AP Macro

AP
Macroeconomics
COURSE AND EXAM DESCRIPTION
Effective
Fall 2020
AP COURSE AND EXAM DESCRIPTIONS ARE UPDATED PERIODICALLY

Please visit AP Central (apcentral.collegeboard.org) to determine whether
a more recent course and exam description is available.
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Contents
v Acknowledgments
1 About AP
4 AP Resources and Supports
6 Instructional Model
7 About the AP Macroeconomics Course
7 College Course Equivalent
7 Prerequisites
COURSE FRAMEWORK
11 Introduction
13 Course Framework Components
15 Course Skills
17 Course Content
20 Course at a Glance
23 Unit Guides
25 Using the Unit Guides
29 UNIT 1: Basic Economic Concepts
41 UNIT 2: Economic Indicators and the Business Cycle
55 UNIT 3: National Income and Price Determination
71 UNIT 4: Financial Sector
87 UNIT 5: Long-Run Consequences of Stabilization Policies
101 UNIT 6: Open Economy—International Trade and Finance
INSTRUCTIONAL APPROACHES
115 Selecting and Using Course Materials
116 Teaching the AP Economics Courses
117 Instructional Strategies
122 Developing Course Skills
EXAM INFORMATION
129 Exam Overview
134 Sample Exam Questions
SCORING GUIDELINES
141 Question 1: Long
145 Question 2: Short
APPENDIX
149 AP Macroeconomics Conceptual Framework
169 AP Macroeconomics Graphs and Visuals
THIS PAGE IS INTENTIONALLY LEFT BLANK.
Acknowledgments
College Board would like to acknowledge the following committee

members, consultants, and reviewers for their assistance with and
commitment to the development of this course. All individuals and their
affiliations were current at the time of contribution.
Patricia Brazill, The College at Brockport - SUNY, Brockport, NY
Liang Ding, Macalester College, Saint Paul, MN
Theresa Fischer, Ridgefield High School, Ridgefield, CT
Brian Held, Loyola High School of Los Angeles, Los Angeles, CA
Holly Jones, The Pennington School, Pennington, NJ
Elaine McBeth, College of William and Mary, Williamsburg, VA
Jennifer Raphaels, Ridge High School, Basking Ridge, NJ
Arthur Raymond, Muhlenberg College, Allentown, PA
Matthew Romano, Marist School, Atlanta, GA
Gabriel Sanchez, Bonita High School, LaVerne, CA
Fred Smith, Davidson College, Davidson, NC
Stephanie Vanderford, Providence Day School, Charlotte, NC
Shaun Waldron, Niles West High School, Skokie, IL
Please note that the course framework included in this document was
inspired by work originally undertaken by the AP Macroeconomics
Curriculum Development and Assessment Committee.
College Board Staff

Elizabeth Healy, Director, AP Economics Content and
Instructional Development
Dana Kopelman, Executive Director, AP Content Integration and
Change Management
Daniel McDonough, Senior Director, AP Content Integration
Allison Milverton, Director, AP Curricular Publications
Allison Thurber, Executive Director, AP Curriculum and Assessment
SPECIAL THANKS Christopher Budano and John R. Williamson
AP Macroeconomics Course and Exam Description V.1 | v

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© 2020 College Board
About AP
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AP Exam scores; more than 3,300 institutions worldwide
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The AP Course Audit
AP Course Development The AP Program unequivocally supports the principle
In an ongoing effort to maintain alignment with best that each school implements its own curriculum that will
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AP Macroeconomics Course and Exam Description V.1 | 1

The AP Course Audit form is submitted by the AP questions and through-course performance
teacher and the school principal (or designated assessments, as applicable, are scored by thousands
administrator) to confirm awareness and understanding of college faculty and expert AP teachers. Most are
of the curricular and resource requirements. A syllabus scored at the annual AP Reading, while a small portion
or course outline, detailing how course requirements is scored online. All AP Readers are thoroughly trained,
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college faculty. for fairness and consistency. In each subject, a highly
respected college faculty member serves as Chief
Please visit collegeboard.org/apcourseaudit for more
Faculty Consultant and, with the help of AP Readers
information to support the preparation and submission
in leadership positions, maintains the accuracy of
of materials for the AP Course Audit.
the scoring standards. Scores on the free-response
questions and performance assessments are weighted
How the AP Program and combined with the results of the computer-scored
Is Developed multiple-choice questions, and this raw score is
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The scope of content for an AP course and exam is
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completion of the AP course. The resulting course of 3, 4, or 5—the scores that research consistently
framework is the heart of this course and exam validates for credit and placement purposes—include:
description and serves as a blueprint of the content and
§§ The number of points successful college students
skills that can appear on an AP Exam.
earn when their professors administer AP Exam
The AP Test Development Committees are responsible questions to them.
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AP Exam development process is a multiyear endeavor; when placed into a subsequent higher-level
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exam and throughout the scoring process ensures
subject’s current AP Test Development Committee
that AP Exam scores accurately represent students’
members is available on apcentral.collegeboard.org.
achievement in the equivalent college course. Frequent
Throughout AP course and exam development, and regular research studies establish the validity of
College Board gathers feedback from various AP scores as follows:
stakeholders in both secondary schools and higher
education institutions. This feedback is carefully Credit College Grade
considered to ensure that AP courses and exams are AP Score Recommendation Equivalent
able to provide students with a college-level learning
5 Extremely well qualified A
experience and the opportunity to demonstrate their
qualifications for advanced placement or college credit. 4 Well qualified A-, B+, B
How AP Exams Are Scored 3 Qualified B-, C+, C
The exam scoring process, like the course and exam Possibly qualified n/a
2
development process, relies on the expertise of both
AP teachers and college faculty. While multiple-choice 1 No recommendation n/a
questions are scored by machine, the free-response

While colleges and universities are responsible for educators—make improvements to the way they
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universities. To confirm a specific college’s AP credit/ able to assess their students’ work in the classroom.
placement policy, a search engine is available at
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apstudent.org/creditpolicies
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BECOMING AN AP READER
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There are many reasons to consider becoming an
by states, districts, and schools.
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§§ Bring positive changes to the classroom: How to Apply

Surveys show that the vast majority of returning Visit collegeboard.org/apreading for eligibility
AP Readers—both high school and college requirements and to start the application process.

AP Resources
and Supports
By completing a simple activation process at the start of the school year, teachers and
students receive access to a robust set of classroom resources.
AP Classroom
AP Classroom is a dedicated online platform designed to support teachers and students
throughout their AP experience. The platform provides a variety of powerful resources and
tools to provide yearlong support to teachers and enable students to receive meaningful
feedback on their progress.
UNIT GUIDES
Appearing in this publication and on AP Classroom, these planning guides outline all required
course content and skills, organized into commonly taught units. Each unit guide suggests a
sequence and pacing of content, scaffolds skill instruction across units, organizes content
into topics, and provides tips on taking the AP Exam.
PERSONAL PROGRESS CHECKS

Formative AP questions for every unit provide feedback to students on the areas where they
need to focus. Available online, Personal Progress Checks measure knowledge and skills
through multiple-choice questions with rationales to explain correct and incorrect answers,
and free-response questions with scoring information. Because the Personal Progress
Checks are formative, the results of these assessments cannot be used to evaluate teacher
effectiveness or assign letter grades to students, and any such misuses are grounds for losing
school authorization to offer AP courses.*
PROGRESS DASHBOARD
This dashboard allows teachers to review class and individual student progress throughout
the year. Teachers can view class trends and see where students struggle with content and
skills that will be assessed on the AP Exam. Students can view their own progress over time to
improve their performance before the AP Exam.
AP QUESTION BANK
This online library of real AP Exam questions provides teachers with secure questions to use
in their classrooms. Teachers can find questions indexed by course topics and skills, create
customized tests, and assign them online or on paper. These tests enable students to practice
and get feedback on each question.
*To report misuses, please call, 877-274-6474 (International: +1-212-632-1781).

Digital Activation
In order to teach an AP class and make sure students are registered to take the AP Exam,
teachers must first complete the digital activation process. Digital activation gives students
and teachers access to resources and gathers students’ exam registration information online,
eliminating most of the answer sheet bubbling that has added to testing time and fatigue.
AP teachers and students begin by signing in to My AP and completing a simple activation

process at the start of the school year, which provides access to all AP resources, including
AP Classroom.
To complete digital activation:
§§ Teachers and students sign in to or create their College Board accounts.

§§ Teachers confirm that they have added the course they teach to their AP Course Audit
account and have had it approved by their school’s administrator.
§§ Teachers or AP Coordinators, depending on who the school has decided is responsible,
set up class sections so students can access AP resources and have exams ordered on
their behalf.
§§ Students join class sections with a join code provided by their teacher or AP Coordinator.
§§ Students will be asked for additional registration information upon joining their first class
section, which eliminates the need for extensive answer sheet bubbling on exam day.
While the digital activation process takes a short time for teachers, students, and
AP Coordinators to complete, overall it helps save time and provides the following
additional benefits:
§§ Access to AP resources and supports: Teachers have access to resources specifically

designed to support instruction and provide feedback to students throughout the school
year as soon as activation is complete.
§§ Streamlined exam ordering: AP Coordinators can create exam orders from the same
online class rosters that enable students to access resources. The coordinator reviews,
updates, and submits this information as the school’s exam order in the fall.
§§ Student registration labels: For each student included in an exam order, schools will
receive a set of personalized AP ID registration labels, which replaces the AP student pack.
The AP ID connects a student’s exam materials with the registration information they
provided during digital activation, eliminating the need for pre-administration sessions and
reducing time spent bubbling on exam day.
§§ Targeted Instructional Planning Reports: AP teachers will get Instructional Planning
Reports (IPRs) that include data on each of their class sections automatically rather than
relying on special codes optionally bubbled in on exam day.

Instructional
Model
Integrating AP resources throughout the course can help students develop skills and
conceptual understandings. The instructional model outlined below shows possible ways to
incorporate AP resources into the classroom.
Plan
Teachers may consider the following approaches as they plan their instruction before
teaching each unit.
§§ Review the overview at the start of each unit guide to identify essential questions,
conceptual understandings, and skills for each unit.
§§ Use the Unit at a Glance table to identify related topics that build toward a common
understanding, and then plan appropriate pacing for students.
§§ Identify useful strategies in the Instructional Approaches section to help teach the
concepts and skills.
Teach
When teaching, supporting resources could be used to build students’ conceptual
understanding and their mastery of skills.
§§ Use the topic pages in the unit guides to identify the required content.
§§ Integrate the content with a skill, considering any appropriate scaffolding.
§§ Employ any of the instructional strategies previously identified.
§§ Use the available resources on the topic pages to bring a variety of assets into
the classroom.
Assess
Teachers can measure student understanding of the content and skills covered in the unit and
provide actionable feedback to students.
§§ At the end of each unit, use AP Classroom to assign students the online Personal
Progress Checks, as homework or as an in-class task.
§§ Provide question-level feedback to students through answer rationales; provide unit- and
skill-level feedback using the progress dashboard.
§§ Create additional practice opportunities using the AP Question Bank and assign them
through AP Classroom.

About the AP
Macroeconomics Course
AP Macroeconomics is a college-level course that introduces students to the principles

that apply to an economic system as a whole. The course places particular emphasis on the
study of national income and price-level determination. It also develops students’ familiarity
with economic performance measures, the financial sector, stabilization policies, economic
growth, and international economics. Students learn to use graphs, charts, and data to
analyze, describe, and explain economic concepts.
College Course Equivalent

AP Macroeconomics is equivalent to a one-semester introductory college course
in economics.
Prerequisites
There are no prerequisites for AP Macroeconomics. Students should be able to read a
college-level textbook and possess basic mathematics and graphing skills.

AP MACROECONOMICS
Course
Framework
Introduction
The AP Macroeconomics course outlined in this framework reflects a

commitment to what economics teachers, professors, and researchers
have agreed is the main goal of a college-level macroeconomics course:
to introduce students to the principles that apply to an economic system as
a whole.
The AP Macroeconomics Course and Exam Description Although the course framework is designed to provide a
defines concepts, skills, and understandings required clear and detailed description of the course content and
by representative colleges and universities for granting skills, it is not a curriculum. A college-level textbook that
college credit or placement. The course prepares covers required course content should be used, and
students to think like economists by using principles teachers create their own curricula to meet the needs of
and models to describe economic situations and predict their students and any state or local requirements.
and explain outcomes. Like economists, students do so
by using graphs, charts, and data.
AP Macroeconomics Course and Exam Description Course Framework V.1 | 11

Course Framework
Components
Overview
This course framework provides a clear and detailed description of the course
requirements necessary for student success.
The course framework includes

two essential components:
1 COURSE SKILLS
The course skills are central to the study and practice of economics.
Students should develop and apply the described skills on a regular basis
over the span of the course.
2 COURSE CONTENT
The course content is organized into commonly taught units of study that
provide a suggested sequence for the course. These units comprise the
content and conceptual understandings that colleges and universities
typically expect students to master to qualify for college credit and/or
placement. This content is grounded in big ideas, which are cross-cutting
concepts that build conceptual understanding and spiral throughout
the course.

1 AP MACROECONOMICS
Course
Skills
The AP Economics skills describe what a student should be able to do while
exploring course concepts. The table that follows presents these skills, which
students should develop during the AP Macroeconomics and AP Microeconomics
courses. These skills form the basis of the tasks on the AP Exam.
The unit guides later in this publication embed and spiral these skills throughout the
course, providing teachers with one way to integrate the skills in the course content
with sufficient repetition to prepare students to transfer those skills when taking the
AP Exam. Course content may be paired with a variety of skills on the AP Exam.
More detailed information about teaching the course skills can be found in the
Instructional Approaches section of this publication.

AP MACROECONOMICS
AP Economics Skills
Skill Category 1 Skill Category 2 Skill Category 3 Skill Category 4

Principles and Interpretation 2 Manipulation 3 Graphing and
Models 1 Explain given economic outcomes. Determine outcomes of specific Visuals 4
Define economic principles and models. economic situations. Model economic situations using
graphs or visual representations.
SKILLS
1.A Describe economic 2.A Using economic 3.A Determine the outcome 4.A Draw an accurately
concepts, principles, concepts, principles, or of an economic situation labeled graph or visual to
or models. models, explain how a using economic concepts, represent an economic
specific economic outcome principles, or models. model or market.
1.B Identify an economic occurs or what action should
concept, principle, or model be taken in order to achieve a 3.B Determine the effect(s) 4.B Demonstrate your
illustrated by an example. specific economic outcome. of one or more changes on understanding of a specific
other economic markets. economic situation on an
1.C Identify an economic 2.B Using economic accurately labeled graph
concept, principle, or model concepts, principles, or 3.C Determine the effect(s) or visual.
using quantitative data models, explain how a of a change in an economic
or calculations. specific economic outcome situation using quantitative 4.C Demonstrate the effect
occurs when there are data or calculations. of a change in an economic

1.D Describe the similarities, situation on an accurately
multiple contributing
differences, and limitations variables or what multiple labeled graph or visual.
of economic concepts, actions should be taken in
principles, or models. order to achieve a specific
economic outcome.
2.C Interpret a specific

economic outcome
using quantitative data
or calculations.

2 AP MACROECONOMICS
Course
Content
Based on the Understanding by Design® (Wiggins and McTighe) model, this course
framework provides a clear and detailed description of the course requirements
necessary for student success. The framework specifies what students must
know, be able to do, and understand, with a focus on big ideas that encompass
core principles and theories of the discipline. The framework also encourages
instruction that prepares students for advanced economics coursework.
Big Ideas
The big ideas serve as the foundation of the course and allow students to create
meaningful connections among concepts. They are often overarching concepts
or themes that become threads that run throughout the course. Revisiting the
big ideas and applying them in a variety of contexts allows students to develop
deeper conceptual understanding. Below are the big ideas of the course and a brief
description of each:
BIG IDEA 1: ECONOMIC MEASUREMENTS (MEA)

Economists construct measurements to monitor the state of an economy and
evaluate its performance over time. Governments, firms, and citizens often use
these measurements to help inform policy, business, and personal decisions.
BIG IDEA 2: MARKETS (MKT)

Competitive markets bring together buyers and sellers to exchange goods
and services for mutual gain. The simple model of supply–demand can be
applied in different market contexts.
BIG IDEA 3: MACROECONOMIC MODELS (MOD)

Macroeconomic models are simplified representations that depict basic
economic relationships and can be used to predict and explain how those
relationships are affected by economic shocks.
BIG IDEA 4: MACROECONOMIC POLICIES (POL)

Government taxation and spending policies and central bank monetary
policy can affect an economy’s output, price level, and level of employment,
both in the short run and in the long run.

