AP Economics Mr. Crawford
The purpose of an AP course in Macroeconomics is to give students a thorough understanding of the principles of economics that apply to the economic system as a whole. It places primary emphasis on the fundamental determinants of national income and price levels, and also includes the study of measures of economic performance, economic growth, and international trade.

This portion of the AP Economics course will be divided into five parts.

The "nuts and bolts" performance of any national economy is usually measured in terms of Gross National Product, Gross Domestic Product, and the levels of inflation and unemployment. This unit will cover the components of gross income measures and the costs of inflation and unemployment. Students will learn to distinguish between nominal and real values, and how to use price indices to convert nominal magnitudes into real magnitudes. As the course moves from static descriptions to dynamic models, we will discuss the actual levels of inflation, unemployment, GNP and GDP in the United States. This unit will make up 8-12% of the AP Exam.


1. Analyze the components of the Circular Flow Diagram and use it to explain how a single purchase can influence all the Macro flows in the country
2. Describe the purpose of National Income Accounting
3. Define Gross National Product, Gross Domestic Product, Net National Product, National Income, Personal Income, and Disposable Income
4. Explain how we measure GNP and GDP
5. Explain what Goods and Services are counted in GNP and GDP as Consumption, Investment, Government Expenditures, and Net Exports
6. Compute GNP, GDP, NI, PI, and DI when given National Income Accounting data
7. Compute GNP and GDP using both the Income and Expenditure methods
8. Describe the purpose of a Price Index
9. Explain how a Price Index is calculated
10. Use a Price Index to calculate the rate of Inflation
11. Distinguish between Demand-Pull inflation and Cost-Push Inflation
12. Describe the difference between Nominal and Real GNP
13. Explain how Unemploymet is measured in the United States
14. Calculate Unemployment and Employment Rates from appropriate data
15. Differentiate between Frictional, Cyclical, Structural and Seasonal Unemployment
16. Describe the phases of the Business Cycle
17. Identify the phases of the Business Cycle when given the appropriate economic data 

The material in this unit is the heart of a Macroeconomics course. Since the material is complex, students will need a theoretical construct to organize the concepts; that construct will be the Aggregate Supply-Aggregate Demand model. Students will build the components of the Classical and Keynesian models, including the consumption function, the investment function, the marginal propensity to consume and to save, and the multiplier, and will practice the simple algebra of income determination and determine Keynesian equilibrium. Finally, the relevance of this analysis to fiscal policy decisions will be shown by identifying the goals and tools of fiscal policy and end by analyzing fiscal policy through the economic concepts developed in this unit. This unit will make up 25-30% of the AP Exam.


1. Define Aggregate Demand, Aggregate Supply and Equilibrium
2. List and explain the basic causes of shifts in Aggregate Demand and Aggregate Supply
3. Graph Aggregate Demand and Aggregate Supply
4. Describe what determines the amount of goods and services produced and the level of employment in the Classical theory of Aggregate Supply-Aggregate Demand
5. Describe what determines the amount of goods and services produced and the level of employment in the Keynesian theory of Aggregate Supply-Aggregate Demand
6. Explain how Consumption and Saving are related to Disposable Income in the Keynesian model
7. Describe and calculate from given data the Marginal Propensity to Consume and the Marginal Propensity to Save
8. Describe the Multiplier
9. Given values for the marginal Propensity to Consume, calculate the values for the Multiplier
10. Calculate the change in total spending that ocurs from a given change in Business or Government expenditures when MPC is known
11. Describe Keynesian Equilibrium in words and diagrams
12. Explain the Equilibrim levels of Output and Employment in Keynesian analysis when prices are free to vary
13. Explain and show graphically how Fiscal Policy can be used to reduce and Inflationary or Recessionary Gap
14. Describe how Fiscal Policy can be used to stabilize the economy
15. Distinguish between Automatic and Discretionary Stabilizers
16. Distinguish between a Contractionary and and Expansionary Fiscal Policy
17. Evaluate Macroeconomic conditions and determine the Fiscal Policy that can be used to improve those conditions
18. Use a Keynesian 45 Total Expenditure Diagram to analyze economic problems and proposed solutions to those problems
19. List and explain the complications encountered in employing Fiscal Policy 

