mozilla Firefox, Google Chrome) and it has appeared to work in
all three. If accessing either the website or blog will prove to be a challenge/impossibility to you, please come
see me ASAP so that we may make other arrangements.

Class Rules and Contacting Your Instructor

I find that having a list of class rules with some ten-plus items seems to be overkill and slightly ludicrous,
therefore one rule will suffice:
1. Respect. This means respecting your peers by not talking when they are talking; respecting your
instructor by not throwing objects at his face or in his vicinity; and respecting the classroom into which I
float by eating nothing and drinking nothing (except water). And please note that respect is a two way
street. Your instructor does not have carte blanche to treat you poorly, and I hold myself to expectations
of professionalism.1

I am always open to answering questions outside of class, and please do not hesitate to contact me with
problems/concerns/spirited discussion. I am at school obscenely early, so you may find me before school from
6:15 on (although you are not allowed in until 7). You may also make an appointment with me to stay after-
school Monday through Thursday for any length of time necessary. My planning time during school is first
period. My room number is 209, so if you need to find me, that is the first place to look; second place to look is
Dunkin' Donuts2. In the event that I am not in my room, I leave sticky notes next to my computer. Simply write
your message on a sticky note and put it on my computer screen.

I check my e-mail religiously, so any other problems may be addressed by sending me a message to
glong@bcps.org I will respond as quickly as I can up to 10:00 pm (my bed time).

1 Without trying to appear too stuffy, of course.

2 Just kidding. (I think)

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 APPENDIX

Economic Commandments Page 6

Formal Course Structure (as submitted to College Pages 7-14
Board)
Economics Jokes Pages 15-16
Course Agreement Page 17

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 THE TEN COMMANDMENTS OF A.P.
ECONOMICS

I. Thou shalt make VI. Thou shalt ask

thine graphs at least questions if thou art
half the page in size. confused; confusion
leads to clarity leads
II. Thou shalt use to truth.
blue or black ink on
thine graphs. VII. Thou shalt do
the practice problems
III. Thou shalt be thou art given, for
neat on thine they help sharpen thy
graphs, for it pleases focus.
those who grade.
VIII. Remember the
IV. Thou shalt A.P. exam day, and
follow current keep it in thy mind.
events, for it will
teach thine much IX. Do not covet thy
about economics. neighbor's answers.

V. Thou shalt read X. Honor Fridays,

every night thou art and be prepared for
asked. Fun Facts to Know
and Share

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 Course Overview and Description
Note: This is is how the course was approved by the College Board for the audit; I am giving it to you as a way to see where we are going
throughout the year. It might also prove useful as a study/note taking guide. As you read in your textbook, pay particular attention to the
italicized words.

The premise of Advanced Placement Economics is that students benefit from a systematic study of economic
behavior. Guided by the theories, principles, methodologies, and applications of macroeconomics and
microeconomics, students will analyze the complexities of economic interactions and decision-making.

Success in Advanced Placement Economics is defined as sufficient achievement to earn potential college credit on
the Advanced Placement Economics Examination for Macroeconomics and/or Microeconomics. This level of
achievement requires mastery of content, superior levels of processing, applications of test-taking strategies, and
highly developed skills of expression. Student achievement in Advanced Placement Economics will be the
equivalent of success in college-level introductory economics courses.

Advanced Placement Economics is designed to provide able, motivated students learning experiences that integrate
challenging subject matter and dynamic instruction. Such approaches to learning will actively engage students,
utilize their curiosity, and employ strategies appropriate for adolescent learners.

Upon completion of Advanced Placement Economics, students will have demonstrated achievement as
knowledgeable, skilled, and perceptive learners. They will have applied economic principles in academic,
business, and political contexts, developed advanced thinking skills, and made substantial progress towards
personal and academic success.

Course Text:

Mankiw, N. Gregory. Principles of Economics. Fort Worth: Harcourt College Publishers, 2001.

Supplementary Texts:

Anderson, David A. Economics by Example. New York: Worth Publishers, 2007.

Bade, Robin and Michael Parkin. Foundations of Economics: A.P. Edition. Boston: Pearson Addison-Wesley,
2007.

Doti, James L. and Dwight R. Lee. The Market Economy: A Reader. Los Angeles: Roxbury Publishing
Company, 1991.

Hubbard, R. Glenn, and Anthony P. O'Brien. Economics. Upper Saddle River, New Jersey: Pearson Prentice
Hall, 2008.