UNITS periods are based on a schedule in which the class
The course content is organized into commonly meets five days a week for 45 minutes each day,
taught units. The units have been arranged in a logical with the assumption that there are approximately
sequence frequently found in many college courses 70 instructional days per semester. While these
and textbooks. recommendations have been made to aid planning,
teachers should of course adjust the pacing based on
The six units in AP Macroeconomics and their weighting
the needs of their students, alternate schedules (e.g.,
on the multiple-choice section of the AP Exam are
block scheduling), or their school’s academic calendar.
listed below.
Pacing recommendations at the unit level and on the TOPICS

Course at a Glance provide suggestions for how to Each unit is broken down into teachable segments
teach the required course content and administer called topics. The topic pages (starting on page 34)
the Personal Progress Checks. The suggested class contain the required content for each topic.
Units Exam Weighting
Unit 1: Basic Economic Concepts 5–10%
Unit 2: Economic Indicators and the Business Cycle 12–17%
Unit 3: National Income and Price Determination 17–27%
Unit 4: Financial Sector 18–23%
Unit 5: Long-Run Consequences of Stabilization Policies 20–30%
Unit 6: Open Economy—International Trade and Finance 10–13%

Spiraling the Big Ideas
The following table shows how the big ideas spiral across units.
Big Ideas Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6

Basic Economic National Financial Long-Run Open
Economic Indicators and Income Sector Consequences Economy—
Concepts the Business and Price of Stabilization International
Cycle Determination Policies Trade and
Finance
Economic
Measurements
MEA
Markets
MKT
Macroeconomic
Models
MOD
Macroeconomic
Policies
POL
AP Macroeconomics Course and Exam Description Course Framework V.1 | 19 19

Course at Basic Economic
Economic
Indicators and
a Glance
UNIT UNIT
1 Concepts 2 the Business

Cycle
~8–10 Class
Periods 5–10% AP Exam
Weighting ~9–11 Class
Weighting
MOD 1.1 Scarcity MEA 2.1 TheCircular Flow and

Plan 1 1 GDP
The Course at a Glance provides
a useful visual organization of the MOD 1.2 Opportunity Cost MEA 2.2 Limitations of GDP
AP Macroeconomics curricular and the Production 1
Possibilities Curve
components, including: 4
(PPC) MEA 2.3 Unemployment
§§ Sequence of units, along 1
MKT 1.3 Comparative
with approximate weighting
Advantage and Gains
and suggested pacing. 1 from Trade
MEA 2.4 Price Indices and
Please note, pacing is based 2 Inflation
on 45-minute class periods, MKT 1.4 Demand MEA 2.5 Costs of Inflation
meeting five days each week
4
for a full academic semester. 3
§§ Progression of topics within MKT 1.5 Supply MEA 2.6 Real v. Nominal GDP
each unit. 4 1
§§ Spiraling of the big ideas and MKT 1.6 Market Equilibrium, MEA 2.7 Business Cycles
skills across units. Disequilibrium,
1
4 and Changes in
Teach Equilibrium
SKILL CATEGORIES
Skill categories spiral throughout the course.
1 Principles and 3 Manipulation

Models
2 Interpretation 4 Graphing and
Visuals
BIG IDEAS
Big ideas spiral across topics and units.
MEA Economic MOD Macroeconomic

Measurements Models
MKT Markets POL Macroeconomic

Policies
Assess
Assign the Personal Progress
Checks—either as homework
or in class—for each unit.
Each Personal Progress Check
contains formative multiple-
choice and free-response
questions. The feedback from
the Personal Progress Checks
shows students the areas where
they need to focus.
Personal Progress Check 1 Personal Progress Check 2
Multiple-choice: ~20 questions Multiple-choice: ~20 questions
Free-response: 2 questions Free-response: 2 questions
§§ Short §§ Short
V.1 | 20
Long-Run
National Income
UNIT UNIT UNIT Consequences
and Price Financial Sector
3 Determination 4 5 of Stabilization
Policies
~10–12 Class
Weighting
MOD 3.1 Aggregate MEA 4.1 Financial Assets POL 5.1 Fiscal and Monetary
4 Demand (AD) 1 Policy Actions in the
2 Short Run
MOD 3.2 Multipliers MEA 4.2 Nominal v. Real
3 1 Interest Rates MOD 5.2 The Phillips Curve
4
MOD 3.3 Short-Run Aggregate MEA 4.3 Definition,
4 Supply (SRAS) Measurement, and POL 5.3 Money Growth and
1 Functions of Money Inflation
3
MOD 3.4 Long-Run Aggregate
1 Supply (LRAS) POL 4.4 Banking and the POL 5.4 Government Deficits
Expansion of the 3 and the National Debt
MOD 3.5 Equilibrium in the 3 Money Supply
Aggregate Demand– POL 5.5 Crowding Out
4 Aggregate Supply MKT 4.5 The Money Market 3
(AD–AS) Model
4
MEA 5.6 Economic Growth
MOD 3.6 Changes in the AD–AS POL 4.6 Monetary Policy MOD
4 Model in the Short Run
2 2
MOD 3.7 Long-Run

MKT 4.7 The Loanable Funds POL 5.7 Public
Policy and
3 Self-Adjustment
4 Market 2 Economic Growth
POL 3.8 Fiscal Policy
2
POL 3.9 Automatic Stabilizers

1
Personal Progress Check 3 Personal Progress Check 4 Personal Progress Check 5

Multiple-choice: ~25 questions Multiple-choice: ~20 questions Multiple-choice: ~20 questions
Free-response: 2 questions Free-response: 2 questions Free-response: 1 question
§§ Short §§ Short §§ Long
V.1 | 21
21
Open Economy—
UNIT International
6 Trade and
Finance
~5–7 Class
Weighting
MEA 6.1 Balance of Payments

1 Accounts
MKT 6.2 Exchange Rates

1
MKT 6.3 The Foreign Exchange

4 Market
MKT 6.4 Effect of Changes in

Policies and Economic
Conditions on the
4 Foreign Exchange
Market
MKT 6.5 Changes in the Foreign

Exchange Market and
3 Net Exports
MKT 6.6 Real Interest Rates

and International
3 Capital Flows
Personal Progress Check 6

Multiple-choice: ~20 questions
Free-response: 1 question
§§ Long
V.1 | 22
AP MACROECONOMICS
Unit
Guides
Introduction
Designed with input from the community of AP Macroeconomics
educators, the unit guides offer teachers helpful guidance in building
students’ skills and knowledge. The suggested sequence was identified
through a thorough analysis of the syllabi of highly effective AP teachers
and the organization of commonly assigned classroom resources.
This unit structure respects new AP teachers’ time by providing one

possible sequence they can adopt or modify rather than having to
build from scratch. An additional benefit is that these units enable the
AP Program to provide interested teachers with formative assessments—
the Personal Progress Checks—that they can assign their students at
the end of each unit to gauge progress toward success on the AP Exam.
However, experienced AP teachers who are satisfied with their current
course organization and exam results should feel no pressure to adopt
these units, which comprise an optional sequence for this course.

Using the Unit Guides
Developing Understanding provides an overview that

UNIT contextualizes and situates the key content of the unit within the
1 5–10% AP EXAM WEIGHTING ~8–10 CLASS PERIODS
scope of the course.
Big ideas serve as the foundation of the course and develop

Basic Economic
understanding as they spiral throughout the course. The
Concepts
essential questions are thought-provoking questions that
motivate students and inspire inquiry.
Developing Understanding
Building Course Skills describes specific aspects of the skills

BIG IDEA 2 To understand economics, students must first understand that because most resources are
Markets MKT scarce, individuals and societies must make choices. Examining how and why these choices
§ Why do people and are made will help students begin to understand the principles of supply and demand along
countries trade
with one another?
with the importance of specialization and exchange.
In addition to introducing these basic economic concepts, this unit introduces foundational
that are appropriate to focus on in that unit.
§ What determines the models that set the stage for more advanced economic analysis in subsequent units.
market price for a good
or service?
Building Course Skills Preparing for the AP Exam Preparing for the AP Exam provides helpful tips and common
BIG IDEA 3 Many students lose points on the free-
student misunderstandings identified from prior exam data.

1.A 1.C 4.A 4.C
Macroeconomic This unit focuses on giving students response section of the AP Exam for failing
Models MOD a thorough understanding of basic to properly label all the elements of a graph
§ Why is there no such
economic concepts so that they can and demonstrate the effects of changes
thing as a free lunch? on graphs. When introducing students to
appropriately apply these concepts with
increasing sophistication in subsequent graphing in this unit, first model how to set
units. Application of economic principles up graphs, emphasizing the importance
and models will be an important skill of properly labeling axes, curves,
throughout the course. Many students have and equilibrium points. Give students
not had significant exposure to the study opportunities to practice setting up graphs
of economics in previous coursework, and demonstrating the effects of changes
so employing the tools of an economist on their graphs. It is important to continue to
may not come naturally. With that in mind, emphasize and appropriately model these
it’s important to give students many skills throughout the course.
opportunities, starting early in the course, to Another challenging concept for students
describe economic concepts and apply their is differentiating between movement
understanding of those concepts graphically along a curve and shifts of a curve. In the
and numerically. It helps for students to context of learning about the basic model
see from the beginning of the course how of supply and demand in this unit, consider
graphs can be used as tools for making spending time helping students distinguish
sense of economic situations and predicting between the effects of a price change and
and explaining economic outcomes; even if a changes in the determinants of supply and
graph is not asked for on the exam, drawing demand. This will help students apply this
one may help students answer a given understanding in other market models that
question or explain a situation. come later in the course.
The Unit at a Glance table shows the topics, related enduring

UNIT understandings, and suggested skills. The “class periods”
1 Basic Economic Concepts
column has been left blank so that teachers can customize the
UNIT AT A GLANCE time they spend on each topic.
The suggested skill for each topic shows one way to link the
Understanding
Class Periods
Enduring
Topic Suggested Skills
1.A Describe economic concepts, principles,

~8–10 CLASS PERIODS
content in that topic to a specific AP Economics skill. The
1.1 Scarcity
or models.
individual skill has been thoughtfully chosen in a way that allows
MOD-1
1.2 Opportunity Cost 4.A Draw an accurately labeled graph or visual to

and the Production
Possibilities Curve (PPC)
represent an economic model or market.
teachers to spiral the skill throughout the course. Students
should be able to use multiple skills with each topic, so the
MKT-1
1.3 Comparative Advantage 1.C Identify an economic concept, principle, or

and Gains from Trade model using quantitative data or calculations.
1.4 Demand 4.A Draw an accurately labeled graph or visual to

suggested skill is not meant to imply an exclusion of other skills.
1.5 Supply 4.A Draw an accurately labeled graph or visual to
MKT-2
1.6 Market Equilibrium, 4.C Demonstrate the effect of a change in an

Disequilibrium, and economic situation on an accurately labeled graph
Changes in Equilibrium or visual.
Go to AP Classroom to assign the Personal Progress Check for Unit 1.

Review the results in class to identify and address any student misunderstandings.
32 | Course Framework V.1 AP Macroeconomics Course and Exam Description

Using the Unit Guides
The Sample Instructional Activities page includes optional

UNIT activities that can help tie together the content and skills of a
Basic Economic Concepts
1
particular topic. Additionally, this page offers space for teachers
SAMPLE INSTRUCTIONAL ACTIVITIES to make notes on their approach to the individual topics and the
unit as a whole.
The sample activities on this page are optional and are offered to provide possible ways to
incorporate various instructional approaches into the classroom. Teachers do not need to use
these activities or instructional approaches and are free to alter or edit them. The examples
below were developed in partnership with teachers from the AP community to share ways
that they approach teaching some of the topics in this unit. Please refer to the Instructional
Approaches section beginning on p. 113 for more examples of activities and strategies.
Activity Topic Sample Activity
1 1.2 Real-World Examples

Provide students with the following scenario: They have four hours and need to decide how
they are going to spend those four hours doing only two things. Students will then draw the
PPC curve and describe how they will spend those four hours. Using specific, real-world
examples, have students explain what happens when a point is inside the curve, on the
curve, and beyond the curve.
2 1.4 Simulation and Debriefing

Carry out a classroom auction for an item of value in order to introduce students to the
relationship between price and quantity demanded. Use the data from the auction to graph
demand. Then simulate a change in one of the determinants of demand (e.g., by providing
students with fake money to increase their income) so that students can distinguish
between a change in quantity demanded and a change in demand. Debrief the experience
with students to ensure that connections are made to the concepts being studied.
3 1.6 Graph and Switch

Instruct students to draw and then manipulate a series of product markets based on changes in
market conditions. After completing each example, pair students with a partner and have them
switch graphs and provide feedback to one another regarding the graphs they have drawn.
Unit Planning Notes

Use the space below to plan your approach to the unit. Consider how you want to pace your course and
your methods of instruction and assessment.
TOPIC PAGES
UNIT
The suggested skill offers a possible skill to pair with the topic.
1
TOPIC 1.2 SUGGESTED SKILL
Graphing and
Enduring understandings are the long-term takeaways related
Opportunity Cost 4.A
Visuals
to the big ideas that leave a lasting impression on students.
Draw an accurately labeled
and the Production graph or visual to represent

an economic model
or market.
Where possible, available resources are listed that might help
teachers address a particular topic in their classroom.
Required Course Content AVAILABLE RESOURCE
Learning objectives define what a student should be able to do

§ External Resource >
Davidson Next
AP Macroeconomics
with content knowledge in order to progress toward the enduring

Course—Introduction
ENDURING UNDERSTANDING and Basic Concepts
MOD-1
The production possibilities curve (PPC) model is used to demonstrate the full
employment level of output and to illustrate changes in full employment. understandings.
LEARNING OBJECTIVE
MOD-1.B
ESSENTIAL KNOWLEDGE
MOD-1.B.1
Essential knowledge statements describe the knowledge
required to perform the learning objective.
a. Define (using graphs as The PPC is a model used to show the tradeoffs
appropriate) the PPC and associated with allocating resources.
related terms. MOD-1.B.2
b. Explain (using graphs as The PPC can be used to illustrate the concepts
appropriate) how the PPC of scarcity, opportunity cost, efficiency,
illustrates opportunity underutilized resources, and economic growth
costs, tradeoffs, or contraction.
inefficiency, efficiency,
MOD-1.B.3
and economic growth
The shape of the PPC depends on whether
or contraction under
opportunity costs are constant, increasing,
various conditions.
or decreasing.
c. Calculate (using data
MOD-1.B.4
from PPCs or tables as
appropriate) opportunity The PPC can shift because of changes in
cost. factors of production as well as changes in
productivity/technology.
MOD-1.B.5
Economic growth results in an outward shift
of the PPC.

REQUIRED COURSE CONTENT LABELING SYSTEM
BIG IDEA ENDURING LEARNING ESSENTIAL

UNDERSTANDING OBJECTIVE KNOWLEDGE
MKT MKT-1 MKT-1.B MKT-1.B.1
Markets Production and consumption a. Explain (using data Production specialization according
increase by engaging in trade from PPCs or tables to comparative advantage results in
as appropriate) how exchange opportunities that lead to
specialization according consumption opportunities beyond
to comparative advantage the PPC.
with appropriate terms
of trade can lead to gains
from trade.
b. Calculate (using data
appropriate) mutually
beneficial terms of trade.
NOTE: Labels are used to distinguish each unique element of the required course content and are used throughout this course and exam
description. Additionally, they are used in the AP Question Bank and other resources found in AP Classroom. Enduring understandings
are labeled sequentially according to the big idea that they are related to. Learning objectives are labeled to correspond with the enduring
understanding they relate to. Finally, essential knowledge statements are labeled to correspond with the learning objective they relate to.

AP MACROECONOMICS
UNIT 1
Basic
Economic
Concepts
5–10%
AP EXAM WEIGHTING
~8–10
CLASS PERIODS

Remember to go to AP Classroom
to assign students the online
Personal Progress Check for
this unit.
Whether assigned as homework or
completed in class, the Personal
Progress Check provides each
student with immediate feedback
related to this unit’s topics and skills.

Free-response: 2 questions
§§ Short
§§ Short

UNIT
Basic Economic
Concepts
BIG IDEA 2 To understand economics, students must first understand that because most resources are
Markets MKT scarce, individuals and societies must make choices. Examining how and why these choices
§§ Why do people and are made will help students begin to understand the principles of supply and demand along
countries trade with the importance of specialization and exchange.
with one another?
In addition to introducing these basic economic concepts, this unit introduces foundational
§§ What determines the models that set the stage for more advanced economic analysis in subsequent units.
market price for a good
or service?
Building Course Skills Preparing for the AP Exam
BIG IDEA 3 1.A 1.C 4.A 4.C Many students lose points on the free-
Macroeconomic This unit focuses on giving students response section of the AP Exam for failing
Models MOD a thorough understanding of basic to properly label all the elements of a graph
§§ Why is there no such
economic concepts so that they can and demonstrate the effects of changes
thing as a free lunch?
appropriately apply these concepts with on graphs. When introducing students to
increasing sophistication in subsequent graphing in this unit, first model how to set
units. Application of economic principles up graphs, emphasizing the importance
and models will be an important skill of properly labeling axes, curves,
throughout the course. Many students have and equilibrium points. Give students
not had significant exposure to the study opportunities to practice setting up graphs
of economics in previous coursework, and demonstrating the effects of changes
so employing the tools of an economist on their graphs. It is important to continue to
may not come naturally. With that in mind, emphasize and appropriately model these
it’s important to give students many skills throughout the course.
opportunities, starting early in the course, to Another challenging concept for students
describe economic concepts and apply their is differentiating between movement
understanding of those concepts graphically along a curve and shifts of a curve. In the
and numerically. It helps for students to context of learning about the basic model
see from the beginning of the course how of supply and demand in this unit, consider
graphs can be used as tools for making spending time helping students distinguish
sense of economic situations and predicting between the effects of a price change and
and explaining economic outcomes; even if a changes in the determinants of supply and
graph is not asked for on the exam, drawing demand. This will help students apply this
one may help students answer a given understanding in other market models that
question or explain a situation. come later in the course.

UNIT
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
Topic Suggested Skills ~8–10 CLASS PERIODS
1.1 Scarcity 1.A Describe economic concepts, principles,

or models.
MOD-1
Opportunity Cost
1.2 4.A Draw an accurately labeled graph or visual to
and the Production represent an economic model or market.
MKT-1
Comparative Advantage
1.3 1.C Identify an economic concept, principle, or
and Gains from Trade model using quantitative data or calculations.
1.4 Demand 4.A Draw an accurately labeled graph or visual to

1.5 Supply 4.A Draw an accurately labeled graph or visual to

MKT-2
Market Equilibrium,
1.6 4.C Demonstrate the effect of a change in an
Disequilibrium, and economic situation on an accurately labeled graph
Changes in Equilibrium or visual.


UNIT
1
SAMPLE INSTRUCTIONAL ACTIVITIES
The sample activities on this page are optional and are offered to provide possible ways to

Provide students with the following scenario: They have four hours and need to decide how
they are going to spend those four hours doing only two things. Students will then draw the
PPC curve and describe how they will spend those four hours. Using specific, real-world
examples, have students explain what happens when a point is inside the curve, on the
curve, and beyond the curve.

Carry out a classroom auction for an item of value in order to introduce students to the
relationship between price and quantity demanded. Use the data from the auction to graph
demand. Then simulate a change in one of the determinants of demand (e.g., by providing
students with fake money to increase their income) so that students can distinguish
between a change in quantity demanded and a change in demand. Debrief the experience
with students to ensure that connections are made to the concepts being studied.
3 1.6 Graph and Switch

Instruct students to draw and then manipulate a series of product markets based on changes in
market conditions. After completing each example, pair students with a partner and have them
switch graphs and provide feedback to one another regarding the graphs they have drawn.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Principles and
TOPIC 1.1
Scarcity
Models
1.A
Describe economic
concepts, principles,
or models.
AVAILABLE RESOURCE
§§ External Resource >
Required Course Content
Davidson Next
AP Macroeconomics
and Basic Concepts ENDURING UNDERSTANDING
MOD-1
employment level of output and to illustrate changes in full employment.
LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE

MOD-1.A MOD-1.A.1
Define scarcity and Individuals and societies are forced to make
economic resources. choices because most resources are scarce.

UNIT
1
Graphing and
Opportunity Cost
Visuals
4.A
and the Production graph or visual to represent

an economic model
or market.

