Economics
Advanced Placement Macro Economics
Revised March 18, 2005
I. Basic Economic Concepts (5 - 10%) Chapter 1
Scarcity & Choice
Opportunity Costs
Production Possibilities Curve
Purpose & Goals of Economic Systems
Allocation of Economic Resources
What, How & For Whom to produce Goods & Services
Efficiency vs. Equity
Economic Resources (Factors of Production)
Land, Labor, Capital, & Entrepreneurship
Assumptions for Creating Economic Models
Normative versus Positive Economics
Economic Rationality
Free versus Economic Goods
Ceteris Paribus
Comparative Economics Chapter 2
Traditional Economies
Centrally Planned Economies
Market Economic Systems (Capitalism)
Basic Supply & Demand Mechanism
The Price System
Mixed Economic Systems
Market Failure
Role & Functions of Governments
Reallocation of Resources:
Public & Merit Goods
Externalities
Redistribution of Income / Wealth
Anti-poverty payments & unemployment compensation
Maintain Competition
Prevent Monopoly
Enforce Legal Structures
Stabilization
Promote Growth
Prevent Inflation & Deflation
Basic Supply & Demand Chapter 3
Note: S & D to be discussed with employment & exchange rates
Demand / QD
Law of Demand
Shifts of Demand
Supply / QS
Law of Supply
Shifts of Supply
Equilibrium & Price Determination
Price Ceilings & Floors
II. Macroeconomic Objectives &
Measurement of Economic Performance (12-18%)
Macroeconomics objectives Chapter 4
Economic Development
Economic Growth
Productivity changes
Human Capital
Increases in Land, Labor & Capital
Costs associated with growth
GDP (Real versus Nominal)
Full Employment
Types of unemployment
Various effects of unemployment
Determination of unemployment rates
Labor Force & Discouraged workers
Natural Rate of Unemployment
Underemployment
Underground Economy
Unemployment compensation
Price Stability - Low Inflation
Price Indices (CPI, PPI, & GDP deflator)
Causes of Inflation
Cost Push (Supply Shocks)
Demand Pull
Effects of Inflation
Erosion of income
Interest rates (real versus nominal)
Wealth Effect
Saving & Lending
Deflation versus Disinflation
Stagflation
Measurement of Macroeconomic performance
Calculation of Gross Domestic Product
Expenditure Method
Income Method
Real versus Nominal GDP
GNP vs. GDP
Purchasing power parity
Uses / Misuses of National Income Accounts
Links between production & income
non-market productive activities
bartering & underground economy
income distribution
III. National Income and Price Determination (70-75%)
Aggregate Demand (25-30%) Chapters 5, 6 & 9
Circular Flow Model
Components of Aggregate Demand
Leakages & Injections
Introduction to Fiscal Policy
Revenue
Progressive, Regressive, & Proportional Taxes
Expenditures
Discretionary Fiscal Policy
Automatic Fiscal Policy
Transfer Payments & Progressive Tax Structure
Budget Deficit & Surplus
Treasury Bonds
Crowding Out
Pro's & Con's of Fiscal Policy
Total Planned Expenditure Curve
Implications for Fiscal Policy
Marginal Propensity to Consume
Keynesian Multiplier
Aggregate Demand & Supply Curves
Macroeconomic Equilibrium
Shifts of AD
Shifts of AS
Money, Banking & Monetary Policy (20-25%) Chapters 7 & 8
Function of & Definition of Money
Value of Money
Medium of exchange, Storing Wealth, Measuring value
Money Supply (M1, M2)
Liquidity
Commercial Banking
Factional Reserve Banking
Money Creation
Money Muliplier
Role of Central Bank
US Federal Reserve System
Monetary Policy
Reserve Requirement
Interest Rates (Discount Rate)
Open Market Operations
Equation of Exchange
Money Multiplier
Pro's & Con's of Monetary Policy
Comparative Macroeconomic Theories (15-25%) Chapter 9
Classical Economics
Says Law
Long Run Aggregate Supply Curve
Keynesian Economics
Importance of Aggregate Demand
Macroeconomic Equilibrium
Total Planned Expenditure Graph
Inflationary Gap
Recessionary Gap
Marginal Propensity to Consume (MPC)
Neo-Classical Economics
Alternative AD & AS Curves
Wealth Effect
Adaptive Expectations
Rational Expectations
Neo-Keynesian Economics
Monetarism
Importance of Money Supply
Milton Friedman
Supply Side Economics
Attempts for shifting natural rate of unemployment
Marginal Tax Rates: Laffer curve
De-regulation of business firms
Phillips Curve
Inflation vs. Unemployment Trade-offs
Short run versus Long run curve
V. International Trade - (4 - 6%) Chapters 16 & 17
Arguments for / against Tree Trade
Theory of Comparative Advantage
Infant Industries
Types of Trade Restrictions
Balance of Payment
Current account
Capital account
Trade Surplus & Deficit
Exchange Rates