Krugman, Paul, and Robin Wells. Economics. New York: Worth Publishers, 2009.

Various current event newspaper/magazine articles from The Economist, Rolling Stone, Business Week, CNN,
Time, etc.

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 MICROECONOMICS COURSE PLAN

Unit 1: Basic Economic Concepts (1 week)

This unit establishes a foundation for economic reasoning that will be used throughout the course. Included in this
unit are fundamental economic principles and basic concepts such as scarcity, opportunity cost, specialization and
exchange. The unit emphasizes the terminology of economics and introduces graphing analysis. Hypothetical and
real-world applications are used as precursors to the applications of these concepts in later units.

Readings:

Mankiw, Principles of Economics: pages 3-15, 19-28-47-59

Indicator and supporting objectives:

Students will analyze the basic economic problem and related concepts in order to apply economic reasoning to
hypothetical and real-work situations.

• Apply basic economic concepts

• Apply the concept of scarcity
• Describe opportunity cost
• Compare traditional, command and market systems
• Analyze relationships between specialization and exchange

Key Terms:

absolute advantage, alternatives, command economy, comparative advantage, costs and benefits, economics,
efficient, explicit cost, graphing, implicit cost, incentives, inefficient, macroeconomics, margin, market economy,
microeconomics, mixed economy, opportunity cost, production possibilities curve, scarcity, trade-offs, traditional
economy

Unit 2: The Nature and Function of Markets (5 weeks)

This unit requires students to apply economic reasoning to fundamental behaviors in the marketplace. Students
will analyze the self-interested behaviors of buyers and sellers, how these behaviors can be used to predict the
consequences of choice and intervention, and how these behaviors support economic efficiency. Students will also
analyze the effectiveness and equity of our tax system.

Readings:

Mankiw, Principles of Economics, pages 65-89, 93-114, 463-77

Indicator and Supporting Objectives:

Indicator 1:
Students will analyze the roles and behaviors of consumers and producers in a competitive marketplace in order
to determine the effects of supply and demand.
• Analyze demand as a market force
• Analyze the effects of budget constraints, consumer preferences, and utility on demand
• Analyze supply as a market force
• Analyze the interaction of supply and demand
• Analyze the effects of elasticity on competitive markets
• Assess the impact of market forces on real life economic situations

Reading: Mankiw, Principles of Economics: pages 65-89, 93-114, 463-77

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Key Terms:

Ceteris paribus, complementary goods, consumer budget constraint, consumer surplus, cross price elasticity of
demand, demand, demand curve, demand schedule, determinants of demand, determinants of supply, diminishing
marginal utility, elastic, elasticity co-efficient, equilibrium, Giffen good, income effect, income elasticity of demand,
indifference curve, inelastic, inferior good, law of demand, law of supply and demand, long-run, marginal rate of
substitution, marginal utility, mid-point method, momentary, normal good, optimum choice, price elasticity, price
elasticity of supply, producer surplus, shift in demand, shift in supply, short-run, shortage, substitution effect, substitute
goods, supply, supply curve, supply schedule, surplus, total revenue test for price elasticity, total utility, unit elasticity,
utility maximization, variable

Indicator 2:
Students will analyze interactions of supply and demand in order to evaluate the effectiveness of market operations
and public policies in maximizing economic welfare.
• Describe how consumers and producers interact to maximize market efficiency
• Analyze the effects of price controls on market outcomes
• Evaluate the effectiveness of price controls and taxes as means of influencing market outcomes

Reading: Mankiw, Principles of Economics: pages 117-28, 141-58

Key Terms:

Cost, deadweight loss, efficiency, equity, price ceiling, price floor, tax incidence, total surplus, welfare economics,
consumer surplus, producer surplus, tax wedge

Indicator 3:
Students will analyze taxation in order to evaluate the effectiveness and equity of current tax policies
• Analyze types and purposes of taxes
• Analyze vertical equity and horizontal equity systems of taxation
• Utilize tax incidence to evaluate tax equity
• Evaluate the impacts of excise taxes

Reading: Mankiw, Principles of Economics: pages 243-63

Key Terms:

ability to pay principle, benefits principle, crowding out effect, effective tax rate, excise tax, flat tax, flypaper
theory of tax incidence, horizontal equity, nominal tax rate, progressive taxes, proportional taxes, regressive taxes,
tax incidence, vertical equity

Unit 3: Theory of the Firm: Production, Costs and Revenue (3 weeks)

This unit applies concepts such as scarcity, opportunity costs, and incentives toward the behaviors of firms in our
economic system. Students will analyze the variables for a variety of firms in the short run and long run to explain
decision making which seeks to minimize costs and maximize profits. Included within this unit is attention to the
efficiency of firms and evaluations of the impacts of their decisions on the entire economy.