Davidson Next
AP Macroeconomics
ENDURING UNDERSTANDING and Basic Concepts
MOD-1

MOD-1.B MOD-1.B.1
a. Define (using graphs as The PPC is a model used to show the tradeoffs
appropriate) the PPC and associated with allocating resources.
related terms. MOD-1.B.2
b. Explain (using graphs as The PPC can be used to illustrate the concepts
appropriate) how the PPC of scarcity, opportunity cost, efficiency,
illustrates opportunity underutilized resources, and economic growth
costs, tradeoffs, or contraction.
MOD-1.B.3
and economic growth
The shape of the PPC depends on whether
or contraction under
opportunity costs are constant, increasing,
various conditions.
or decreasing.
c. Calculate (using data
MOD-1.B.4
appropriate) opportunity The PPC can shift because of changes in
cost. factors of production as well as changes in
productivity/technology.
MOD-1.B.5
Economic growth results in an outward shift
of the PPC.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 1.3
Comparative
Models
1.C
Identify an economic
concept, principle, or model
or calculations.
Advantage and
Gains from Trade
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Comparative
Advantage & Trade ENDURING UNDERSTANDING
§§ Classroom Resources > MKT-1
International
Production and consumption increase by engaging in trade.
Economics and the
AP Macroeconomics
Course
MKT-1.A MKT-1.A.1
a. Define absolute Absolute advantage describes a situation
advantage and in which an individual, business, or country
comparative advantage. can produce more of a good or service than
b. Determine (using data any other producer with the same quantity
from PPCs or tables as of resources.
appropriate) absolute and MKT-1.A.2
comparative advantage. Comparative advantage describes a situation
in which an individual, business, or country
can produce a good or service at a lower
opportunity cost than another producer.
MKT-1.B MKT-1.B.1
a. Explain (using data Production specialization according to
from PPCs or tables comparative advantage results in exchange
as appropriate) how opportunities that lead to consumption
specialization according opportunities beyond the PPC.
to comparative advantage MKT-1.B.2
with appropriate terms Comparative advantage and opportunity costs
of trade can lead to gains determine the terms of trade for exchange
from trade. under which mutually beneficial trade
b. Calculate (using data can occur.

UNIT
1
Graphing and
Demand
Visuals
4.A
graph or visual to represent
an economic model
or market.
Required Course Content AVAILABLE RESOURCES

Davidson Next
AP Macroeconomics
Course—Supply &
ENDURING UNDERSTANDING Demand
MKT-2 §§ Classroom Resources >
Markets – Lesson: A
In a competitive market, demand for and supply of a good or service determine the
Comparison of Graphs
equilibrium price. from Microeconomics
and Macroeconomics

MKT-2.A MKT-2.A.1
a. Define (using graphs The law of demand states there is an inverse
as appropriate) the law relationship between price and quantity
of demand. demanded, leading to a downward-sloping
b. Explain (using graphs demand curve.
as appropriate) the
relationship between
the price of a good
or service and the
quantity demanded.
MKT-2.B MKT-2.B.1
Explain (using graphs Factors that influence consumer demand, such
as appropriate) the as changes in consumer income, cause the
determinants of demand. market demand curve to shift.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 1.5
Supply
Visuals
4.A
an economic model
or market.
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Supply &
Demand ENDURING UNDERSTANDING
from Microeconomics
equilibrium price.
and Macroeconomics

MKT-2.C MKT-2.C.1
a. Define (using graphs The law of supply states there is a positive
as appropriate) the relationship between price and quantity
law of supply. supplied, leading to an upward-sloping
supply curve.
b. Explain (using graphs
as appropriate) the
relationship between the
price of a good or service
and the quantity supplied.
MKT-2.D MKT-2.D.1
Explain (using graphs Factors that influence producer supply, such
as appropriate) the as changes in input prices, cause the market
determinants of supply. supply curve to shift.

UNIT
1
Graphing and
Market Equilibrium,
Visuals
4.C
Demonstrate the effect of
Disequilibrium, and a change in an economic

situation on an accurately
labeled graph or visual.
Changes in Equilibrium
Davidson Next
AP Macroeconomics
Course—Supply &
equilibrium price. from Microeconomics
and Macroeconomics

MKT-2.E MKT-2.E.1
Define (using graphs Equilibrium is achieved at the price at which
as appropriate) quantities demanded and supplied are equal.
market equilibrium.
MKT-2.F MKT-2.F.1
a. Define a surplus Whenever markets experience imbalances—
and shortage. creating disequilibrium prices, surpluses,
and shortages—market forces drive prices
toward equilibrium.
as appropriate) how
prices adjust to
restore equilibrium
in markets that are
experiencing imbalances.
c. Calculate (using graphs as
appropriate) the surplus
or shortage in the market
experience an imbalance.
MKT-2.G MKT-2.G.1
Explain (using graphs as Changes in the determinants of supply and/
appropriate) how changes or demand result in a new equilibrium price
in demand and supply and quantity.
affect equilibrium price and
equilibrium quantity.

AP MACROECONOMICS
UNIT 2
Economic
Indicators
and the
Business
Cycle
12–17%
AP EXAM WEIGHTING
~9–11
CLASS PERIODS

this unit.

§§ Short
§§ Short

UNIT
Economic Indicators
and the Business
Cycle
BIG IDEA 1 While Unit 1 provided students with an understanding of basic economic theory, Unit 2 sets
Economic them up for future analysis of macroeconomic concepts and issues. Students will learn how
Measurements MEA the economy works with a model of the circular flow of inputs and outputs and the money
§§ How is one person’s that pays for them. Students will also explore how economists assess the performance of the
spending another economy with an introduction to measures of economic performance and the business cycle.
person’s income? These concepts will be revisited in different contexts and models in the units that follow.
§§ How do we know if an
economy is doing well Building Course Skills Preparing for the AP Exam
or poorly?
1.A 1.B 1.C 1.D 2.C 3.A On the AP Exam, students will be expected
In this unit, students will continue to build to identify and represent economic concepts
on their application of economic principles using quantitative data and calculations.
and models by examining key measures of Quantitative analysis is an important practice
economic performance: gross domestic for economists and an important skill in this
product (GDP), unemployment, and inflation. unit. When teaching this course, keep in
Give students opportunities to fully explain mind that quantitative analysis in economics
these indicators, including what they involves interpretation and application, which
measure, how they are calculated, and what is more cognitively demanding than just
limitations they have. Since these indicators carrying out a simple calculation. To help
will be used in different models and contexts them gain fluency, have students practice
later in the course, students should not basic calculations such as converting
simply memorize a textbook definition of nominal values into real values. However, it is
each indicator. It will be difficult for students important to prepare students for the exam
to apply their understanding of these with a thorough grounding in the concepts
indicators in other contexts if they cannot and sufficient practice applying them in
fully explain them. numerical contexts. If students do not fully
understand the underlying concepts and
just memorize a formula or mathematical
process, they may struggle to carry out the
appropriate calculations or analysis of given
data in different contexts on the AP Exam.

UNIT
2 Economic Indicators and the Business Cycle
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
The Circular Flow

2.1 1.A Describe economic concepts, principles,
and GDP or models.
2.2 Limitations of GDP 1.D Describe the similarities, differences, and

limitations of economic concepts, principles,
or models.
2.3 Unemployment 1.B Identify an economic concept, principle,

or model illustrated by an example.
MEA-1
2.4 Price Indices and Inflation 2.C Interpret a specific economic outcome using
quantitative data or calculations.
2.5 Costs of Inflation 3.A Determine the outcome of an economic

situation using economic concepts, principles,
or models.
2.6 Real v. Nominal GDP 1.C Identify an economic concept, principle,

or model using quantitative data or calculations.
MEA-2
2.7 Business Cycles 1.A Describe economic concepts, principles,

or models.


UNIT
Economic Indicators and the Business Cycle
2
The sample activities on this page are optional and offered to provide possible ways to

Assign students to be either households or businesses and carry out a classroom simulation
to demonstrate the relationships represented by the circular flow model. Debrief the
experience with students to ensure that connections are made to the concepts being studied.
2 2.2 Discussion Groups

Assign students to groups to discuss the limitations of GDP. Provide students with a series
of questions to prompt discussion (e.g., What is counted and not counted in GDP? Does
GDP measure the well-being of that country’s society? ).
3 2.3 Simplify the Problem

Show students how to access the most recent “Employment Situation Summary” from the
U.S. Bureau of Labor Statistics website. Instruct students to scroll down the page and
use the household survey data provided to calculate the labor force participation rate and
unemployment rate themselves. Then have them verify their work based on the data given
in the summary.

Instruct students to work together to create a classroom market basket using current
prices of the products they typically purchase compared to a base year, such as the year
of their birth. (The U.S. Bureau of Labor Statistics Databases, Tables & Calculators are a
helpful data source for this activity.) Discuss the limitations of the market basket, such as
substitution and quality differences.
5 2.1, 2.3, Ask the Expert

2.4 Assign small groups to research the three economic indicators addressed in this unit: the
unemployment rate, the inflation rate, and GDP. As part of their research, students should find
current data and articles so that they are prepared to explain the status of their indicator to
their classmates. Once students have become experts on their given indicator, have groups
rotate through each expert station to learn about the indicators they have not yet mastered.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Principles and
TOPIC 2.1
The Circular
Models
1.A
Describe economic
or models. Flow and GDP
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Measures of
Economic Performance ENDURING UNDERSTANDING
MEA-1
An economy’s performance can be measured by different indicators such as gross
domestic product (GDP), the inflation rate, and the unemployment rate.

MEA-1.A MEA-1.A.1
a. Define (using the GDP is a measure of final output of
circular flow diagram the economy.
as appropriate) how MEA-1.A.2
GDP is measured and GDP as a total flow of income and expenditure
its components. can be represented by the circular
b. Calculate nominal GDP. flow diagram.
MEA-1.A.3
There are three ways of measuring GDP: the
expenditures approach, the income approach,
and the value-added approach.

UNIT
2
Principles and
Limitations of GDP
Models
1.D
Describe the similarities,
differences, and limitations
of economic concepts,
principles, or models.

Davidson Next
AP Macroeconomics
ENDURING UNDERSTANDING Economic Performance
MEA-1

MEA-1.B MEA-1.B.1
Define the limitations of GDP. GDP is a useful indicator of a nation’s
economic performance, but it has some
limitations, such as failing to account for
nonmarket transactions.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 2.3
Unemployment
Models
1.B
illustrated by an example.
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
MEA-1

MEA-1.C MEA-1.C.1
a. Define the labor force, The unemployment rate is the percentage of
the unemployment rate, the labor force that is out of work.
and the labor force MEA-1.C.2
participation rate. The labor force participation rate is another
b. Explain how changes measure of the labor market activity in an
in employment and the economy. The labor force participation rate is
labor market affect the the percentage of the adult population that is in
unemployment rate the labor force.
and the labor force
participation rate.
c. Calculate the
unemployment rate
and the labor force
participation rate.
MEA-1.D MEA-1.D.1
Define the limitations of the The measured unemployment rate is often
unemployment rate. criticized for understating the level of
joblessness because it excludes groups such
as discouraged workers and part-time workers.
continued on next page

UNIT
2
MEA-1.E MEA-1.E.1
a. Define the types of Economists primarily focus on three types
unemployment and of unemployment: cyclical, frictional,
the natural rate of and structural.
unemployment. MEA-1.E.2
b. Explain changes in the The natural rate of unemployment is the
types of unemployment. unemployment rate that would exist when
the economy produces full-employment real
output. It is equal to the sum of frictional and
structural unemployment.
MEA-1.E.3
The deviation of the actual unemployment rate
from the natural rate is cyclical unemployment.
MEA-1.E.4
The natural rate of unemployment can
gradually change over time because
of such things as changes in labor
force characteristics.

UNIT
SUGGESTED SKILL
Interpretation
TOPIC 2.4
2.C
Interpret a specific
economic outcome
Price Indices
or calculations. and Inflation
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
MEA-1

MEA-1.F MEA-1.F.1
a. Define the consumer The consumer price index (CPI) measures the
price index (CPI), inflation, change in income a consumer would need in
deflation, disinflation, order to maintain the same standard of living
the inflation rate, and over time under a new set of prices as under
real variables. the original set of prices.
b. Explain how price indices MEA-1.F.2
can be used to calculate The CPI measures the cost of a fixed basket of
the inflation rate and to goods and services in a given year relative to
compare nominal variables the base year.
over time periods.
X Exclusion:
c. Calculate the CPI, the
Calculating the producer price index (PPI) is
inflation rate, and changes beyond the scope of the course and AP Exam.
in real variables.
MEA-1.F.3
The inflation rate is determined by calculating
the percentage change in a price index, such
as CPI or the GDP deflator.
MEA-1.F.4
Real variables, such as real wages, are the
nominal variables deflated by the price level.
MEA-1.G MEA-1.G.1
Define the shortcomings of The CPI as a measure of inflation has some
the CPI as a true measure shortcomings, such as substitution bias,
of inflation. causing it to overstate the true inflation rate.

UNIT
2
Manipulation
Costs of Inflation 3.A

Determine the outcome
of an economic situation
using economic concepts,

Davidson Next
AP Macroeconomics
MEA-1

MEA-1.H MEA-1.H.1
Explain the costs that Unexpected inflation arbitrarily redistributes
unexpected inflation wealth from one group of individuals to another
(deflation) imposes on group, such as lenders to borrowers.
individuals and the economy.

UNIT
SUGGESTED SKILL
Principles and
TOPIC 2.6
Real v. Nominal GDP
Models
1.C
or calculations.
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Real and
Nominal Values ENDURING UNDERSTANDING
MEA-1

MEA-1.I MEA-1.I.1
Define nominal GDP and Nominal GDP is a measure of how much is
real GDP. spent on output. Real GDP is a measure of how
much is produced.
MEA-1.I.2
Nominal GDP measures aggregate output
using current prices. Real GDP measures
aggregate output using constant prices, thus
removing the effect of changes in the overall
price level.
MEA-1.J MEA-1.J.1
Calculate real GDP and the One way of measuring real GDP is to weigh final
GDP deflator. goods and services by their prices in a base
year. Because this can lead to overstatement of
real GDP growth, statistical agencies actually
use different methods.
MEA-1.J.2
Nominal GDP can be converted to real GDP by
using the GDP deflator.

UNIT
2
Principles and
Business Cycles
Models
1.A
Describe economic
or models.

Davidson Next
AP Macroeconomics
MEA-2
The economy fluctuates between periods of expansion and contraction in the short
run, but economic growth can occur in the long run.

MEA-2.A MEA-2.A.1
a. Define (using graphs Business cycles are fluctuations in aggregate
and data as appropriate) output and employment because of changes in
turning points and phases aggregate supply and/or aggregate demand.
of the business cycle. MEA-2.A.2
b. Explain (using graphs The phases of a business cycle are recession
and data as appropriate) and expansion.
turning points and phases
MEA-2.A.3
of the business cycle.
The turning points of a business cycle are peak
and trough.
MEA-2.A.4
The difference between actual output and
potential output is the output gap.
MEA-2.A.5
Potential output is also called full-employment
output. It is the level of GDP where
unemployment is equal to the natural rate of
unemployment. [See EK MEA-1.E.2]

AP MACROECONOMICS
UNIT 3
National
Income
and Price
Determination
17–27%
AP EXAM WEIGHTING
~10–12
CLASS PERIODS

this unit.

§§ Short
§§ Short

UNIT
National Income and

Price Determination
BIG IDEA 3 In the previous unit, students were introduced to key macroeconomic indicators and the
Macroeconomic business cycle. In this unit, students will learn how to represent and evaluate these concepts
Models MOD in the context of a specific economic model: the aggregate demand–aggregate supply model.
§§ How do spending and The aggregate demand–aggregate supply model is a powerful tool that allows economists
production decisions to represent the impact of spending and production decisions, economic fluctuations, and
made by households, policy actions on macroeconomic outcomes, including output, income, unemployment,
businesses, the and inflation.
government, and the
rest of the world affect Building Course Skills Preparing for the AP Exam
an economy?
1.A 2.A 3.A 3.C 4.A 4.B 4.C The aggregate demand–aggregate supply
BIG IDEA 4 Economists rely on economic models model is foundational to the study of
Macroeconomic as analytical tools to help make sense of macroeconomics and, as such, is frequently
Policies POL the world. Give students meaningful and tested on the AP Exam. Students often
§§ How do policy decisions repetitive practice using the aggregate conflate the aggregate demand–aggregate
regarding taxation and demand–aggregate supply model to look supply model with the market supply and
government spending back to interpret an economic outcome demand model introduced in the first unit
affect an economy? and look forward to anticipate the effects and may, for example, label the axes of their
of policy and other changes. Doing so will aggregate demand–aggregate supply graphs
not only build students’ fluency in the skill with “Price” and “Quantity” rather than “Price
categories of interpretation and manipulation Level” and “Real GDP.” To prevent this, make
but will also help them appreciate the sure students conceptually understand
explanatory power of economic models. the difference between aggregate demand
(aggregate supply) and demand (supply)
In this unit, students will continue to develop and the implications when graphing and
their quantitative skills, this time in the interpreting a graph.
context of learning about multipliers. Give
students opportunities for guided practice Another challenging concept for students
calculating multipliers and explaining how is the difference between macroeconomic
changes in spending and taxes lead to outcomes in the short run and the long run.
changes in real GDP. Spend time helping students understand the
distinction. On the AP Exam students will be
asked to explain (verbally and graphically)
the effect of policy actions and changes in
economic conditions in the short run and
long run and how the economy may achieve
long-run equilibrium in the absence of
policy actions.

UNIT
3 National Income and Price Determination
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
3.1 Aggregate Demand (AD) 4.A Draw an accurately labeled graph or visual to
Multipliers
3.2 3.C Determine the effect(s) of a change in an
economic situation using quantitative data
or calculations.
Short-Run Aggregate
3.3 4.A Draw an accurately labeled graph or visual to
Supply (SRAS) represent an economic model or market.
Long-Run Aggregate
Supply (LRAS) or models.
MOD-2
Equilibrium in the
3.5 4.B Demonstrate your understanding of a specific
Aggregate Demand– economic situation on an accurately labeled graph
Aggregate Supply or visual.
(AD–AS) Model
Changes in the AD–AS

3.6 4.C Demonstrate the effect of a change in an
Model in the Short Run economic situation on an accurately labeled graph
or visual.
3.7 Long-Run Self-Adjustment 3.A Determine the outcome of an economic

or models.
3.8 Fiscal Policy 2.A Using economic concepts, principles, or

models, explain how a specific economic outcome
occurs or what action should be taken in order to
POL-1
achieve a specific economic outcome.
3.9 Automatic Stabilizers 1.A Describe economic concepts, principles,

or models.


UNIT
National Income and Price Determination
3
1 3.1 Think-Pair-Share
Create cards with the words “Consumption,” “Investment,” “Government Spending,” and
“Net Exports” and also arrow cards (increasing arrow and decreasing arrow). Read out
headlines (either actual headlines from the news or ones that you’ve made up) that will
shift each of the components of aggregate demand. Have students first think through
which component of aggregate demand is affected and which direction it will shift. Then
have them share their responses with their partners and then have each pair hold up the
appropriate component and arrow cards.
2 3.2 Numbered Heads Together

Provide students with practice problems that involve calculating multipliers and assign
each student a number. Provide students with time to work through the problems together
in small groups. Then randomly select a number and ask that respective student to answer
for the group.
3 3.5 Practice Modeling

Model for students how to graph macroeconomic equilibrium using the aggregate
demand–aggregate supply model and compare current output levels (Y) to
full-employment output (Yf). Then provide students with an opportunity to practice drawing
graphs themselves representing Y = Yf , Y < Yf , and Y > Yf .
Unit Planning Notes

methods of instruction and assessment.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 3.1
Aggregate
Visuals
4.A
an economic model
or market.
Demand (AD)
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Aggregate
Demand ENDURING UNDERSTANDING
§§ Classroom Resources > MOD-2
Economists use the aggregate demand–aggregate supply model to represent
from Microeconomics
the relationship between the price level and aggregate output in an economy
and Macroeconomics and to illustrate how output, employment, and the price level respond to
macroeconomic shocks.