An important step in analyzing Aggregate Demand is the study of the effect of Monetary Policy. The concepts in this unit include the definition of money, fractional reserve banking, and the Federal Reserve System. Students should learn how multiple deposit expansion affects the money supply and how the money supply affects the economy. From this, we can define the determinants of the demand for money and investigate how equilibrium in the money market determines interest rates, and how the investment demand curve provides the link between changes in the money market and changes in Aggregate Demand. Students will also explore the deep divisions among economists about Macroeconomic policy, and will examine the policy prescriptions of Keynesian, Monetarist, Neo-Classical, Rational Expectations and Supply-Side economic theories This unit will make up 20-25% of the AP Exam.


1. Define and explain the functions of money
2. Explain what determines the value of money
3. Define and contrast the definitions of M1, M2, and M3
4. Define and compare Required Reserves and Excess Reserves
5. Explain how the banking system creates money
6. Calculate the Money Multiplier and money growth possible from a given value of Excess Reserves
7. Describe the organizational structure of the Federal Reserve System
8. Define and explain Open Market Operations
9. Explain how Open Market Operations, the Discount Rate, and the Reserve Requirement are used to expand or contract the money supply
10. Evaluate the effectiveness of the three main tools of Monetary Policy
11. Write and explain the Equation of Exchange
12. Compare and contrast the Keynesian and Monetarist views
13. Given a series of data, identify the economic problem and prescribe the proper Monetary Policy to correct that problem
14. Identify the economic problems and recommend Monetary and Fiscal policies to improve economic performance when given economic statistics
15. Use Aggregate Demand and Aggregate Supply to analyze the economic problems and proposed solutions to those problems
16. Analyze the tradeoffs involved in various economic policy prescriptions
17. Use a Phillips Curve to illustrate tradeoffs between inflation and unemployment in the short run and the long run
18. Compare and contrast the effectiveness of Monetary and Fiscal Policy as tools of economic stabilization
19. State the assumptions, values, theoretical support, and applicable time periods underlying recommendations concerning Monetary and Fiscal Policies that are in conflict
20. Describe and discuss the essence of the Classical, Keynesian, Monetarist, Supply-Side, Rational Expectations, and Neo-Classical theories
21. Compare and contrast the theoretical support for the policy prescriptions of these theories
22. Discuss the various problems and tradeoffs that policymakers face in the real world 

The focus of this unit is world trade, the conduct of commerce among individuals, firms, and governments. This unit will cover concepts such as opportunity cost, comparative and absolute advantage, free trade, protectionism, the balance of payments, and exchange rates. It is important to examine why a country trades, what the effects of restrictions are, how the international payments system helps or hinders trade, and how international exchange rates affect domestic policy goals. This unit will make up 8-12% of the AP Exam.


1. Define Comparative and Absolute Advantage
2. Describe and give examples of the Law of Comparative Advantage
3. Define Specialization and Exchange
4. Explain how both parties to a trade gain from voluntary exchange
5. Explain Comparative Advantage in terms of Opportunity Cost
6. When given necessary data, compute the costs of producing two commodities in two countries, determine which nation has the Comparative Advantage in the production of each commodity, calculate the trading ratio, and explain the gains to each nation and the world from Specialization and Trade
7. Describe and evaluate the case for Free Trade
8. Describe and evaluate the case for Protectionism
9. Describe the Balance of Payments
10. Describe how Exchange Rate Systems work and convert currency using current exchange rates
11. Describe the effects of Depreciating or Appreciating Curency Rates on a nation's imports and exports 

AP Economics Home AP MicroEconomics