Indicators and Supporting Objectives:

Indicator 1:
Students will analyze costs of production in order to determine how individual firms acquire optimal output.
• Analyze various costs incurred by firms
• Compare long-run costs and short-run costs

Reading: Mankiw, Principles of Economics: pages 269-87.

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Key Terms:

accounting profit, allocative efficiency, average fixed cost, average total cost, constant return to scale,
diseconomies of scale, economic loss, economic profit, economies of scale, efficient scale, fixed cost, law of
diminishing returns, marginal cost, marginal product, production function, productive efficiency, total cost, total
fixed cost, total variable cost, variable cost

Indicator 2:
Students will analyze variables for perfect competition in order to determine relationships among costs, price, and
revenue.
• Analyze costs, price, and revenue for perfect competition in the short run
• Analyze costs, price, and revenue for perfect competition in the long run
• Determine advantages and disadvantages of firms that operate in perfect competition
• Analysis of how a perfectly competitive industry moves from the short profit/loss into
Into long-run equilibrium

Reading:

Mankiw, Principles of Economics: pages 66-7, 291-311.

Key Terms:

break-even point, law of diminishing marginal returns, long-run adjustment, marginal revenue, normal profit,
P=MC=ATC, P=MR=D, perfect (pure) competition, profit maximization, shut-down point

Indicator 3:
Students will analyze variables for monopolies and imperfect competition in order to determine relationships
among costs, price, and revenue.
• Distinguish market structures
• Analyze costs, price, and revenue for monopolies
• Determine potential negative social consequences of monopoly pricing
• Analyze public policies directed at monopolistic firms
• Analyze costs, price, and revenue for oligopolies
• Analyze costs, price, and revenue for monopolistic competition

Reading:

Mankiw, Principles of Economics: pages 315-91.

Key Terms:

Advertising, arbitrage, anti-trust legislation, barriers to entry, business-stealing externality, cartel, collusion, cost-
plus pricing, differential oligopoly, dominant strategy, excess capacity, fair return price, game theory,
homogeneous oligopoly, imperfect competition, kinked demand curve, markup, monopolistic competition,
monopoly, Nash equilibrium, natural monopoly, nonprice competition, oligopoly, overt collusion, P>MC=MR,
perfect price discriminiation, predatory pricing, price discrimination, price leadership, price maker, price taker,
prisoners’ dilemma, product-variety externality, public ownership, regulation, resale price maintenance, socially
optimal price, tying

Unit 4: Factor Markets (3 weeks)

This unit applies acquired understandings of supply and demand, behaviors of different market structures, and the
impacts of intervention to analysis of factor markets. Students will determine that, as firms seek maximum profits
through minimizing costs, labor and other suppliers of resources seek the highest wages and rent possible. The

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 economist can apply rules and theories to understand these complex relationships and their consistency with
economic reasoning.
Indicator and Supporting Objectives:

Indicator 1:
Students will analyze the relationships among cost, revenue and profit in order to determine optimal allocations of
resources.
• Analyze derived demand
• Apply the rules and theories that govern a firm’s allocation of resources

Reading: Mankiw, Principles of Economics: pages 397-414

Key Terms:

derived demand, determinants of productivity, diminishing marginal returns, factor market, factors of production,
marginal physical product, marginal product of labor, marginal resource costs, marginal revenue product,
MRP=MRC, production function, value of the marginal product

Indicator 2:
Students will assess the impacts of wages, rent, and interest rates in order to determine optimal firm decisions
regarding costs.
• Analyze a firm’s decisions regarding wages and levels of employment in both perfect and
imperfect markets
• Analyze factors that affect wage levels
• Analyze factors that impact rent
• Determine the relationship between interest rates and investment decisions
Reading: Mankiw, Principles of Economics: pages 405-34

Key Terms:

compensating differential, economic rent, efficiency wages, equilibrium wage rate, human capital, interest, labor
union, minimum wage, monopsony, nominal interest rate, real interest rate, rent, W=MRP

Unit 5: The Impact of Government upon Microeconomics (2 weeks)

This unit requires students to apply economic understandings of the individual and market toward government
economic actions. Essential concepts for this unit include distinctions between public and private goods and
externalities that may or may not require government intervention. Questions related to the propriety and degrees
of government intervention are raised, requiring students to apply analytical and evaluative skills.