MOD-2.A MOD-2.A.1
a. Define (using graphs as The aggregate demand (AD) curve describes
appropriate) the aggregate the relationship between the price level and the
demand (AD) curve. quantity of goods and services demanded by
b. Explain (using graphs as households (consumption), firms (investment),
appropriate) the slope government (government spending), and the
rest of the world (net exports).
of the AD curve and
its determinants. MOD-2.A.2
The negative slope of the AD curve is
explained by the real wealth effect, the interest
rate effect, and the exchange rate effect.
[See EK MKT-3.A.1]
MOD-2.A.3
Any change in the components of aggregate
demand (consumption, investment,
government spending, or net exports) that is
not due to changes in the price level leads to a
shift of the AD curve.

UNIT
3
Manipulation
Multipliers 3.C
Determine the effect(s) of
a change in an economic
situation using quantitative
data or calculations.

Davidson Next
AP Macroeconomics
Course—Aggregate
MOD-2 §§ Classroom Resources >
Teaching the Spending
Multiplier
and to illustrate how output, employment, and the price level respond to

MOD-2.B MOD-2.B.1
a. Define the expenditure A $1 change to autonomous expenditures
multiplier, the tax leads to further changes in total expenditures
multiplier, the marginal and total output.
propensity to consume, MOD-2.B.2
and the marginal The expenditure multiplier quantifies the size
propensity to save. of the change in aggregate demand as a result
b. Explain how changes in of a change in any of the components of
spending and taxes lead to aggregate demand.
changes in real GDP. MOD-2.B.3
c. Calculate how changes in The tax multiplier quantifies the size of the
spending and taxes lead to change in aggregate demand as a result of a
changes in real GDP. change in taxes.
MOD-2.B.4
The expenditure multiplier and tax multiplier
depend on the marginal propensity
to consume.
MOD-2.B.5
The marginal propensity to consume is the
change in consumer spending divided by the
change in disposable income. The sum of the
marginal propensity to consume and marginal
propensity to save is equal to one.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 3.3
Short-Run Aggregate
Visuals
4.A
an economic model
or market.
Supply (SRAS)
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Aggregate
Supply ENDURING UNDERSTANDING
from Microeconomics

MOD-2.C MOD-2.C.1
a. Define (using graphs The short-run aggregate supply (SRAS) curve
as appropriate) the describes the relationship between the price
short-run aggregate level and the quantity of goods and services
supply (SRAS) curve. supplied in an economy.
b. Explain (using graphs as MOD-2.C.2
appropriate) the slope The SRAS curve is upward-sloping because of
of the SRAS curve and sticky wages and prices. [See EK MOD-2.E.1]
its determinants.
MOD-2.C.3
Any factor that causes production costs
to change, such as a change in inflationary
expectations, will cause the SRAS
curve to shift.
MOD-2.D MOD-2.D.1
Explain (using graphs as Moving along the SRAS curve, an increase in
appropriate) how movement the price level is associated with an increase
along the SRAS curve implies in output, which means employment must
a relationship between the correspondingly rise. With the labor force held
price level (and inflation) constant, unemployment will fall. So, there is
and unemployment. a short-run trade-off between inflation and
unemployment. [See EK MOD-3.A.1]

UNIT
3
Principles and
Long-Run Aggregate
Models
1.A
Describe economic
Supply (LRAS) concepts, principles,

or models.

Davidson Next
AP Macroeconomics
Course—Aggregate
ENDURING UNDERSTANDING Supply
MOD-2 §§ Classroom Resources >
the relationship between the price level and aggregate output in an economy from Microeconomics
and to illustrate how output, employment, and the price level respond to and Macroeconomics

MOD-2.E MOD-2.E.1
Define (using graphs as In the long run all prices and wages are fully
appropriate) the short run flexible, while in the short run some input prices
and the long run. are fixed. A consequence of flexible long-run
prices and wages is the lack of a long-run
trade-off between inflation and unemployment.
MOD-2.F MOD-2.F.1
Define (using graphs as The LRAS curve corresponds to the production
appropriate) the long-run possibilities curve (PPC) because they both
aggregate supply represent maximum sustainable capacity.
(LRAS) curve. Maximum sustainable capacity is the total
output an economic system will produce over
a set period of time if all resources are fully
employed. [See LO MOD-2.I]
MOD-2.F.2
The LRAS curve is vertical at the full-employment
level of output because in the long run wages and
prices fully adjust.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 3.5
Equilibrium in the
Visuals
4.B
Demonstrate your
understanding of a specific
economic situation on an
accurately labeled graph
Aggregate Demand–
or visual.
Aggregate Supply
AVAILABLE RESOURCES
(AD–AS) Model
Davidson Next
AP Macroeconomics
Course—Short-Run
Macroeconomic
Equilibrium
§§ Classroom Resources >
Markets – Lesson: A ENDURING UNDERSTANDING
Comparison of Graphs MOD-2
from Microeconomics
and Macroeconomics
and to illustrate how output, employment, and the price level respond to

MOD-2.G MOD-2.G.1
Explain (using graphs as Short-run equilibrium occurs when the
appropriate) the short-run aggregate quantity of output demanded and
and long-run equilibrium the aggregate quantity of output supplied are
price level and output level. equal—i.e., at the intersection of the AD and
SRAS curves.
MOD-2.G.2
Long-run equilibrium occurs when the AD and
SRAS curves intersect on the LRAS—i.e., at the
full-employment level of real output.
MOD-2.G.3
The short-run equilibrium output can be at the
full-employment level of output, above it, or
below it, creating positive (i.e., inflationary) or
negative (i.e., recessionary) output gaps.

UNIT
3
Graphing and
Changes in the
Visuals
4.C
AD–AS Model in a change in an economic

the Short Run

§§ AP Exam Resource >
Davidson Next
AP Macroeconomics
Course—Short-Run
ENDURING UNDERSTANDING Macroeconomic
Equilibrium
MOD-2
the relationship between the price level and aggregate output in an economy Comparison of Graphs
and to illustrate how output, employment, and the price level respond to from Microeconomics
macroeconomic shocks. and Macroeconomics

MOD-2.H MOD-2.H.1
Explain (using graphs as A positive (negative) shock in AD causes
appropriate) the response of output, employment, and the price level to rise
output, employment, and the (fall) in the short run.
price level to an aggregate MOD-2.H.2
demand or aggregate supply
A positive (negative) shock in SRAS causes
shock in the short run.
output and employment to rise (fall) and the
price level to fall (rise) in the short run.
MOD-2.H.3
Inflation can be caused by changes in
aggregate demand (demand-pull) or aggregate
supply (cost-push).

UNIT
SUGGESTED SKILL
Manipulation
TOPIC 3.7
3.A
Long-Run
principles, or models. Self-Adjustment
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Moving to
Long-Run Equilibrium ENDURING UNDERSTANDING
from Microeconomics

MOD-2.I MOD-2.I.1
Explain (using graphs as In the long run, in the absence of government
appropriate) the response of policy actions, flexible wages and prices
output, employment, and the will adjust to restore full employment and
price level to an aggregate unemployment will revert to its natural rate after
demand or aggregate supply a shock to aggregate demand or short-run
shock in the long run. aggregate supply. [See EK MEA-1.E.2]
MOD-2.I.2
Shifts in the long-run aggregate supply curve
indicate changes in the full-employment level
of output and economic growth.

UNIT
3
Interpretation
Fiscal Policy 2.A

Using economic concepts,
principles, or models, explain
how a specific economic
outcome occurs or what
action should be taken in
order to achieve a specific
economic outcome.

Davidson Next
AP Macroeconomics
ENDURING UNDERSTANDING Course—Fiscal Policy
POL-1
Fiscal and monetary policy have short-run effects on macroeconomic outcomes.

POL-1.A POL-1.A.1
a. Define fiscal policy and Governments implement fiscal policies to achieve
related terms. macroeconomic goals, such as full employment.
b. Explain (using graphs as POL-1.A.2
appropriate) the short- The tools of fiscal policy are government
run effects of a fiscal spending and taxes/transfers.
policy action.
POL-1.A.3
c. Calculate the short-run
Changes in government spending affect
effects of a fiscal
aggregate demand directly, and changes
policy action. in taxes/transfers affect aggregate
demand indirectly.
POL-1.A.4
The government spending multiplier is greater
than the tax multiplier.
POL-1.A.5
Expansionary or contractionary fiscal policies
are used to restore full employment when the
economy is in a negative (i.e., recessionary) or
positive (i.e., inflationary) output gap.
POL-1.A.6
Fiscal policy can influence aggregate demand,
real output, and the price level. [See also EK
MKT-5.E.2 for the effect on exchange rates.]
POL-1.A.7
The AD–AS model is used to demonstrate the
short-run effects of fiscal policy.

UNIT

POL-1.B POL-1.B.1
Define why there are lags to In reality, there are lags to discretionary
discretionary fiscal policy. fiscal policy because of factors such as the
time it takes to decide on and implement a
policy action.

UNIT
3
Principles and
Automatic Stabilizers
Models
1.A
Describe economic
or models.

Davidson Next
AP Macroeconomics
Course—Fiscal Policy
ENDURING UNDERSTANDING
POL-1

POL-1.C POL-1.C.1
a. Define automatic Automatic stabilizers support the economy
stabilizers. during recessions and help prevent the
b. Explain how automatic economy from being overheated during
stabilizers moderate expansionary periods.
business cycles. POL-1.C.2
Tax revenues decrease automatically as
GDP falls, preventing consumption and the
economy from falling further.
POL-1.C.3
Tax revenues increase automatically as GDP
rises, slowing consumption and preventing the
economy from overheating.
POL-1.C.4
Government policies, institutions, or agencies
may also have social service programs whose
transfer payments act as automatic stabilizers.

AP MACROECONOMICS
UNIT 4
Financial
Sector
18–23%
AP EXAM WEIGHTING
~11–13
CLASS PERIODS

this unit.

§§ Short
§§ Short

UNIT
Financial Sector
BIG IDEA 1 In the previous unit, students explored the effects of fiscal policy. In this unit, students will
Economic evaluate the macroeconomic effects of monetary policy. Before doing so, though, they
Measurements MEA should first have an understanding of how the financial sector works and be able to describe
§§ What is money? how monetary policy is implemented and transmitted through the banking system. This
understanding begins with an introduction to financial assets, including money, and the way in
BIG IDEA 2 which fractional reserve banking allows for the expansion of the money supply. Students will
Markets MKT then build on their understanding of the financial sector by learning how to model the money
§§ How is the price of market and the loanable funds market.
money determined?
Building Course Skills Preparing for the AP Exam
BIG IDEA 4
Macroeconomic 1.A 1.B 2.A 3.C 4.A 4.C Predicting and explaining the effects of fiscal
Policies POL In this unit, students will describe the and monetary policy actions is an important
§§ How do banks workings of the financial sector so they can role of economists and an expectation of
create money? apply that understanding in context. Devote students on the AP Exam. Understanding
sufficient time to introducing students to new fiscal and monetary policy will also help
§§ How do the actions
of a country’s central concepts and vocabulary. Vocabulary lists or students become more informed citizens.
bank affect financial rote memorization on their own will not allow When responding to free-response questions
decision making and for knowledge transfer. on the AP Exam that ask which open-market
the economy? operation is appropriate in a given economic
Students will also be expected to represent
a number of different markets graphically in scenario, students often use a scattershot
this unit. Explain the underlying assumptions approach and list all possible monetary
of each market and practice modeling these policy actions rather than the appropriate
assumptions so that students can create open-market operation. Students should
properly labeled graphs to represent and practice carefully reading and responding to
evaluate economic situations. the question, ensuring that they answer the
question that is being asked. This will help
Students will continue to build their students perform better on the exam and
quantitative skills by interpreting bank balance move them away from rote memorization and
sheets and calculating changes in demand toward greater understanding.
deposits, loans, and reserves in the banking
system as a result of deposits, withdrawals, Balance sheet questions are a common
and monetary policy. Once again, it’s challenge area for students on the AP Exam.
important to spend time grounding students Use past AP Exam questions (e.g., 2016
in the underlying concepts—in this case, AP Exam Free-Response Question #2)
with a thorough introduction to fractional to analyze the tasks and determine key
reserve banking—and provide ample time for vocabulary and misunderstandings students
numerical examples and practice. have when approaching the questions. Then
provide opportunities for guided practice
answering questions.

UNIT
4 Financial Sector
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
4.1 Financial Assets 1.D Describe the similarities, differences, and

limitations of economic concepts, principles,
or models.
MEA-3
Nominal v. Real
Interest Rates or models.
Definition, Measurement,
4.3 1.B Identify an economic concept, principle,
and Functions of Money or model illustrated by an example.
Banking and the Expansion

4.4 3.C Determine the effect(s) of a change in an
POL-2
of the Money Supply economic situation using quantitative data

or calculations.
MKT-3
4.5 The Money Market 4.A Draw an accurately labeled graph or visual to
4.6 Monetary Policy 2.A Using economic concepts, principles, or

POL-1

4.7 The Loanable Funds Market 4.C Demonstrate the effect of a change in an
MKT-4
economic situation on an accurately labeled graph

or visual.


UNIT
Financial Sector
4
1 4.1 QHT
Provide students with a list of critical vocabulary for this topic (e.g., stock, bond, interest
rate, loan). Have students mark the list with a Q for words they have a question about, an H
for words they have heard and might be able to identify, and a T for words they know well
enough to teach to their peers. Discuss their markings as a class and have students who
marked any words with a T describe the terms to their classmates.
2 4.4, 4.5, Simulation and Debriefing

4.6 Carry out an in-class simulation of open-market operations to give students a frame of
reference for how T-accounts record lending activity while also observing the effects of
central bank purchases and sales of securities. Have students take on the role of banks
and give them a blank T-account and set of assets, typically securities and cash (deposits).
With you acting as the central bank, introduce policy actions that require the “banks” to
adjust their balance sheet accordingly. Debrief the experience with students to ensure that
connections are made to the concepts being studied.
3 4.5, 4.7 Practice Modeling

Both the money market and the loanable funds market are introduced in this unit.
When introducing how to graph each market, first model it for students by drawing it on
the board and explaining the underlying assumptions while doing so (e.g., why the money
demand curve is downward-sloping and why the money supply curve is vertical). Then
provide an opportunity for students to practice generating the graph with appropriate labels
themselves and work through different scenarios and shifts within the context of each graph.
Unit Planning Notes


UNIT
4 Financial Sector
SUGGESTED SKILL
Principles and
TOPIC 4.1
Financial Assets
Models
1.D
Describe the similarities,
differences, and limitations
of economic concepts,
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Money and
the Money Market ENDURING UNDERSTANDING
MEA-3
Money makes it possible to compare the value of goods and services, and interest
rates provide a measure of the price of money that is borrowed or saved.

MEA-3.A MEA-3.A.1
a. Define the principal The most liquid forms of money are cash and
attributes—liquidity, demand deposits.
rate of return, and risk— MEA-3.A.2
associated with various Other financial assets people can hold in
classes of financial assets, place of the most liquid forms of money
including money. include bonds (interest-bearing assets) and
b. Explain the relationship stocks (equity).
between the price of
MEA-3.A.3
previously issued bonds
The price of previously issued bonds and
and interest rates.
interest rates on bonds are inversely related.
MEA-3.A.4
The opportunity cost of holding money is the
interest that could have been earned from
holding other financial assets such as bonds.

UNIT
Financial Sector
4
Principles and
Nominal v. Real
Models
1.A
Describe economic
Interest Rates concepts, principles,

or models.

Davidson Next
AP Macroeconomics
Course—Money and
ENDURING UNDERSTANDING the Money Market
MEA-3 §§ Classroom Resources >
Well, What Do You
Expect? Inflationary
rates provide a measure of the price of money that is borrowed or saved. Expectations and
Macroeconomic
Variables
MEA-3.B MEA-3.B.1
a. Define the nominal and A nominal interest rate is the rate of interest
real interest rate. paid for a loan, unadjusted for inflation.
b. Explain the relationship MEA-3.B.2
between changes in Lenders and borrowers establish nominal
nominal interest rates, interest rates as the sum of their expected real
expected inflation, and interest rate and expected inflation.
real interest rates.
MEA-3.B.3
c. Calculate the nominal and
A real interest rate can be calculated in
real interest rate. hindsight by subtracting the actual inflation
rate from the nominal interest rate.

UNIT
4 Financial Sector
SUGGESTED SKILL
Principles and
TOPIC 4.3
Definition,
Models
1.B
illustrated by an example. Measurement, and
Functions of Money
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Money and
MEA-3
rates provide a measure of the price of money that is borrowed or saved.

MEA-3.C MEA-3.C.1
a. Define money and its Money is any asset that is accepted as a means
functions. of payment.
b. Calculate (using data as MEA-3.C.2
appropriate) measures Money serves as a medium of exchange, unit of
of money. account, and store of value.
MEA-3.C.3
The money supply is measured using monetary
aggregates designated as M1 and M2.
MEA-3.C.4
The monetary base (often labeled as M0
or MB) includes currency in circulation and
bank reserves.

UNIT
Financial Sector
4
Manipulation
Banking and the 3.C

Expansion of the situation using quantitative

Money Supply
Davidson Next
AP Macroeconomics
Course—Money
ENDURING UNDERSTANDING Creation
POL-2
The banking system plays an important role in the expansion of the money supply.

POL-2.A POL-2.A.1
a. Define key terms related Depository institutions (such as commercial

to the banking system banks) organize their assets and liabilities on
and the expansion of the balance sheets.
money supply. POL-2.A.2
b. Explain how the Depository institutions operate using fractional

banking system creates reserve banking.
and expands the POL-2.A.3
money supply. Banks’ reserves are divided into required
c. Calculate (using data reserves and excess reserves.
and balance sheets POL-2.A.4
as appropriate) the Excess reserves are the basis of expansion of
effects of changes in the the money supply by the banking system.
banking system.
POL-2.A.5
The money multiplier is the ratio of the money
supply to the monetary base.
POL-2.A.6
The size of expansion of the money supply
depends on the money multiplier.
POL-2.A.7
The maximum value of the money multiplier
can be calculated as the reciprocal of the
required reserve ratio.
POL-2.A.8
The amount predicted by the simple money
multiplier may be overstated because it does not
take into account a bank’s desire to hold excess
reserves or the public holding more currency.

