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Table of Contents

UNIT 1 Basic Economic Concepts

1.1 Scarcity and Choice

• Scarcity and Choice: The Core of Economics
• Microeconomics Versus Macroeconomics
• Positive Versus Normative Economics

1.2 Opportunity Cost and the Production Possibilities Curve  Model

• The Use of Models in Economics
• Trade-offs: The Production Possibilities Curve

1.3 Comparative Advantage and Gains from Trade

• Gains from Trade
• Comparative Advantage and Gains from Trade

1.4 Demand

• The Demand Curve

1.5 Supply

• The Supply Curve

1.6 Market Equilibrium, Disequilibrium, and Changes in Equilibrium

• Supply, Demand, and Equilibrium
• Changes in Supply and Demand
  

Unit 2 Economic Indicators and the Business Cycle

2.1 The Circular Flow and Gross Domestic Product

• The National Accounts
• Gross Domestic Product

2.2 Limitations of Gross Domestic Product

• Creating the National Accounts

2.3 Unemployment

• The Unemployment Rate
• Types of Unemployment
• Changes in the Natural Rate of Unemployment

2.4 Price Indices and Inflation

• Inflation, Deflation, and Price Stability
• Inflation and Deflation
• Price Indices and the Aggregate Price Level

2.5 Costs of Inflation

• The Expected Costs of Inflation
• Winners and Losers from Unexpected Inflation
• Inflation Is Easy; Disinflation Is Hard

2.6 Real Versus Nominal Gross Domestic Product

• Real GDP: A Measure of Aggregate Output
• Calculating Real GDP
• What Real GDP Doesn’t Measure

2.7 Business Cycles

• Macroeconomics and the Business Cycle
• The Business Cycle
• Employment, Unemployment, and the Business Cycle

UNIT 3 National Income and Price Determination

3.1 Aggregate Demand

• The Components of Aggregate Demand
• Investment Spending 
• The Aggregate Demand Curve

3.2 Multipliers

• The Multiplier Process

3.3 Short-Run Aggregate Supply

• Aggregate Supply

3.4 The Long-Run Aggregate Supply

• The Short Versus the Long Run
• The Long-Run Aggregate Supply Curve

3.5 Equilibrium in the Aggregate Demand–Aggregate Supply Model

• The AD-AS Model

3.6 Short-Run Changes in the Aggregate Demand–Aggregate Supply Model

• Demand Shocks
• Supply Shocks

3.7 Long-Run Self-Adjustment in the Aggregate Demand–Aggregate Supply Model

• From the Short Run to the Long Run
• Shifts in the Long-Run Aggregate Supply Curve

3.8 Fiscal Policy

• The Rationale for Stabilization
• Multiplier Effects and Fiscal Policy
• A Cautionary Note: Lags in Fiscal Policy

3.9 Automatic Stabilizers

• A Brief History of Stabilization Policy
• Discretionary Versus Non-Discretionary Fiscal Policy
• Alternative Responses to Supply and Demand Shocks
  

Unit 4 The Financial Sector

4.1 Financial Assets

• The Opportunity Cost of Cash
• The Financial System
• Three Tasks of a Financial System
• Types of Financial Assets
  Financial Intermediaries

4.2 Nominal Versus Real Interest Rates

• Calculating Nominal and Real Interest Rates

4.3A Definition, Measurement, and Functions of Money

• The Meaning of Money
• Functions of Money
• Types of Money

4.3B Managing Money and Credit: Central Banks and the Federal Reserve

• Central Banks
• The Federal Reserve System

4.4 Banking and the Expansion of the Money Supply

• The Monetary Role of Banks
• Determining the Money Supply

4.5 The Money Market

• What Is the Money Market?
• The Money Demand Curve
• The Supply of Money

4.6 Monetary Policy

• Conducting Monetary Policy
• Implementing Monetary Policy
• Monetary Policy Versus Fiscal Policy