Indicators and Supporting Objectives:

Indicator 1:
Students will analyze perspectives regarding public goods in order to evaluate public policies
• Describe the characteristics of public goods
• Develop criteria for evaluating the effectiveness of government programs

Reading: Mankiw, Principles of Economics: pages 225-40

Key Terms:

common resources, cost-benefit analysis, private goods, private sector, public goods, public sectors, rivalry
(shared consumption)

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Indicator 2:
Students will analyze externalities in order to evaluate solutions for problems of positive and negative externalities
• Describe examples of positive and negative externalities
• Determine how private and public enterprises solve the problems of externalities
• Analyze the effectiveness of government and alternative policies designed to correct problems caused by positive
and negative externalities

Reading: Mankiw, Principles of Economics: pages 205-22.

Key Terms:

Coase theorem, externalities, GDP, Pigovian tax

MACROECONOMICS COURSE PLAN

Unit 6: Measurement of Economic Performance (2 weeks)

This unit serves as an introduction to the means by which macroeconomics determines the status of the national
economy. Additionally, students will examine critical factors of economic performance such as inflation and
unemployment. It is critical for students to understand these measurements and factors since they will form the
basis of economic problems and policies that are studied in subsequent units.

Readings:

Mankiw, Principles of Economics, pages 23-5, 493-525, 579-92, 641-51, 701-07

Indicator and supporting objectives:

Students will analyze economic measurements in order to determine processes for measuring economic growth.
• Analyze the circular flow model
• Apply the various tools that measure economic growth
• Determine the impacts of inflation and unemployment
• Determine the relationship between unemployment and inflation and the phases of the
business cycle

Key Terms:

business cycle, capital goods, circular flow, consumer price index, consumption, contractionary phase, cyclical
unemployment, depression, discouraged workers, disposable personal income, expansionary phase, expenditures
approach, factor markets, frictional unemployment, GDP deflator, GDP=C+I+G+NX, government purchases,
gross domestic product, earnings and cost approach, inflation, inflation rate, intermediate goods, investment,
labor force, labor-force participation rate, national income, natural rate of employment, natural resources, net
national product, net exports, nominal GDP, nominal interest rate, peak phase, personal income, personal outlay,
personal savings, price index, producer price index, product markets, real GDP, real interest rate, recession,
seasonal unemployment, structural unemployment, trough, unemployment insurance, unemployment rate, potential
gdp

Unit 7: National Income and the Determination of Price (8 weeks)

This unit applies what students have learned about economic measurements to analysis of the national economy as
a whole. Students will analyze the interaction of aggregate demand and aggregate supply to construct models of
macroeconomic performance. Students will use these models to analyze fiscal and monetary policies and predict
the impacts of these policies on the macroeconomy. Students will then apply their understandings of models and
policy tools to evaluate the effectiveness of differing macroeconomic theories in promoting economic growth and

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 stability.

Indicators and supporting objectives:

Indicator 1:
Students will analyze aggregate demand in order to determine its role in economic decision-making.
• Define demand and identify the determinants of demand
• Describe aggregate demand
• Analyze the slope and shifts in the aggregate demand

Reading: Mankiw, Principles of Economics, pages 67-74, 707-12

Key Terms:

aggregate demand, aggregate demand curve, exchange effect, interest rate effect, real balances effect, wealth effect

Indicator 2:
Students will analyze aggregate supply in the short run and the long run in order to determine its role in economic
decision-making.
• Define supply and identify the determinants of supply
• Analyze aggregate supply in the short run
• Analyze aggregate supply in the long run

Key Terms:

aggregate supply, aggregate supply curve, horizontal range, intermediate range, long-run aggregate supply,
misperceptions theory, short-run aggregate supply, sticky-wage theory, sticky-price theory, vertical range

Indicator 3:
Students will analyze the interaction of aggregate demand and aggregate supply in order to relate the AD/AS model
to the Aggregate Expenditures model.
• Define equilibrium of demand and supply and explain changes in equilibrium
• Determine equilibriums of aggregate demand and aggregate supply (AD/AS)
• Determine the impacts of demand and supply shocks
• Compare and contrast the Classical and Keynesian economic approaches
• Analyze the Aggregate Expenditures approach