UNIT
4 Financial Sector
SUGGESTED SKILL
Graphing and
TOPIC 4.5
The Money Market
Visuals
4.A
an economic model
or market.
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Money and
Markets – Reconciling
In the money market, demand for and supply of money determine the equilibrium
the Markets for Money
and for Loanable Funds
nominal interest rate and influence the value of other financial assets.

MKT-3.A MKT-3.A.1
a. Define (using graphs as The demand for money shows the inverse
appropriate) the money relationship between the nominal interest rate
market, money demand, and the quantity of money people want to hold.
and money supply. MKT-3.A.2
b. Explain (using graphs Given a monetary base determined by a
as appropriate) the country’s central bank, money supply is
relationship between the independent of the nominal interest rate.
nominal interest rate and
the quantity of money
demanded (supplied).
MKT-3.B MKT-3.B.1
Define (using graphs as In the money market, equilibrium is achieved
appropriate) equilibrium in when the nominal interest rate is such that the
the money market. quantities demanded and supplied of money
are equal.
MKT-3.C MKT-3.C.1
Explain (using graphs as Disequilibrium nominal interest rates create
appropriate) how nominal surpluses and shortages in the money market.
interest rates adjust to Market forces drive nominal interest rates
restore equilibrium in the toward equilibrium.
money market.

UNIT
Financial Sector
4
MKT-3.D MKT-3.D.1
a. Explain (using graphs Factors that shift the demand for money, such
as appropriate) the as changes in the price level, and supply of
determinants of demand money, such as monetary policy, change the
and supply in the equilibrium nominal interest rate.
money market.
b. Explain (using graphs as
appropriate) how changes
in demand and supply in
the money market affect
the equilibrium nominal
interest rate.

UNIT
4 Financial Sector
SUGGESTED SKILL
Interpretation
TOPIC 4.6
2.A
principles, or models,
Monetary Policy
explain how a specific
economic outcome occurs
or what action should be
taken in order to achieve a
specific economic outcome.

AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics ENDURING UNDERSTANDING
Course—Monetary
POL-1
Policy
AP Macroeconomics
Monetary Policy
POL-1.D POL-1.D.1
a. Define monetary policy Central banks implement monetary policies
and related terms. to achieve macroeconomic goals, such as
b. Explain (using graphs as price stability.
appropriate) the short- POL-1.D.2
run effects of a monetary The tools of monetary policy include open-
policy action. market operations, the required reserve
c. Calculate (using data ratio, and the discount rate. The most
and balance sheets as frequently used monetary policy tool is open-
appropriate) the effects of market operations.
a monetary policy action. POL-1.D.3
When the central bank conducts an open-
market purchase (sale), reserves increase
(decrease), thereby increasing (decreasing) the
monetary base.
POL-1.D.4
The effect of an open-market purchase (sale)
on the money supply is greater than the
effect on the monetary base because of the
money multiplier.
POL-1.D.5
Many central banks carry out policy to hit a
target range for an overnight interbank lending
rate. (In the United States, this is the federal
funds rate.)

UNIT
Financial Sector
4
POL-1.D POL-1.D.6
a. Define monetary policy Central banks can influence the nominal interest
and related terms. rate in the short run by changing the money
b. Explain (using graphs as supply, which in turn will affect investment and
appropriate) the short- consumption. [See also EK MKT-5.G.2 for the
run effects of a monetary influence on net capital inflows.]
policy action. POL-1.D.7
c. Calculate (using data Expansionary or contractionary monetary

and balance sheets as policies are used to restore full employment
appropriate) the effects of when the economy is in a negative (i.e.,
a monetary policy action. recessionary) or positive (i.e., inflationary)
output gap.
POL-1.D.8
Monetary policy can influence aggregate
demand, real output, the price level, and
interest rates. [See also EK MKT-5.E.3 for the
effect on exchange rates.]
POL-1.D.9
A money market model and/or the AD–AS
model are used to demonstrate the short-run
effects of monetary policy.
POL-1.E POL-1.E.1
Define why there are lags to In reality, there are lags to monetary policy
monetary policy. caused by the time it takes to recognize a
problem in the economy and the time it takes
the economy to adjust to the policy action.

UNIT
4 Financial Sector
SUGGESTED SKILL
Graphing and
TOPIC 4.7
The Loanable
Visuals
4.C
Funds Market
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Loanable
Funds ENDURING UNDERSTANDING
Markets – Reconciling
The interaction of borrowers, who demand loanable funds, and savers, who supply
the Markets for Money
and for Loanable Funds
loanable funds, determines the equilibrium real interest rate.

MKT-4.A MKT-4.A.1
a. Define (using graphs as The loanable funds market describes the
appropriate) the loanable behavior of savers and borrowers.
funds market, demand for MKT-4.A.2
loanable funds, and supply The demand for loanable funds shows the
of loanable funds. inverse relationship between real interest rates
b. Explain (using graphs and the quantity demanded of loanable funds.
as appropriate) the
MKT-4.A.3
The supply of loanable funds shows the
real interest rate and the
positive relationship between real interest rates
quantity of loanable funds
and the quantity supplied of loanable funds.
demanded (supplied).
MKT-4.B MKT-4.B.1
Define national savings In the absence of international borrowing and
in both a closed and an lending, national savings is the sum of public
open economy. savings and private savings.
MKT-4.B.2
For an open economy, investment equals
national savings plus net capital inflow.

UNIT
Financial Sector
4
MKT-4.C MKT-4.C.1
Define (using graphs as In the loanable funds market, equilibrium is
appropriate) equilibrium in achieved when the real interest rate is such
the loanable funds market. that the quantities demanded and supplied of
loanable funds are equal.
MKT-4.D MKT-4.D.1
Explain (using graphs as Disequilibrium real interest rates create
appropriate) how real interest surpluses and shortages in the loanable funds
rates adjust to restore market. Market forces drive real interest rates
equilibrium in the loanable toward equilibrium.
funds market.
MKT-4.E MKT-4.E.1
a. Explain (using graphs The loanable funds market can be used to
as appropriate) the show the effects of government spending,
determinants of demand taxes, and borrowing on interest rates.
and supply in the loanable MKT-4.E.2
funds market. Factors that shift the demand (such as an
b. Explain (using graphs as investment tax credit) and supply (such as
appropriate) how changes changes in saving behavior) of loanable funds
in demand and supply in change the equilibrium interest rate and the
the loanable funds market equilibrium quantity of funds.
affect the equilibrium
real interest rate and
equilibrium quantity of
loanable funds.

AP MACROECONOMICS
UNIT 5
Long-Run
Consequences
of Stabilization
Policies
20–30%
AP EXAM WEIGHTING
~8–10
CLASS PERIODS

this unit.

§§ Long

UNIT
Long-Run
Consequences of
Stabilization Policies
BIG IDEA 1 In many ways, Unit 5 is a culmination and an extension of material that has been introduced
Economic previously. For example, in Units 3 and 4, students learned that public policy can affect the
Measurements MEA economy’s output, price level, and level of employment in the short run; in this unit, students
§§ How does an will build on this understanding to examine the long-run implications of policy actions and the
economy grow? concept of economic growth.
Similarly, in Unit 2 students were introduced to inflation and unemployment as economic

BIG IDEA 3 indicators, and in Unit 3 they learned about the relationship between inflation and
Macroeconomic
unemployment; in this unit, students explore how the Phillips curve model is used to represent
Models MOD
this relationship in the short run and long run.
§§ What is the relationship
between inflation and
unemployment? Building Course Skills Preparing for the AP Exam
2.A 2.B 3.A 3.B 4.B It is crucial for economists, especially those
BIG IDEA 4 who advise policymakers, to consider what
In this unit, it helps to place a strong
Macroeconomic actions lead to economic growth. In this
emphasis on fully explaining cause-
Policies POL
and-effect relationships. Each step in unit and on the AP Exam, students will be
§§ How do monetary and
the chain of cause and effect should be asked to predict and explain the long-run
fiscal policies affect modeled and practiced so students are implications of policy actions. To do so, they
the economy in the able to appropriately predict and explain need to understand the difference between
long run? the consequences of a change. Students the short run and long run, how economic
often make leaps in their reasoning that growth is measured, and the determinants
generate an incorrect prediction about the of economic growth.
consequences of an action. Successful Questions involving the Phillips curve
explanations that describe the effects model are a common challenge area for
of monetary policy on the economy, for students on the AP Exam. As with other
example, begin with a discussion of how models introduced in the course, it’s
monetary policy is likely to affect interest important to spend time first establishing
rates. If students are unable to explain how the assumptions behind the model and
monetary policy affects interest rates and provide sufficient time practicing graphing
how interest rates affect household and given economic situations and changes.
firm spending, then they are unlikely to Students should understand the importance
demonstrate a strong understanding of of proper labeling, the difference between
the long-run consequences of stabilization movement along the curve versus shifts of
policies undertaken by a central bank. Make the curve, and the distinction between the
connections for students to topics covered short run and the long run.
previously so they can recognize and build
on earlier concepts.

UNIT
5 Long-Run Consequences of Stabilization Policies
UNIT AT A GLANCE
Understanding
Class Periods
Enduring
Fiscal and Monetary Policy

5.1 2.B Using economic concepts, principles, or
Actions in the Short Run models, explain how a specific economic outcome
POL-1
occurs when there are multiple contributing

variables or what multiple actions should be taken
in order to achieve a specific economic outcome.
5.2 The Phillips Curve 4.B Demonstrate your understanding of a specific

MOD-3
economic situation on an accurately labeled graph

or visual.
5.3 Money Growth and Inflation 3.A Determine the outcome of an economic
or models.
POL-3
Government Deficits and

5.4 3.A Determine the outcome of an economic
the National Debt situation using economic concepts, principles,
or models.
5.5 Crowding Out 3.B Determine the effect(s) of one or more changes
on other economic markets.
5.6 Economic Growth 2.A Using economic concepts, principles, or

MEA-2, MOD-1

Public Policy and

5.7 2.A Using economic concepts, principles, or
POL-4
Economic Growth models, explain how a specific economic outcome



UNIT
Long-Run Consequences of Stabilization Policies
5
1 5.2 Activating Prior Knowledge

Introduce the Phillips curve with a review of what they learned about AD–AS analysis
beginning in Unit 3. Have students draw the AD–AS model, then shift AD, and then describe
the resulting change in unemployment and price level. Use students’ responses to draw
the connection between shifts of AD with movement along the short-run Phillips curve.
Similarly, point out the correspondence between shifts in the short-run aggregate supply
(SRAS) curve and shifts of the short-run Phillips curve.
2 5.4 Debate
Have students collect and orally present evidence supporting the affirmative and negative
arguments for whether the United States should adopt a balanced budget amendment.
3 5.7 Fishbowl
Provide students with a series of national policy decisions and have some students form
an inner circle to discuss the expected effect of those policy decisions on economic
growth. The remaining students will form an outer circle to listen, respond, and evaluate.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Interpretation
TOPIC 5.1
2.B
Fiscal and Monetary
when there are multiple
Policy Actions in
contributing variables
or what multiple actions
should be taken in order
the Short Run
to achieve a specific
economic outcome.
AVAILABLE RESOURCES ENDURING UNDERSTANDING

§§ External Resource > POL-1
w Davidson Next AP Fiscal and monetary policy have short-run effects on macroeconomic outcomes.
Macroeconomics
Course—Monetary
Policy
w Davidson Next AP LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
Macroeconomics POL-1.F POL-1.F.1
Course—Fiscal
Explain (using graphs as A combination of expansionary or
Policy
appropriate) the effects contractionary fiscal and monetary policies
of combined fiscal and may be used to restore full employment when
monetary policy actions. the economy is in a negative (i.e., recessionary)
or positive (i.e., inflationary) output gap.
POL-1.F.2
A combination of fiscal and monetary policies
can influence aggregate demand, real
output, the price level, and interest rates. [For
additional details on fiscal and monetary policy
actions and how to demonstrate their effects
graphically, see LO POL-1.A and LO POL-1.D.]

UNIT
5
Graphing and
The Phillips Curve

Visuals
4.B
Demonstrate your
understanding of a specific
economic situation on an
accurately labeled graph
or visual.

Davidson Next
AP Macroeconomics
Course—Phillips Curve
ENDURING UNDERSTANDING §§ Classroom Resources >
MOD-3 w Mastering
The Phillips curve model is used to represent the relationship between inflation Economic Thinking
and unemployment and to illustrate how macroeconomic shocks affect inflation Skills – Focusing on
and unemployment. the Phillips Curve
and Exchange Rates
in Macroeconomics
w Mastering
LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE Economic Thinking
MOD-3.A MOD-3.A.1 Skills – The Short
Run and Long Run
a. Define (using graphs as The short-run trade-off between inflation
Phillips Curves
appropriate) the short- and unemployment can be illustrated
w Well, What Do You
run Phillips curve and the by the downward-sloping short-run
Expect? Inflationary
long-run Phillips curve. Phillips curve (SRPC).
Expectations and
b. Explain (using graphs as MOD-3.A.2 Macroeconomic
appropriate) short-run and An economy is always operating somewhere Variables
long-run equilibrium in the along the SRPC.
Phillips curve model.
MOD-3.A.3
The long-run relationship between inflation and
unemployment can be illustrated by the long-
run Phillips curve (LRPC), which is vertical at the
natural rate of unemployment.
MOD-3.A.4
Long-run equilibrium corresponds to the
intersection of the SRPC and the LRPC.
MOD-3.A.5
Points to the left of long-run equilibrium
represent inflationary gaps, while points to
the right of long-run equilibrium represent
recessionary gaps.

UNIT

MOD-3.B MOD-3.B.1
Explain (using graphs as Demand shocks correspond to movement
appropriate) the response of along the SRPC.
unemployment and inflation MOD-3.B.2
in the short run and in the
Supply shocks correspond to shifts
long run.
of the SRPC.
MOD-3.B.3
Factors that cause the natural rate of
unemployment to change will cause the
Required Course ContentLRPC to shift.

UNIT
5
Manipulation
Money Growth 3.A

and Inflation using economic concepts,

POL-3
There are long-run implications of monetary and fiscal policy.

POL-3.A POL-3.A.1
a. Explain (using graphs Inflation (deflation) results from increasing
as appropriate) (decreasing) the money supply at too rapid of a
how inflation is a rate for a sustained period of time.
monetary phenomenon. POL-3.A.2
b. Define the quantity theory When the economy is at full employment,
of money. changes in the money supply have no effect on
c. Calculate the money real output in the long run.
supply, velocity, the price POL-3.A.3
level, and real output In the long run, the growth rate of the money
using the quantity theory supply determines the growth rate of the price
of money. level (inflation rate) according to the quantity
theory of money.

UNIT
SUGGESTED SKILL
Manipulation
TOPIC 5.4
3.A
Government Deficits
principles, or models. and the National Debt
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
POL-3

POL-3.B POL-3.B.1
a. Define the government The government budget surplus (deficit) is
budget surplus (deficit) the difference between tax revenues and
and national debt. government purchases plus transfer payments
b. Explain the issues involved in a given year.
with the burden of the POL-3.B.2
national debt. A government adds to the national debt when it
runs a budget deficit.
POL-3.B.3
A government must pay interest on its
accumulated debt, thus increasing the
national debt and increasingly forgoing using
those funds for alternative uses. [See also
LO POL-3.C on crowding out.]

UNIT
5
Manipulation
Crowding Out 3.B

one or more changes on
other economic markets.

Davidson Next
AP Macroeconomics
POL-3

POL-3.C POL-3.C.1
a. Define crowding out. When a government is in budget deficit, it
b. Explain (using graphs typically borrows to finance its spending.
as appropriate) how POL-3.C.2
fiscal policy may cause A loanable funds market model can be used
crowding out. to show the effect of government borrowing
on the equilibrium real interest rate and the
resulting crowding out of private investment.
[See MKT-4]
POL-3.C.3
Crowding out refers to the adverse effect of
increased government borrowing, which leads
to decreased levels of interest-sensitive private
sector spending in the short run.
POL-3.C.4
A potential long-run impact of crowding out is a
lower rate of physical capital accumulation and
less economic growth as a result.

UNIT
SUGGESTED SKILL
Interpretation
TOPIC 5.6
2.A
Economic Growth
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Economic ENDURING UNDERSTANDING
Growth MEA-2
The economy fluctuates between periods of expansion and contraction in the short
run, but economic growth can occur in the long run.

MEA-2.B MEA-2.B.1
a. Define measures Economic growth can be measured as the
and determinants of growth rate in real GDP per capita over time.
economic growth. MEA-2.B.2
b. Explain (using graphs Aggregate employment and aggregate output
and data as appropriate) are directly related because firms need to
the determinants of employ more workers in order to produce more
economic growth. output, holding other factors constant. This is
c. Calculate (using graphs captured by the aggregate production function.
and data as appropriate) MEA-2.B.3
per capita GDP and Output per employed worker is a measure of
economic growth. average labor productivity.
MEA-2.B.4
Productivity is determined by the level
of technology and physical and human
capital per worker.
MEA-2.B.5
The aggregate production function shows that
output per capita is positively related to both
physical and human capital per capita.

UNIT
5
MOD-1

MOD-1.C MOD-1.C.1
Explain (using graphs An outward shift in the PPC is analogous to
as appropriate) how the a rightward shift of the long-run aggregate
PPC is related to the supply curve. [See LO MOD-2.I]
long-run aggregate supply
(LRAS) curve.

UNIT
SUGGESTED SKILL
Interpretation
TOPIC 5.7
2.A
Public Policy and
Economic Growth
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Economic ENDURING UNDERSTANDING
Growth
POL-4
Authorities and organizations institute policies that affect economic growth.

POL-4.A [For a description of economic growth and
a. Explain (using graphs information about how to show it graphically,
as appropriate) public see LO MEA-2.B, LO MOD-1.B, and LO MOD-2.I]
policies aimed at POL-4.A.1
influencing long-run Public policies that impact productivity and
economic growth. labor force participation affect real GDP per
b. Define supply-side capita and economic growth.
fiscal policies. POL-4.A.2
Government policies that invest in
infrastructure and technology affect growth.
POL-4.A.3
Supply-side fiscal policies affect aggregate
demand, aggregate supply, and potential
output in the short run and long run by
influencing incentives that affect household
and business economic behavior.

AP MACROECONOMICS
UNIT 6
Open
Economy—
International
Trade and
Finance
10–13%
AP EXAM WEIGHTING
~5–7
CLASS PERIODS

this unit.