4.7 The Loanable Funds Market

• Matching Up Savings and Investment Spending
• The Equilibrium Interest Rate

Unit 5 Long-Run Consequences of Stabilization Policies

5.1 Fiscal and Monetary Policy Actions in the Short Run

• The Independence of Fiscal and Monetary Policy

5.2 The Phillips Curve

• The Output Gap and Unemployment
• The Short-Run Phillips Curve
• Inflation and Unemployment in the Long Run

5.3 Money Growth and Inflation

• Short-Run and Long-Run Effects of an Increase in the Money Supply
• Monetary Neutrality
• The Quantity Theory of Money

5.4 Government Deficits and the National Debt

• The Government Budget Balance
• Long-Run Implications of Fiscal Policy
• Deficits, Surpluses, and Debt
• Deficits and Debt in Practice

5.5 Crowding Out

• Financing Government Debt

5.6 Economic Growth

• Real GDP per Capita
• The Sources of Long-Run Growth
• Economic Growth and the Aggregate Production Function
• Long-Run Economic Growth and the Aggregate Demand–Aggregate Supply Model

5.7 Public Policy and Economic Growth

• Explaining Differences in Growth Rates
• The Role of Government in Promoting Economic Growth
• Supply-Side Fiscal Policies and Economic Growth
  

Unit 6 International Trade and Finance

6.1 Balance of Payments Accounts

• Capital Flows and the Balance of Payments
• Modeling the Financial Account

6.2 Exchange Rates

• Understanding Exchange Rates

6.3 The Foreign Exchange Market

• Demand and Supply in the Foreign Exchange Market

6.4 Changes in Policies, Economic Conditions, and the Foreign Exchange Market

• Exchange Rate Regimes
• Exchange Rates and Macroeconomic Policy
• International Business Cycles

6.5 The Foreign Exchange Market and Net Exports

• Why Trade?
• The Effect of the Exchange Rate on Net Exports

6.6 Real Interest Rate s and International Capital Flows

• International Capital Flows and the Loanable Funds Model
• Underlying Determinants of International Capital Flows
  

Appendix 

Putting it All Together

• A Structure for Macroeconomic Analysis

Enrichment 

• A:  Recession and Recovery During the Pandemic
• B:  Federal Reserve Monetary Policy in an Ample Reserve Regime

Authors

Margaret Ray

Margaret Ray teaches economics at both the university and high school levels. She is an AP® Economics instructor for Johns Hopkins University’s Center for Talented Youth and is a member of the economics department faculty at Texas A&M University in College Station, Texas. She received her BS in economics from Oklahoma State University and her PhD in economics from the University of Tennessee. In 2012, she received her MEd in curriculum and instruction and became certified to teach K–12 social studies. She has taught AP® Economics at several high schools in Virginia and has received the Council on Economic Education’s Excellence in Teaching Economics award. She has been involved in the AP® Economics program since 1992, serving as a reader and question leader, writing test items, overseeing the AP® course audit, writing College Board® “Special Focus” articles, and editing the Council on Economic Education’s AP® Macroeconomics resource. She has been a College Board® Endorsed Consultant for economics since 2001, and she conducts several professional development workshops and institutes each year. Her favorite hobby is showing hunter-jumper horses adopted from bracehorse rescue organizations. She lives on a small farm in central Texas.

David Anderson

David A. Anderson, Ph.D., has been involved in AP® programs and leadership since 1994, including service on the National Advisory Board for AP® Business Principles and as the chief reader for AP® Economics or AP® Microeconomics for five years. An experienced instructor of business principles and entrepreneurship, Anderson is the Paul G. Blazer Professor of Business and Economics at Centre College. He has won awards for excellence and innovation in the classroom. He received his B.A. from the University of Michigan and his MA and PhD from Duke University. He earned a graduate certificate in innovation and entrepreneurship from the Harvard Extension School and an M.B.A. from the University of the People. He also has experience in retail management and banking. Anderson has authored or co-authored dozens of scholarly articles and 18 books, including Economics for the AP® Course, Environmental Economics and Natural Resource Management, and The Light in the Library Basement: A Personal Finance Mystery Story. His research topics include stock markets, wages, unemployment compensation, pedagogy, and the cost of crime. His favorite hobby is long-distance running. He resides with his family in Danville, Kentucky.

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