Reading: Mankiw, Principles of Economics, pages 75-9, 712-720

Key Terms:

Adam Smith, aggregate expenditure function, autonomous, capital, classical economics, consumption,
consumption function, consumption schedule, David Ricardo, disposable income, exogenous shock, expected rate
of return, induced consumption, inflationary gap, investment function, invisible hand, John Maynard Keynes,
Keynesian, Keynesian equilibrium, laissez faire, marginal propensity to consume, marginal propensity to save,
multiplier effect, Philips Curve, real interest rate, recessionary gap, supply shock, Say’s Law, full employment level
of output

Indicator 4:
Students will analyze the effects of fiscal policy in order to determine its impact on the economy.
• Determine the relationship of fiscal policy to economic performance
• Distinguish between discretionary and automatic stabilizers
• Analyze the tools of fiscal policy
• Determine the effects of expansionary and contractionary fiscal policies on the economy
• Determine the role of macroeconomic conditions in establishing a fiscal policy

Key Terms:

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 automatic stabilizer, contractionary, crowding out effect, discretionary stabilizer, expansionary, fiscal policy,
expenditure multiplier = 1 divided by 1 – MPC (1/MPS), marginal propensity to consume, multiplier effect,
marginal propensity to save
Indicator 5:
Students will analyze the effects of monetary policy in order to determine its impact on the economy.

• Analyze the role of money

• Analyze the quantity theory of money
• Analyze the role of banks and the banking system
• Analyze the structure, methods and independence of the Federal Reserve System
• Analyze the tools of monetary policy
• Analyze the combined effects of fiscal and monetary policies

Key Terms:

Classical dichotomy, commodity, demand deposits, discount rate, discount window operations, “easy-money”
policy, equilibrium interest rate, excess reserves, federal funds market, federal funds rate, Federal Open Market
Committee, Federal Reserve System, fiat Fisher effect, fractional reserve, inflation tax, liquidity, M1, M2, M3,
medium of exchange menu costs, monetary equation of exchange, monetary neutrality, monetary policy, money,
money multiplier, nominal variables, open market operations, quantity equation, quantity theory of money
MV=PQ, real variables, reserve ratio, reserve requirement, shoeleather costs, standard of value/unit of account,
theory of liquidity preference, “tight-money” policy, velocity of money

Indicator 6:
Students will evaluate differing theoretical approaches to macroeconomic performance.
• Analyze the trade-off between inflation and unemployment to macroeconomic
performance
• Determine the impact of supply shocks on the inflation/unemployment trade-off
• Analyze the relationship between increased productivity and economic growth
• Evaluate competing economic theories

Key Terms:

Adam Smith, classical economics, David Ricardo, Demand-side Economics, economic growth, invisible hand, John
Maynard Keynes, Keynesian, Laffer Curve, laissez faire, monetarist, neo-classical economics, Phillips Curve,
rational expectation, sacrifice ratio, Say’s Law, Supply shocks, supply-side economics

Unit 8: The United States and the International Economy (2 weeks)

Readings: Mankiw, Principles of Economics, pages 179-200, 658-76, 679-95.

Indicator and supporting objectives:

Students will analyze factors that impact trade and trade issues in order to apply economic decision-making in the
international economy.
• Analyze factors that affect trade decisions
• Compare impacts of differing trade policies
• Distinguish between balance of trade and balance of payments
• Distinguish between nominal and real currency exchange rates
• Analyze the factors that influence international exchange rates
• Analyze the effects of monetary and fiscal policy on exchange rates and balances

Key Terms:

absolute advantage, appreciation, balance of payments, budget deficit, capital account balance, capital flight, closed

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 economy, comparative advantage, comparative disadvantage, consumption possibilities curve, current account
balance, depreciation, exchange rates, nominal exchange rate, open economy, protectionist policies, purchasing-
power parity, quota, real exchange rate, specialization, tariffs, trade barriers, trade deficit, trade policy, trade
surplus

Economics Jokes
Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells
the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this
flock." The shepherd thinks it over; it's a big flock so he takes the bet. "973," says the man. The
shepherd is astonished, because that is exactly right. Says "OK, I'm a man of my word, take an animal."
Man picks one up and begins to walk away.

"Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your
exact occupation." Man says sure. "You are an economist for a government think tank," says the
shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce
that?"

"Well," says the shepherd, "put down my dog and I will tell you."
A mathematician, an accountant and an economist apply for the same job.