§§ Long

UNIT
Open Economy—
International Trade
and Finance
BIG IDEA 1 Unit 6 introduces students to the concept of an open economy in which a country interacts
Economic with the rest of the world through both product and financial markets. This unit is often
Measurements MEA challenging for students because economic activity between nations must be facilitated
§§ Why does the balance of by currency exchange, which introduces another market to be considered when analyzing
payments balance? macroeconomic situations.
Changes in economic activity affect the supply of and demand for a nation’s currency and
BIG IDEA 2 subsequently the value of that currency. But it is also true that changes in the value of a
Markets MKT
country’s currency can affect economic activity in that country. In addition to these insights,
§§ Why does the price
students have the opportunity in this unit to consider the effects of economic policy on
of one nation’s
exchange rates and the implications of such changes.
currency relative
to another nation’s
currency change? Building Course Skills Preparing for the AP Exam
§§ How do changes in the 1.A 1.C 3.A 3.B 4.A 4.C When taking the AP Exam, students
value of a country’s commonly struggle to properly represent
In this unit, students will be asked to not
currency affect that the foreign exchange market graphically and
only demonstrate a robust understanding
country’s economy? predict and explain the effects of changes
of economic principles but also show that
they know how to interpret and manipulate in this market. It often helps to approach the
economic models in the context of an open teaching of the foreign exchange market as
economy. They need to synthesize the another application of the basic supply and
concepts they have learned throughout demand model—when one nation demands
the course to explain changes in net another’s currency, the other nation must
exports, financial capital flows, and policy be willing to supply its own currency to
actions in the foreign exchange market, trade, and this interaction determines the
and demonstrate this understanding via equilibrium price, or exchange rate. Be sure
graphical representations. to spend sufficient time in class modeling
how to graph the foreign exchange market
Students often struggle to make the with appropriately labeled curves and axes
necessary connections between concepts so students don’t needlessly lose points
in this unit, so provide them with guided on the exam. When labeling the vertical
opportunities to practice describing chains axis, emphasize that the exchange rate
of cause and effect verbally and graphically. is expressed in terms of one unit of the
It is important that students take care to domestic currency.
include each step along the way and describe
it in enough detail to clarify the reason for
the subsequent change. This will help ensure
that they actually understand and can explain
the connection between macroeconomic
variables and the international movement of
goods, services, and financial capital.
UNIT
6 Open Economy—International Trade and Finance
UNIT AT A GLANCE
Understanding
Class Periods
Enduring

MEA-4
6.1 Balance of Payments Accounts 1.A Describe economic concepts, principles,

or models.
6.2 Exchange Rates 1.C Identify an economic concept, principle,

or model using quantitative data or calculations.
6.3 The Foreign Exchange Market 4.A Draw an accurately labeled graph or visual
to represent an economic model or market.
6.4
Effect of Changes in Policies 4.C Demonstrate the effect of a change in an
MKT-5
and Economic Conditions on economic situation on an accurately labeled graph

the Foreign Exchange Market or visual.
6.5
Changes in the Foreign Exchange 3.A Determine the outcome of an economic
Market and Net Exports situation using economic concepts, principles,
or models.
6.6
Real Interest Rates and 3.B Determine the effect(s) of one or more changes
International Capital Flows on other economic markets.


UNIT
Open Economy—International Trade and Finance
6
1 6.3, 6.4 Simulation and Debriefing

Carry out a classroom simulation to demonstrate how the value of a currency in the foreign
exchange market is established and how economic conditions influence the value of the
currency. Distribute pretend foreign currency to students and explain that they will need
to exchange their money for domestic currency in order to purchase a domestic good
(e.g., a candy bar). Carry out an auction for the domestic currency while recording the data.
Then change the scenario (e.g., distribute more money as a result of improved employment
conditions). Debrief the experience with students to ensure that connections are made to
the concepts being studied.
2 6.4 Think-Pair-Share
Use the problem set on teaching foreign exchange in the Mastering Economic Thinking
Skills module. The problem set provides eight scenarios (p. 42) that will result in an
appreciation or depreciation of the value of a currency. Pair students and provide each pair
with one of the eight scenarios. Allow time for students to first individually draw graphs
indicating the effects of the situation on the foreign exchange market, using both the dollar
and the euro market. Then they should clearly indicate the effect on the exchange rate.
Have students share their responses with their partners. Once they come to a consensus,
have a representative from each of the eight scenarios go to the board to graph and
explain the effects to the class.
3 6.5 Activating Prior Knowledge

After drawing correctly labeled graphs of a given currency and manipulating exchange
rates based on a change in market conditions, challenge students to determine a
subsequent change in net exports based on the exchange rate change shown on
their graph. Students will connect this to a change in aggregate demand (which they
were first introduced to in Unit 3), ultimately resulting in a change in output, price level,
and unemployment.
Unit Planning Notes


UNIT
SUGGESTED SKILL
Principles and
TOPIC 6.1
Balance of
Models
1.A
Describe economic
or models. Payments Accounts
AVAILABLE RESOURCE
Davidson Next
AP Macroeconomics
Course—Foreign
Exchange Markets ENDURING UNDERSTANDING
§§ Classroom Resources > MEA-4
Balance of Payments
Foreign trade accounting measures the flow of goods, services, and financial capital
between countries.

MEA-4.A MEA-4.A.1
a. Define the current The current account (CA) records net exports, net
account (CA), the capital income from abroad, and net unilateral transfers.
and financial account MEA-4.A.2
(CFA), and the balance of The CA is not always balanced; it may show a
payments (BOP). surplus or a deficit. A nation’s balance of trade
b. Explain how changes (i.e., net exports) is part of the current account
in the components of and may also show a surplus or a deficit.
the CA and CFA affect a
MEA-4.A.3
country’s BOP.
The capital and financial account (CFA) records
c. Calculate the CA, the CFA, financial capital transfers and purchases and
and the BOP. sales of assets between countries.
MEA-4.A.4
The CFA is not always balanced; it may show
a surplus (financial capital inflow) or a deficit
(financial capital outflow).
MEA-4.A.5
The balance of payments (BOP) is an
accounting system that records a country’s
international transactions for a particular time
period. It consists of the CA and the CFA.
MEA-4.A.6
Any transaction that causes money to flow into
a country is a credit to its BOP account, and
any transaction that causes money to flow out
is a debit. The sum of all credit entries should
match the sum of all debit entries (CA+CFA=0).

UNIT
6
Principles and
Exchange Rates
Models
1.C
concept, principle, or
model using quantitative

Davidson Next
AP Macroeconomics
Course—Foreign
ENDURING UNDERSTANDING Exchange Markets
Mastering Economic
The interaction of buyers and sellers exchanging the currency of one country for
Thinking Skills –
the currency of another determines the equilibrium exchange rate in a flexible Focusing on the
exchange market and influences the flow of goods, services, and financial capital Phillips Curve and
between countries. Exchange Rates in
Macroeconomics
and Teaching About
Foreign Exchange
MKT-5.A MKT-5.A.1
a. Define the exchange rate, In the foreign exchange market, one currency
currency appreciation, and is exchanged for another; the price of
currency depreciation. one currency in terms of the other is the
b. Explain how currencies exchange rate.
are valued relative to MKT-5.A.2
one another. If one currency becomes more valuable in
c. Calculate the value of terms of the other, it is said to appreciate. If one
one currency relative currency becomes less valuable in terms of the
to another. other, it is said to depreciate.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 6.3
The Foreign
Visuals
4.A
an economic model
or market.
Exchange Market
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Foreign
w Markets – Foreign The interaction of buyers and sellers exchanging the currency of one country for
Exchange Markets the currency of another determines the equilibrium exchange rate in a flexible
w Mastering exchange market and influences the flow of goods, services, and financial capital
Economic Thinking between countries.
Skills – Focusing on
the Phillips Curve
and Exchange Rates
in Macroeconomics LEARNING OBJECTIVE ESSENTIAL KNOWLEDGE
and Teaching About MKT-5.B MKT-5.B.1
Foreign Exchange
a. Define the foreign The demand for a currency in a foreign
exchange market, exchange market arises from the demand for
demand for currency, and the country’s goods, services, and financial
supply of currency. assets and shows the inverse relationship
b. Explain (using graphs between the exchange rate and the quantity
demanded of a currency.
as appropriate) the
relationship between MKT-5.B.2
the exchange rate and The supply of a currency in a foreign exchange
the quantity of currency market arises from making payments in other
demanded (supplied). currencies and shows the positive relationship
between the exchange rate and the quantity
supplied of a currency.
MKT-5.C MKT-5.C.1
Define (using graphs as In the foreign exchange market, equilibrium is
appropriate) the equilibrium achieved when the exchange rate is such that
exchange rate. the quantities demanded and supplied of the
currency are equal.

UNIT
6
MKT-5.D MKT-5.D.1
Explain (using graphs as Disequilibrium exchange rates create surpluses
appropriate) how exchange and shortages in the foreign exchange
rates adjust to restore market. Market forces drive exchange rates
equilibrium in the foreign toward equilibrium.
exchange market.

UNIT
SUGGESTED SKILL
Graphing and
TOPIC 6.4
Effect of Changes in
Visuals
4.C
Policies and Economic
Conditions on the
AVAILABLE RESOURCES
Foreign Exchange Market
Davidson Next
AP Macroeconomics
Course—Foreign
Exchange Markets
w Markets – Foreign
Exchange Markets
w Mastering MKT-5
Economic Thinking The interaction of buyers and sellers exchanging the currency of one country for
Skills – Focusing on the currency of another determines the equilibrium exchange rate in a flexible
the Phillips Curve exchange market and influences the flow of goods, services, and financial capital
and Exchange Rates between countries.
in Macroeconomics
and Teaching About
Foreign Exchange
MKT-5.E MKT-5.E.1
a. Explain (using graphs Factors that shift the demand for a currency
as appropriate) the (such as the demand for that country’s goods,
determinants of currency services, or assets) and the supply of a
demand and supply. currency (such as tariffs or quotas on the other
b. Explain (using graphs as country’s goods and services) change the
equilibrium exchange rate.
appropriate) how changes
in demand and supply MKT-5.E.2
in the foreign exchange Fiscal policy can influence aggregate demand,
market affect the real output, the price level, and exchange rates.
equilibrium exchange rate. MKT-5.E.3
Monetary policy can influence aggregate
demand, real output, the price level,
and interest rates, and thereby affect
exchange rates.

UNIT
6
Manipulation
Changes in the 3.A

Foreign Exchange using economic concepts,

Market and Net Exports

Davidson Next
AP Macroeconomics
Course—Foreign
ENDURING UNDERSTANDING Exchange Markets
Mastering Economic
Thinking Skills –
the currency of another determines the equilibrium exchange rate in a flexible Focusing on the
exchange market and influences the flow of goods, services, and financial capital Phillips Curve and
between countries. Exchange Rates in
Macroeconomics
and Teaching About
Foreign Exchange
MKT-5.F MKT-5.F.1
Explain (using graphs as Factors that cause a currency to appreciate
appropriate) how changes cause that country’s exports to decrease and
in the value of a currency its imports to increase. As a result, net exports
can lead to changes in a will decrease.
country’s net exports and MKT-5.F.2
aggregate demand.
Factors that cause a currency to depreciate
cause that country’s exports to increase
and its imports to decrease. As a result, net
exports will increase. [See EK MOD-2.A.3
and EK MOD-2.H.1 for explanations of the
effect of changes in net exports on aggregate
demand and the resulting effects on output,
employment, and the price level.]

UNIT
SUGGESTED SKILL
Manipulation
TOPIC 6.6
3.B
one or more changes on
Real Interest Rates
other economic markets.
and International
Capital Flows
AVAILABLE RESOURCES
Davidson Next
AP Macroeconomics
Course—Foreign
Mastering Economic
Thinking Skills –
Focusing on the
the currency of another determines the equilibrium exchange rate in a flexible
Phillips Curve and exchange market and influences the flow of goods, services, and financial capital
Exchange Rates in between countries.
Macroeconomics
and Teaching About
Foreign Exchange
MKT-5.G MKT-5.G.1
Explain (using graphs as In an open economy, differences in real
appropriate) how differences interest rates across countries change the
in real interest rates across relative values of domestic and foreign
countries affect financial assets. Financial capital will flow toward the
capital flows, foreign country with the relatively higher interest
exchange markets, and rate. [See EK MKT-4.E.2 and EK MEA-4.A.6 for
loanable funds markets. explanations of the impact on the loanable
funds market and on net exports.]
MKT-5.G.2
Central banks can influence the domestic
interest rate in the short run, which in turn will
affect net capital inflows.

AP MACROECONOMICS
Instructional
Approaches
Selecting and Using
Course Materials
Although a college-level textbook will cover the

Quantitative Sources
required course content, students should also examine
alternative source material in different and varied forms College-level economics courses require students to
to develop the habits of thinking like an economist. engage with data in a variety of ways. New textbooks
and publishers’ resources often contain quantitative
information presented via charts, graphs, or other
Textbooks infographics, but the data within them may quickly
The AP Macroeconomics course requires the become out of date. The Federal Reserve Bank of
use of a college-level textbook. It is unlikely that a St. Louis’s FRED Economic Data is a good resource for
high-school-level textbook will cover the content and current data to practice quantitative skills with students,
skills of the course in the depth necessary to succeed as are government agencies such as the Bureau of
on the AP Exam. It is important to select a textbook that Labor Statistics (BLS) and the Bureau of Economic
covers the content of the AP Macroeconomics course Analysis (BEA).
as detailed in the course framework. Additionally, a
textbook that emphasizes skill development will be
Secondary Sources
helpful in providing students with opportunities to
practice graphing, solving numerical problems, and Supplementing the textbook with editorials, journal
explaining economic situations. articles, news articles, and essays and books by
economists can help bring course concepts to life and
An example textbook list of college-level textbooks encourage students to think critically. Using a variety
that meet the AP Course Audit resource requirements is of sources that represent different points of view will
provided on AP Central. engage students while enhancing learning.
AP Macroeconomics Course and Exam Description Instructional Approaches V.1 | 115

Teaching the
AP Economics Courses
The AP Macroeconomics course framework presents AP Microeconomics course framework for the
content in six units to be taught in a single semester. first two units will ensure coverage of topics that
If a teacher is offering both AP Macroeconomics and are included in the AP Microeconomics course
AP Microeconomics with the same students over (e.g., consumer choice theory, elasticity, etc.) but
the course of two semesters and does not want to not the AP Macroeconomics course. From there,
repeat the introductory material that is covered in they can proceed to AP Macroeconomics Unit 2 or
both courses, they can use the AP Microeconomics AP Microeconomics Unit 3, depending on which
course framework for Units 1 and 2. Following the course they choose to teach first.
Course Framework Progression if Teaching...

AP Macroeconomics First AP Microeconomics First
AP Microeconomics Unit 1 AP Microeconomics Unit 1
AP Microeconomics Unit 2 AP Microeconomics Unit 2
AP Macroeconomics Unit 2 AP Microeconomics Unit 3
AP Macroeconomics Unit 6 AP Macroeconomics Unit 2
AP Microeconomics Unit 3 AP Macroeconomics Unit 3

Instructional Strategies
The AP Macroeconomics course framework outlines the concepts and skills

students need to master to be successful on the AP Exam. In order to address
those concepts and skills effectively, it helps to incorporate a variety of instructional
approaches into daily lessons and activities. The following table presents strategies
that can help students apply their understanding of course concepts.
Strategy Definition Purpose Example
Activating Prior Students recall what To prepare students When the topic of economic
Knowledge they already know about to establish content growth comes up in a later
a concept and make connections. part of the course, ask
connections to current students to recall what
studies. they already learned about
economic growth in the first
unit in the context of learning
about the production
possibilities curve (PPC).
Ask the Expert Students are assigned as To provide opportunities To work through the costs
“experts” on topics they for students to share their that unexpected inflation
have mastered. Groups knowledge and learn from and deflation impose on
rotate through the expert one another. individuals, assign students
stations to learn about to represent a specific
topics they have not yet segment of the population
mastered. (e.g., lenders, borrowers,
individuals living on fixed
incomes, etc.), each of which
serves as a station. Have
students rotate through
the stations as each expert
explains how unexpected
inflation or deflation affects
the segment that he or she is
representing.
Debate Students engage in To provide students Have students debate

an informal or a formal with an opportunity to whether or not the
argumentation of an issue. collect and orally present United States should
The goal is to debate ideas evidence supporting adopt a balanced budget
without attacking the the affirmative and amendment.
people who defend those negative arguments of a
ideas. proposition or an issue.

Discussion Students engage in an To gain new understanding Assign students to

Groups interactive, small-group or insight on a topic or mixed-ability groups to
discussion to consider a question from multiple discuss the limitations
topic or question. perspectives. of GDP.
Fishbowl Students discuss specific To provide students with Have students discuss fiscal
topics within groups. an opportunity to engage and/or monetary policy
Some students form the in a formal discussion and actions that address a
inner circle and model to experience roles both specific economic situation
appropriate discussion as participant and active (e.g., stagflation, a recession).
techniques, while an outer listener.
circle of students listens,
responds, and evaluates.
Graph and Students generate a graph To allow students to Provide students with a
Switch and then switch papers practice creating different given scenario (e.g., a given
or whiteboards to review representations and unemployment rate, a natural
each other’s work. both give and receive rate of unemployment,
immediate feedback. and an inflation rate) and
ask students to draw a
correctly labeled graph of
the short-run and long-run
Phillips curves. Have
students switch papers
and provide feedback on
each other’s work. Then
change the situation
(e.g., an increase in expected
inflation) and repeat
the exercise.
Group Students work with To provide students Create small groups of

Presentation their peers to prepare with an opportunity to students and assign each
a presentation on a work with one another to to a country (such as the
given topic and then synthesize information United States or Japan) or a
disseminate information to for the purpose of region (such as the European
their classmates. disseminating it to Union or Asia-Pacific
their peers. Economic Cooperation)
and ask them to prepare
and deliver a presentation
on how their country or
region was affected by the
Great Recession and what
monetary and/or fiscal policy
actions were undertaken.
Have students include
graphs in their presentation
to describe the economic
situation of their subject
during the recession and the
market impact of the fiscal
and monetary policies.

Model Questions Students answer To provide rigorous After teaching students

questions from released practice and assess about banking and the
AP Exams. students’ ability to expansion of the money
respond to AP-level supply, provide an
multiple-choice and opportunity for students
free-response questions. to practice answering a
previous free-response
question on the topic.
Numbered Heads Each student is assigned To provide students with Use this strategy to work
Together a number. Members of an opportunity to learn through a few problems
a group work together from one another and that involve calculating and
to agree on an answer work together to reach a using multipliers.
to a question you pose. solution.
Randomly select one
number. The student with
that number answers for
the group.
Practice Model techniques for To learn from the teacher’s When introducing a new
Modeling the class. Students then example and then graph in the course, model
practice using those have opportunities for it for students first by
techniques and gain guided practice. drawing it on the board,
feedback from their peers. explaining what you are
doing and why. Then provide
an opportunity for students
to practice generating the
graph with appropriate labels
themselves. Allow students
to provide feedback to one
another and circle the room
to check for understanding.
QHT Students expand their To allow students to build When introducing financial
prior knowledge of on their prior knowledge assets, provide students with
vocabulary words by of words and to provide a a list of critical vocabulary
marking words with a Q, an forum for peer teaching (e.g., stock, bond, interest
H, or a T (Q signals words and learning of new words. rate, loan). Have students
students have a question mark the list with a Q for
about; H signals words words they have a question
students have heard and about, an H for words they
might be able to identify; have heard and might be
T signals words students able to identify, and a T for
know well enough to teach words they know well enough
to their peers). to teach to their peers.
Discuss their markings as a
class and have students who
marked any words with a T
describe the terms to their
classmates.

Real-World Teacher and students To create relevance Ask students to explain the
Examples relate personal stories, and personal meaning trade-offs they face in their
examples, or anecdotes to of economic terms lives when choosing how
illustrate key content. and models, which can to allocate the limited time
otherwise be very abstract they have before school.
for students. Connect the conversation to
the concepts of scarcity and
opportunity cost.
Simplify the Students use simpler To provide insight into the When introducing the idea
Problem numbers or examples to strategies needed to solve of real versus nominal
help solve a problem. the problem. measures, provide students
with a tangible example to
which they can relate. One
popular example involves
looking at the highest
grossing movies. Students
can practice using the GDP
deflator for those years to
find which movie made the
most money in real terms.
Simulation and Students assume the role To help students better Carry out a classroom
Debriefing of characters or economic grasp a concept by auction for an item of value in
agents in a simulation participating in short, order to introduce students
or case study. Students memorable experiences. to the concept of demand.
then discuss and reflect Debrief as a class to reflect
on the activity to clarify on the purpose and meaning
its purpose. of the activity.
Socratic This is a focused To help students arrive Have students participate in

Seminar discussion in which at a new understanding a Socratic seminar in order
students engage with by asking questions to explain GDP and how it
open-ended questions that clarify; challenge is measured.
tied to a specific topic assumptions; question
or text. The discussion facts, reasons,
continues with student and evidence; or
responses and, when examine implications
needed, additional open- and outcomes.
ended questions that
allow students to express
their ideas and engage in
complex thinking.

Systematic Instruction that involves To provide students Demonstrate a specific

and Explicit a teacher demonstrating with procedures and plan for solving problems
Instruction a specific plan for solving questions to ask when that ask students to
problem types and solving problems. determine appropriate
students using this plan terms of trade between two
to think their way through parties. Systematically walk
a solution. through an example that
involves first calculating
the opportunity cost of
producing each good or
service and then evaluating
that data to determine
the range of values at
which specialization and
trade according to their
comparative advantages
would be beneficial to each
party.
Think-Pair-Share Students think through a To construct meaning Provide students with a

problem alone, pair with about a topic or question worksheet that has a series
a partner to share ideas, by first developing ideas of scenarios, some of which
and then share results with individually that are then represent a change in supply
the class. tested and revised with a or demand and some of
partner and the class. which represent movement
along a demand or supply
curve. Have students
complete the worksheet on
their own and then pair with
a partner to explain whether
the situation represents a
change in demand/supply or
movement along a demand/
supply curve. Have students
share with the entire class.
Vocabulary Using a designated format To facilitate and sustain Scarcity is the first topic of
Notebook such as a notebook, a systematic process of the course, and students will
journal or personal list vocabulary development. immediately be introduced
to maintain an ongoing to important economic
list of vocabulary terms that will come up
words, definitions, throughout the course. Have
and connection to students start a vocabulary
academic study. notebook with definitions
of key terms (e.g., scarcity,
economics, land, labor,
capital) and continue to add
to their notebook with each
new topic.

Developing Course Skills
Throughout the course, students will develop skills “4.A: Draw an accurately labeled graph or visual to
that are fundamental to the discipline of economics. represent an economic model or market.” When
Students will benefit from multiple opportunities to approaching the topic of demand, students will need
develop these skills in a scaffolded manner since they to be able to draw a demand curve (Skill Category 4).
represent the complex skills that adept economists However, within that given topic, students will also
demonstrate. need to do things like describe the law of demand (Skill
Category 1), explain what might have caused a shift
The AP Macroeconomics course framework provides
in the demand curve (Skill Category 2), and predict
a suggested skill for each course topic. However, the
and explain the result of a change in a determinant of
suggested skill provided should not be the only one
demand (Skill Category 3).
used to teach any given topic. One skill is provided as
a starting point for thinking about how to approach The tables on the pages that follow look at each skill
teaching that topic, but it is important in the discipline category and provide examples of questions for each
of economics for students to be able to use all the skill, along with sample activities and strategies for
skills. For example, “Topic 1.4: Demand” suggests skill incorporating that skill into the course.

Skill Category 1: Principles and Models—
Define economic principles and models
Economics is grounded in a study of principles and models. Students must first be
able to define economic concepts, principles, and models in order to apply them in
context throughout the course.
Skill Category 1: Principles and Models
Sample Instructional
Skill Key Questions Sample Activities Strategies
1.A: Describe §§ What are the key Have students take §§ Simulation and
economic concepts, assumptions behind part in a simulation Debriefing
an economic that demonstrates the
principles, or models. §§ Practice Modeling
concept, principle, relationships between
households and businesses
or model?
in order to describe the
§§ What are the circular flow model.
characteristics
and traits of this
economic concept,
principle, or model?
1.B: Identify an §§ What economic Provide students with §§ Think-Pair-Share

economic concept, concept, principle, index cards describing the §§ Vocabulary Notebook
or model is employment situation of
principle, or model
illustrated by this different workers and have
illustrated by an them identify the type of
example?
example. unemployment that each
situation represents.
1.C: Identify an §§ What economic Work through example §§ Model Questions

economic concept, concept, principle, problems that ask students §§ Simplify the Problem
or model does this to identify who has an
principle, or model
quantitative data absolute advantage from
using quantitative given tables of data.
represent?
1.D: Describe §§ What do these Have a discussion about §§ Discussion Groups

the similarities, economic concepts, the limitations of economic §§ Fishbowl
principles, or indicators.
differences, and
limitations of models have in
common?
economic concepts,
principles, or models. §§ In what ways do
these economic
or models differ?
§§ What are the
limitations of these
economic concepts,
principles, or
models?

Skill Category 2: Interpretation—
Explain given economic outcomes
Economists use their understanding of economic concepts, principles, and
models to interpret economic situations. Students should be able to do the same
in this course, inferring the cause of a given economic outcome by applying their
understanding of course concepts.
Skill Category 2: Interpretation
2.A: Using economic §§ What contributed to After teaching students §§ Think-Pair-Share

concepts, principles, this outcome? about the determinants §§ Discussion Groups
of supply and demand,
or models, explain §§ What action should
challenge students to come
how a specific be taken to achieve
up with examples of changes
economic outcome this outcome? within a given market
occurs or what action that could explain given
should be taken in outcomes. Have students
order to achieve a first come up with examples
themselves, pair with a
specific economic partner to share their ideas,
outcome. and then share with the class.
2.B: Using economic §§ What combination Assign students who have §§ Ask the Expert
concepts, principles, or of changes mastered an understanding §§ Model Questions
contributed to this of fiscal and monetary
models, explain how
outcome? policy to a desired
a specific economic economic outcome, each of
outcome occurs when §§ What actions should which serves as a station.
there are multiple be taken to achieve Have students rotate
contributing variables this outcome? through the stations to
or what multiple learn from the expert policy
advisors what fiscal and
actions should be monetary policy actions
taken in order to would be appropriate to
achieve a specific take in order to achieve
economic outcome. each economic outcome.
2.C: Interpret a §§ What quantitative Provide students with a §§ Systematic and Explicit
specific economic change will result in desired quantitative outcome Instruction
outcome using this outcome? (e.g., that policymakers
§§ Numbered Heads
quantitative data or want to increase aggregate
§§ What can you infer Together
demand by $100 billion) and
calculations. from this given the necessary data (e.g.,
quantitative data? the economy’s marginal
propensity to consume)
to calculate the change in
spending that policymakers
should target to achieve
their desired outcome. First
demonstrate how to solve
the problem and then give
students an opportunity to
solve similar problems.

Skill Category 3: Manipulation—Determine outcomes
of specific economic situations
Economists are frequently asked to predict and explain what will happen as the result
of policy actions or changes in economic situations. You can help students learn how
to determine hypothetical outcomes through an application of the economic concepts,
principles, and models covered in the course.
Skill Category 3: Manipulation
3.A: Determine §§ What will happen in Use a kinesthetic approach §§ Think-Pair-Share

the outcome of an this situation? to demonstrate the outcome §§ Numbered Heads
of a given economic
economic situation §§ What will be the Together
situation. For example,
using economic effect of this change
when learning about the
concepts, principles, or policy action? determinants of aggregate
or models. demand and short-run
aggregate supply, you can
set up labels around the
room representing potential
outcomes (e.g., increase in
AD, decrease in AD, increase
in SRAS, decrease in SRAS,
no change in AD or SRAS).
Provide students with an
economic situation and
ask them to walk to the
appropriate place in the
classroom representing the
expected outcome.
3.B: Determine the §§ How will this change Model in class how to explain §§ Practice Modeling
effect(s) of one or affect this other the steps in a chain of events. §§ Model Questions
market? Stress that when asked to
more changes on
determine knock-on effects
other economic in other markets (e.g., when
markets. asked something like how
a monetary policy action
will affect that country’s
exchange rate), students
should take care to include
each step along the way and
explain it in enough detail
to clarify the reason for the
subsequent change. Provide
opportunities for students
to practice with a past exam
question.
3.C: Determine the §§ What is the Participate in “The Case of §§ Simulation and
effect(s) of a change in quantitative effect the Gigantic $100,000 Bill” Debriefing
of this change or as a demonstration of the
an economic situation §§ Systematic and Explicit
policy action? money creation process.
using quantitative Instruction
data or calculations. §§ Model Questions

Skill Category 4: Graphing and Visuals—Model economic
situations using graphs or visual representations
Graphs are important tools that economists use to represent economic situations
and help predict and explain economic outcomes. Throughout the course, students
should have ample practice using graphs to represent economic models and
markets. They should learn that even when a graph is not asked for, drawing one
can be an effective strategy for answering questions and reasoning through
economic scenarios.
Skill Category 4: Graphing and Visuals
4.A: Draw an §§ How do you Model how to draw §§ Practice Modeling

accurately labeled graphically an accurately labeled §§ Graph and Switch
represent this AD–AS graph showing
graph or visual §§ Model Questions
economic model or aggregate demand,
to represent an short-run aggregate supply,
market?
economic model equilibrium output, and
or market. equilibrium price level.
4.B: Demonstrate §§ How do you Tell students that the §§ Practice Modeling
your understanding represent this economy is operating below §§ Graph and Switch
specific economic full employment and ask
of a specific economic §§ Model Questions
situation on your them to demonstrate this
situation on an situation on an AD–AS graph
graph?
accurately labeled with a properly labeled
graph or visual. long-run aggregate supply
curve. Have students then
switch papers and provide
feedback on each other’s
graphs.
4.C: Demonstrate the §§ How do you Work together on a past §§ Practice Modeling
effect of a change in represent the effect free-response question that §§ Graph and Switch
of this change on asks students to show the
an economic situation §§ Model Questions
your graph? effect of a policy action on
on an accurately an AD–AS graph.
labeled graph
or visual.

AP MACROECONOMICS
Exam
Information
Exam Overview
The AP Macroeconomics Exam assesses student understanding of the

skills and learning objectives outlined in the course framework. The exam is
2 hours and 10 minutes long and includes 60 multiple-choice questions and
3 free-response questions. The details of the exam, including exam weighting
and timing, can be found below:
Number of Exam
Section Question Type Questions Weighting Timing
I Multiple-choice questions 60 66.65% 70 minutes
II Free-response questions 3 33.35% 60 minutes

(includes a 10-minute
reading period)
Question 1: Long (10 points)
Question 2: Short (5 points)
Question 3: Short (5 points)
The exam assesses content from the four big ideas for the course:
Big Idea 1: Economic Measurements
Big Idea 2: Markets
Big Idea 3: Macroeconomic Models
Big Idea 4: Macroeconomic Policies
AP Macroeconomics Course and Exam Description Exam Information V.1 | 129

The exam also assesses the six units of the course with the following exam
weighting on the multiple-choice section:
Units Exam Weighting
Unit 1: Basic Economic Concepts 5–10%
Unit 2: Economic Indicators and the Business Cycle 12–17%
Unit 3: National Income and Price Determination 17–27%
Unit 4: Financial Sector 18–23%
Unit 5: Long-Run Consequences of Stabilization Policies 20–30%
Unit 6: Open Economy–International Trade and Finance 10–13%

How Student Learning Is
Assessed on the AP Exam
The AP Economics skills are assessed on the AP Exam as detailed below.
Section I: Multiple-Choice
Skill
Categories Multiple-Choice Questions
1: Principles and 30–40% of the multiple-choice questions assess

students’ ability to define economic principles
Models
and models.
Students will need to describe and compare economic

concepts, principles, and models. Additionally, Numerical Analysis
students will need to identify economic concepts,
principles, or models illustrated by an example. Skill Categories 1, 2, and 3
all include skills that require
2: Interpretation 25–32% of the multiple-choice questions assess analyzing numbers or performing
students’ ability to explain given economic outcomes. calculations to identify economic
concepts, principles, or models
Students will need to explain how a specific economic (Skill 1.C), to interpret outcomes
outcome occurs, given one or more contributing (Skill 2.C), and to determine the
variables, or what action(s) should be taken in order to effects of changes (Skill 3.C).
16–20% of total multiple-choice
30–40% of the multiple-choice questions assess questions will include analyzing
3: Manipulation
students’ ability to determine outcomes of specific numbers or performing
economic situations. calculations.
Students will need to use economic concepts,

principles, or models to determine the outcome of an
economic situation or determine the effects of one or
more changes on other economic markets.
4: Graphing and Skill Category 4 is not assessed in multiple-choice

questions since it requires students to draw a graph
Visuals
or visual representation, which can only be assessed
on the free-response section of the exam. However,
students will be expected to answer multiple-choice
questions in which a graph or visual representation
is provided.

Section II: Free-Response
All four skill categories will be assessed in the three Create graphs or visual representations: This task
free-response questions, through four distinct types assesses Skill Category 4 (Graphing and Visuals)
of tasks: and accounts for 30–50% of total points in the
free-response section. This task requires students to
Make assertions about economic concepts,
do the following:
principles, models, outcomes, and/or effects:
This task assesses skills in categories 1, 2, and §§ Draw an accurately labeled graph or visual to
3 and accounts for 10–20% of total points in the represent an economic model or market (Skill 4.A)
free-response section. §§ Demonstrate understanding of a specific economic
Explain economic concepts, principles, models, situation on the accurately labeled graph or visual
outcomes and/or effects: This task assesses skills in (Skill 4.B)
categories 1, 2, and 3 and accounts for 25–35% of total §§ Demonstrate the effect of a change in an economic
points in the free-response section. situation on an accurately labeled graph or visual
(Skill 4.C)
Perform numerical analysis: This task assesses
student ability to make assertions that require
numerical analysis or to perform calculations. This task
assesses skills in categories 1, 2, or 3 and accounts for
10–25% of total points in the free-response section.

Task Verbs Used in
Free-Response
Questions
The following task verbs are commonly used in the free-response questions.
Identify. What? Which? Will? and other interrogatory words: Identify or

provide information about a specified topic, without elaboration or explanation.
Explain: Provide information about how or why a relationship, pattern, position,

situation, or outcome occurs, using evidence and/or reasoning. Graphs and
symbols are acceptable as part of the explanation.
Calculate: Perform mathematical steps to arrive at a final answer. Showing

work is required.
Draw a correctly labeled: Create a graph or visual representation that

illustrates or explains relationships or phenomena. Labels are required.
Show/Label/Plot/Indicate: Show, label, plot, or indicate an economic scenario

on a graph or visual representation created by the student. Clearly labeling all
axes and curves and showing directional changes where relevant is required.

Sample Exam
Questions
The sample exam questions that follow illustrate the relationship between the course
framework and the AP Macroeconomics Exam and serve as examples of the types of
questions that appear on the exam. After the sample questions are tables that show
which skill, learning objective(s), and unit each question relates to. The answers to the
multiple-choice questions are also provided.
Section I: Multiple-Choice
The following are examples of the kinds of multiple-choice questions found on the exam.
12
Gymnasiums
10
8
6
4
2
0
0 5 10 15 20 25 30
Parks
1. The graph above shows the production possibilities curve for a small township
that is deciding to build parks and gymnasiums. Which of the following
combinations of parks and gymnasiums is unattainable given the township’s
available resources?
(A) 5 parks and 6 gymnasiums
(B) 5 parks and 8 gymnasiums
(C) 10 parks and 6 gymnasiums
(D) 15 parks and 4 gymnasiums
(E) 20 parks and 4 gymnasiums
2. Which of the following changes would result in an indeterminate change in the

equilibrium price in a perfectly competitive market?
(A) An increase in demand and a decrease in supply
(B) An increase in demand and an increase in supply
(C) A decrease in demand and an increase in supply
(D) A decrease in demand with no change in supply
(E) A decrease in supply with no change in demand

3. Which of the following is accounted for in the calculation of a country’s gross
domestic product?
(A) Sales of stocks and bonds
(B) Changes in inventories
(C) Changes in product quality
(D) The underground economy
(E) Nonmarket activities
4. The population of Country X is 250,000, and the labor force is 200,000 people.
If 175,000 people are employed, what is the unemployment rate?
(A) 10%
(B) 12.5%
(C) 20%
(D) 80%
(E) 87.5%
5. Which of the following will happen if the government raises both taxes and
spending by $100 million and the marginal propensity to consume is 0.8?
(A) Real GDP will decrease by a maximum of $500.
(B) Real GDP will decrease by a maximum of $400.
(C) Real GDP will increase by a maximum of $100.
(D) Real GDP will increase by a maximum of $400.
(E) Real GDP will increase by a maximum of $500.
6. Which of the following would lead to an increase in nominal interest rates?