The interviewer calls in the mathematician and asks "What do two plus two equal?" The mathematician
replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer
incredulously and says "Yes, four, exactly."

Then the interviewer calls in the accountant and asks the same question "What do two plus two equal?"
The accountant says "On average, four - give or take ten percent, but on average, four."

Then the interviewer calls in the economist and poses the same question "What do two plus two
equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and
says, "What do you want it to equal"?
Three macroeconomists went out hunting, and came across a large deer. The first macroeconomist
fired, but missed, by a meter to the left. The second macroeconomist fired, but also missed, by a meter
to the right. The third macroeconomist didn't fire, but shouted in triumph, "We got it! We got it!"
A civil engineer, a chemist and an economist are traveling in the countryside. Weary, they stop at a
small country inn. "I only have two rooms, so one of you will have to sleep in the barn," the innkeeper
says. The civil engineer volunteers to sleep in the barn, goes outside, and the others go to bed. In a
short time they're awakened by a knock. It's the engineer, who says, "There's a cow in that barn. I'm a
Hindu, and it would offend my beliefs to sleep next to a sacred animal." The chemist says that, OK,
he'll sleep in the barn. The others go back to bed, but soon are awakened by another knock. It's the
chemist who says, "There's a pig in that barn. I'm Jewish, and cannot sleep next to an unclean animal."
So the economist is sent to the barn. It's getting late, the others are very tired and soon fall asleep, Bu

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they're awakened by an even louder knocking. They open the door and are surprised by what they see:
It's the cow and the pig!
Three economists and three mathematicians were going for a trip by train. Before the journey, the
mathematicians bought 3 tickets but economists only bought one. The mathematicians were glad their
stupid colleagues were going to pay a fine. However, when the conductor was approaching their
compartment, all three economists went to the nearest toilet. The conductor, noticing that somebody
was in the toilet, knocked on the door. In reply he saw a hand with one ticket. He checked it and the
economists saved 2/3 of the ticket price.
The next day, the mathematicians decided to use the same strategy- they bought only one ticket, but
economists did not buy tickets at all! When the mathematicians saw the conductor, they hid in the
toilet, and when they heard knocking they handed in the ticket. They did not get it back.

Why? The economists took it and went to the other toilet.

A woman hears from her doctor that she has only half a year to live. The doctor advises her to marry an
economist and to live in South Dakota. The woman asks, "Will this cure my illness"?

The doctor answers, "No, but the half year will seem pretty long".
Three guys decide to play a round of golf: a priest, a psychologist, and an economist.

They get behind a *very* slow two-some, who, despite a caddy, are taking all day to line up their shots
and four-putting every green, and so on. By the 8th hole, the three men are complaining loudly about
the slow play ahead and swearing a blue streak. The priest says, "Holy Mary, I pray that they should
take some lessons before they play again." The psychologist says, "I swear there are people that like to
play golf slowly." The economist says, "I really didn't expect to spend this much time playing a round
of golf."

By the 9th hole, they have had it with slow play, so the psychologist goes to the caddy and demands
that they be allowed to play through. The caddy says O.K., but then explains that the two golfers are
blind, that both are retired firemen who lost their eyesight saving people in a fire, and that explains
their slow play, and would they please not swear and complain so loud.

The priest is mortified; he says, "Here I am a man of the cloth and I've been swearing at the slow play
of two blind men." The psychologist is also mortified; he says, "Here I am a man trained to help others
with their problems and I've been complaining about the slow play of two blind men."

The economist ponders the situation-finally he goes back to the caddy and says, "Listen, the next time
could they play at night?"
An engineer, a physicist and an economist are stranded on an island, with nothing to eat. A can of soup
washes ashore.
The engineer says, "Let's smash the can open with a rock."
The physicist says, "Let’s build a fire and heat the can. That will cause pressure inside to build and the
top will pop off."

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The economist says, "Let's assume that we have a can-opener..."
My signature below provides that I and my student,______________________________, have read the
above syllabus and are aware of the requirements of A.P. Economics at Catonsville High School. I
understand that my daughter/son will be required to take the A.P. Micro and Macro Economics Exams
scheduled for May 13th, 2010. I further know how to contact the instructor of this course and have
provided means of instructor contact as well.

________________________________ ______________________________
Student Signature Parent/Guardian Signature

________________________________ ______________________________
Parent/Guardian Daytime Phone Parent/Guardian Email

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