(A) An expansionary monetary policy accompanied by an increase in the
demand for money
(B) An expansionary monetary policy accompanied by a decrease in the
demand for money
(C) An expansionary monetary policy conducted without any change in the
demand for money
(D) A contractionary monetary policy accompanied by an increase in the
demand for money
(E) A contractionary monetary policy accompanied by a decrease in the
demand for money
7. If the central bank seeks to increase the maximum amount by which the
banking system can create loans with a given amount of reserves, it would
(A) decrease government spending
(B) reduce the reserve requirement
(C) reduce the discount rate
(D) sell government bonds
(E) increase the federal funds rate

8. Assume the monetary base has increased as a result of actions taken by
the central bank. Which of the following is a reason why an increase in
the monetary base will not lead to the maximum possible increase in the
money supply?
(A) Banks hold excess reserves.
(B) Banks lend out all excess reserves.
(C) The increase in the monetary base crowds out investment spending.
(D) The increase in the monetary base crowds out government spending.
(E) People make no changes in their cash holdings.
9. An increase in the demand for loanable funds could be best explained by which
of the following?
(A) A decrease in investment spending.
(B) An increase in the government’s budget surplus.
(C) An increase in firms’ optimism about the future performance of the
country’s economy.
(D) Domestic investors seeking higher returns by investing in foreign
financial assets.
(E) An increase in political instability in the country.
10. If both the money supply and government expenditures are reduced, what will
most likely happen to interest rates and real gross domestic product (GDP) in
the short run?
(A) Both interest rates and real GDP will increase.
(B) Both interest rates and real GDP will decrease.
(C) Interest rates will decrease, and real GDP will stay the same.
(D) Interest rates will increase, and real GDP will decrease.
(E) Real GDP will decrease, and the change in interest rates will be
indeterminate.
11. If an economy is currently in a recessionary gap, which of the following changes

would result in an increase in real GDP in the short run and a decrease in the
price level in the long run?
(A) The government begins running a budget surplus.
(B) There is an increase in real interest rates.
(C) The government increases income tax rates.
(D) There is an increase in the prices of the economy’s productive resources.
(E) There is an increase in the productivity of the economy’s resources.

12. If the government offers a tax credit to businesses, what will be the most likely
effects of this action?
(A) A decrease in consumption spending, an increase in aggregate demand, and
an increase in real output
(B) An increase in consumption spending, a decrease in aggregate demand, and
a decrease in real output
(C) An increase in investment spending, an increase in the capital stock, and an
increase in real output
(D) A decrease in investment spending, a decrease in the capital stock, and an
increase in real output
(E) A decrease in government spending, a decrease in aggregate demand, and a
decrease in real output
13. If an economy experiences an improvement in technology, what will happen

to its production possibilities curve (PPC) and its long-run aggregate supply
(LRAS) curve?
(A) Both curves shift inward.
(B) Both curves shift outward.
(C) The PPC shifts inward, and the LRAS curve stays the same.
(D) The PPC shifts outward, and the LRAS curve shifts inward.
(E) The PPC stays the same, and the LRAS curve shifts outward.
10
SRPC LRPC
8
Inflation Rate
6
4
2
0
0 1 2 3 4 5 6 7
Unemployment Rate
14. The diagram above shows the short-run Phillips curve (SRPC) and the long-run
Phillips curve (LRPC) for an economy. If the rate of inflation is currently 6%,
what is the current unemployment rate?
(A) The current unemployment rate is 1%.
(B) The current unemployment rate is 2%.
(C) The current unemployment rate is 3%.
(D) The current unemployment rate is 4%.
(E) The current unemployment rate is 5%.

15. If the United States budget deficit increases, what will most likely happen to the
United States dollar in the foreign exchange market?
(A) It will appreciate because interest rates will increase.
(B) It will depreciate because interest rates will decrease.
(C) It will appreciate because interest rates will decrease.
(D) It will depreciate because interest rates will increase.
(E) It will not change because changes in the government budget have no effect
on the exchange rate.
Section II: Free-Response

The following are examples of the kinds of free-response questions found on the
exam. Note that on the actual AP Exam, there will be one long free-response question
worth 10 points and two short free-response questions, each worth 5 points.
1. Assume in the country of Zeetoland the expected inflation rate is 4%, the
unemployment rate is 5%, the natural rate of unemployment is 6%, and the
equilibrium real interest rate is 3%.
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run
aggregate supply, and aggregate demand curves, and show each of
the following.
(i) Current output, labeled Y1
(ii) Current price level, labeled PL1
(iii) Full employment output, labeled YF
(b) The central bank is concerned about the buildup of inflationary pressures
and wants to take a preemptive action to fight inflation. Identify one
monetary policy action the central bank would take.
(c) Based on the monetary policy action identified in part (b), will Zeetoland
experience financial capital outflows or inflows? Explain.
(d) Draw a correctly labeled graph of the foreign exchange market for
Zeetoland’s currency, the zeet, and show the effect of the monetary policy
action identified in part (b) on the demand and the exchange rate for
the zeet.
(e) Based on the change in the exchange rate in part (d), what will happen to
Zeetoland’s net exports? Explain.
(f) Assume instead the government of Zeetoland increases income taxes. On
your graph in part (a), show the impact of the government’s action in the
short run on real output, labeled Y2, and the price level, labeled PL2.
(g) Based solely on the change in real output in part (f), what will happen to the
demand for money in Zeetoland?
(h) Based on your answer to part (g), what will happen to nominal interest rates
in Zeetoland?

2. Country X has a fractional reserve banking system. The reserve requirement
is 25%, and the banks in Country X hold no excess reserves. Assume Mary
deposits $100,000 in Bank A in Country X.
(a) Calculate the maximum amount of loans that Bank A could make as a
result of Mary’s deposit. Show your work.
(b) Calculate the maximum possible change in demand deposits in the banking
system of Country X as a result of Mary’s deposit. Show your work.
(c) Is the maximum possible change in the money supply in the banking
system of Country X greater than, less than, or equal to the maximum
possible change in demand deposits identified in part (b) as a result of
Mary’s deposit? Explain.
(d) Draw a correctly labeled graph of the money market. Show the effect of
the change in the money supply identified in part (b) on the nominal
interest rate.

Answer Key and Question
Alignment to Course Framework
Multiple-Choice
Question Answer Skill Learning Objective Unit
1 E 2.C MOD-1.B 1
2 B 2.B MKT-2.G 1
3 B 1.A MEA-1.A 2
4 B 1.C MEA-1.C 2
5 C 3.C MOD-2.B, POL-1.A 3
6 D 2.B POL-1.D, MKT-3.D 4
7 B 2.A POL-1.D 4
8 A 2.A POL-2.A 4
9 C 2.A MKT-4.E 4
10 E 3.A POL-1.F 5
11 E 2.A MEA-2.B 5
12 C 3.A POL-4.A 5
13 B 3.A MOD-1.C 5
14 B 2.C MOD-3.A 5
15 A 3.B MKT-4.E, MKT-5.E 6
Free-Response
Question Question Type Learning Objectives Unit
1 Long MOD-2.G, POL-1.D, MKT-3.D, MKT-5.G, 3, 4, 6

MKT-5.C, MKT-5.E, MKT-5.F, POL-1.A
2 Short POL-2.A, MKT-3.B, MKT-3.D 4
The scoring information for the questions within this course and exam description, along with further
exam resources, can be found on the AP Macroeconomics Exam Page on AP Central.

AP MACROECONOMICS
Scoring Guidelines
Question 1: Long
1. Assume in the country of Zeetoland the expected inflation rate is 4%, the unemployment rate is 5%, the natural rate of
unemployment is 6%, and the equilibrium real interest rate is 3%.
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate
demand curves, and show each of the following.
(i) Current output, labeled Y1
(ii) Current price level, labeled PL1
(iii) Full employment output, labeled YF
(b) The central bank is concerned about the buildup of inflationary pressures and wants to take a preemptive action to
fight inflation. Identify one monetary policy action the central bank would take.
(c) Based on the monetary policy action identified in part (b), will Zeetoland experience financial capital outflows or
inflows? Explain.
(d) Draw a correctly labeled graph of the foreign exchange market for Zeetoland’s currency, the zeet, and show the
effect of the monetary policy action identified in part (b) on the demand and the exchange rate for the zeet.
(e) Based on the change in the exchange rate in part (d), what will happen to Zeetoland’s net exports? Explain.
(f) Assume instead the government of Zeetoland increases income taxes. On your graph in part (a), show the impact
of the government’s action in the short run on real output, labeled Y2, and the price level, labeled PL2.
(g) Based solely on the change in real output in part (f), what will happen to the demand for money in Zeetoland?
(h) Based on your answer to part (g), what will happen to nominal interest rates in Zeetoland?
AP Macroeconomics Course and Exam Description Scoring Guidelines V.1 | 141

Scoring Guidelines for Question 1: Long 10 points
Learning Objectives: MOD-2.G POL-1.D MKT-3.D MKT-5.G MKT-5.C MKT-5.E MKT-5.F POL-1.A
(a) Draw a correctly labeled aggregate demand-aggregate supply graph that shows PL1 and Y1 at the 1 point
intersection of AD and SRAS. 4.A
Task type: Create graphs or visual representations
For the second point, the graph must show a vertical LRAS curve to the left of Y1 and label the full 1 point
employment output YF . 4.B
Total for part (a) 2 points

(b) Identify one of the following actions: 1 point
• Selling bonds 2.A
• Increasing the discount rate

• Increasing the required reserve ratio
Task type: Make assertions
(c) State that Zeetoland will experience financial capital inflows and explain that higher interest rates will 1 point
attract financial capital from other countries. (Both parts are required to earn the point.) 3.A
Task type: Explain
(d) Draw a correctly labeled graph of the foreign exchange market for the zeet. 1 point
Task type: Create graphs or visual representations 4.A
For the second point, the graph must show a rightward shift in the demand curve for the zeet and an 1 point
increase in the exchange rate (an appreciation in the currency). 4.C
Total for part (d) 2 points

(e) State that Zeetoland’s net exports will decrease and explain that the appreciation of the zeet will make 1 point
Zeetoland’s exports relatively expensive to those of other countries. (Both parts required.) 3.A
Task type: Explain
(f) On the graph from part (a), show the impact of the government’s action and label the resulting real output 1 point
Y2 and the resulting price level PL2 . 4.C
The graph must show a leftward shift in the aggregate demand curve and a decrease in the price level and
real output. Note that the economy does not have to go back to full employment, as shown in the graph
below. All leftward shifts in the AD curve are accepted, whether they are to the left of, to the right of, or at
full employment.
(g) State that the demand for money will decrease. 1 point
Task type: Make assertions 3.A
(h) State that nominal interest rates will decrease. 1 point

Task type: Make assertions 3.A
Total for question 1 10 points

Question 2: Short
2. Country X has a fractional reserve banking system. The reserve requirement is 25%, and the banks in Country X hold
no excess reserves. Assume Mary deposits $100,000 in Bank A in Country X.
(a) Calculate the maximum amount of loans that Bank A could make as a result of Mary’s deposit. Show your work.
(b) Calculate the maximum possible change in demand deposits in the banking system of Country X as a result of
Mary’s deposit. Show your work.
(c) Is the maximum possible change in the money supply in the banking system of Country X greater than, less than,
or equal to the maximum possible change in demand deposits identified in part (b) as a result of Mary’s deposit?
Explain.
(d) Draw a correctly labeled graph of the money market. Show the effect of the change in the money supply identified
in part (b) on the nominal interest rate.

Scoring Guidelines for Question 2: Short 5 points
Learning Objectives: POL-2.A MKT-3.B MKT-3.D
(a) Calculate the maximum amount of loans that Bank A can make as a result of the deposit as $75,000 and 1 point
show your work: 3.C
Total reserves − required reserves = ($100,000 − (0.25 × $100,000)) = $75,000
Task type: Perform numerical analysis
(b) Calculate the maximum increase in demand deposits as $400,000 and show your work: 1 point
 1  3.C
$100,000 ×   = $400,000
 0.25 
Task type: Perform numerical analysis
(c) State that the maximum change in the money supply is less than the maximum change in demand 1 point
deposits and explain that this is because with Mary’s deposit the circulating currency decreases, or
3.A
because the $100,000 is no longer part of the currency in circulation.
Task type: Explain
(d) Draw a correctly labeled graph of the money market. 1 point
Task type: Create graphs or visual representations 4.A
For the second point, the graph must show a shift in the money supply curve to the right and a decrease in 1 point
the nominal interest rate. 4.C
Total for part (d) 2 points
Total for question 2 5 points

AP MACROECONOMICS
Appendix
Appendix:
AP Macroeconomics
Conceptual
Framework
AP Macroeconomics Course and Exam Description Appendix V.1 | 149

Big Idea 1: Economic Measurements (MEA)
Economists construct measurements to monitor the state of an economy and evaluate its performance
over time. Governments, firms, and citizens often use these measurements to help inform policy,
business, and personal decisions.
Enduring
Understanding Learning Objective Essential Knowledge
MEA-1 MEA-1.A MEA-1.A.1

a. Define (using the GDP is a measure of final output of the economy.
An economy’s circular flow diagram as
performance can be appropriate) how GDP MEA-1.A.2
measured by different is measured and its GDP as a total flow of income and expenditure can be
components. represented by the circular flow diagram.
indicators such b. Calculate nominal GDP.
as gross domestic MEA-1.A.3
product (GDP), the There are three ways of measuring GDP: the expenditures
approach, the income approach, and the value-added approach.
inflation rate, and the
unemployment rate. MEA-1.B MEA-1.B.1
Define the limitations of GDP. GDP is a useful indicator of a nation’s economic performance,
but it has some limitations, such as failing to account for
nonmarket transactions.
MEA-1.C MEA-1.C.1
a. Define the labor force, The unemployment rate is the percentage of the labor force
the unemployment that is out of work.
rate, and the labor force
participation rate. MEA-1.C.2
b. Explain how changes The labor force participation rate is another measure of
in employment and the the labor market activity in an economy. The labor force
labor market affect the participation rate is the percentage of the adult population that
unemployment rate is in the labor force.
and the labor force
participation rate.
c. Calculate the
unemployment rate
and the labor force
participation rate.
MEA-1.D MEA-1.D.1
Define the limitations of the The measured unemployment rate is often criticized for
unemployment rate. understating the level of joblessness because it excludes
groups such as discouraged workers and part-time workers.

Big Idea 1: Economic Measurements (MEA) cont’d
Enduring
MEA-1 MEA-1.E MEA-1.E.1

a. Define the types of Economists primarily focus on three types of unemployment:
An economy’s unemployment and cyclical, frictional, and structural.
performance can be the natural rate of
measured by different unemployment. MEA-1.E.2
b. Explain changes in the The natural rate of unemployment is the unemployment rate
indicators such types of unemployment. that would exist when the economy produces full-employment
as gross domestic real output. It is equal to the sum of frictional and structural
product (GDP), the unemployment.
inflation rate, and the MEA-1.E.3

unemployment rate. The deviation of the actual unemployment rate from the natural
rate is cyclical unemployment.
MEA-1.E.4
The natural rate of unemployment can gradually change
over time because of such things as changes in labor force
characteristics.
MEA-1.F MEA-1.F.1
a. Define the consumer The consumer price index (CPI) measures the change in income
price index (CPI), inflation, a consumer would need in order to maintain the same standard
deflation, disinflation, of living over time under a new set of prices as under the
the inflation rate, and real original set of prices.
variables.
b. Explain how price indices MEA-1.F.2
can be used to calculate The CPI measures the cost of a fixed basket of goods and
the inflation rate and to services in a given year relative to the base year.
compare nominal variables X Exclusion:
over time periods.
Calculating the producer price index (PPI) is beyond the
c. Calculate the CPI, the scope of the course and AP Exam.
inflation rate, and changes
in real variables.
MEA-1.F.3
The inflation rate is determined by calculating the percentage
change in a price index such as the CPI or GDP deflator.
MEA-1.F.4
Real variables, such as real wages, are the nominal variables
deflated by the price level.
MEA-1.G MEA-1.G.1
Define the shortcomings of The CPI as a measure of inflation has some shortcomings,
the CPI as a true measure of such as substitution bias, causing it to overstate the true
inflation. inflation rate.
MEA-1.H MEA-1.H.1
Explain the costs that Unexpected inflation arbitrarily redistributes wealth from one
unexpected inflation group of individuals to another group, such as lenders to
(deflation) imposes on borrowers.
individuals and the economy.

Enduring
MEA-1 MEA-1.I MEA-1.I.1

Define nominal GDP and Nominal GDP is a measure of how much is spent on output.
An economy’s real GDP. Real GDP is a measure of how much is produced.
performance can be
MEA-1.I.2
measured by different
Nominal GDP measures aggregate output using current prices.
indicators such Real GDP measures aggregate output using constant prices,
as gross domestic thus removing the effect of changes in the overall price level.
product (GDP), the
MEA-1.J MEA-1.J.1
inflation rate, and the Calculate real GDP and the One way of measuring real GDP is to weigh final goods and
unemployment rate. GDP deflator. services by their prices in a base year. Because this can lead to
overstatement of real GDP growth, statistical agencies actually
use different methods.
MEA-1.J.2
Nominal GDP can be converted to real GDP by using the
GDP deflator.

a. Define (using graphs Business cycles are fluctuations in aggregate output and
The economy fluctuates and data as appropriate) employment because of changes in aggregate supply and/or
between periods turning points and phases aggregate demand.
of expansion and of the business cycle.
b. Explain (using graphs MEA-2.A.2
contraction in the short and data as appropriate) The phases of a business cycle are recession and expansion.
run, but economic turning points and phases
growth can occur in of the business cycle. MEA-2.A.3
The turning points of a business cycle are peak and trough.
the long run.
MEA-2.A.4
The difference between actual output and potential output is
the output gap.
MEA-2.A.5
Potential output is also called full-employment output. It is the
level of GDP where unemployment is equal to the natural rate of
unemployment. [See EK MEA-1.E.2]

Enduring
MEA-2 MEA-2.B MEA-2.B.1

a. Define measures Economic growth can be measured as the growth rate in real
The economy fluctuates and determinants of GDP per capita over time.
between periods economic growth.
b. Explain (using graphs MEA-2.B.2
of expansion and
and data as appropriate) Aggregate employment and aggregate output are directly
contraction in the short the determinants of related because firms need to employ more workers in order
run, but economic economic growth. to produce more output, holding other factors constant. This is
growth can occur in c. Calculate (using graphs captured by the aggregate production function.
the long run. and data as appropriate)

MEA-2.B.3
per capita GDP and
economic growth. Output per employed worker is a measure of average labor
productivity.
MEA-2.B.4
Productivity is determined by the level of technology and
physical and human capital per worker.
MEA-2.B.5
The aggregate production function shows that output per
capita is positively related to both physical and human capital
per capita.

a. Define the principal The most liquid forms of money are cash and demand deposits.
Money makes it attributes—liquidity,
possible to compare rate of return, and risk— MEA-3.A.2
the value of goods associated with various Other financial assets people can hold in place of the most
classes of financial assets, liquid forms of money include bonds (interest-bearing assets)
and services, and including money. and stocks (equity).
interest rates provide a b. Explain the relationship
measure of the price of between the price of MEA-3.A.3
previously issued bonds The price of previously issued bonds and interest rates on
money that is borrowed and interest rates. bonds are inversely related.
or saved.
MEA-3.A.4
The opportunity cost of holding money is the interest that could
have been earned from holding other financial assets such
as bonds.

Enduring
MEA-3 MEA-3.B MEA-3.B.1

a. Define the nominal and A nominal interest rate is the rate of interest paid for a loan,
Money makes it real interest rate. unadjusted for inflation.
possible to compare b. Explain the relationship
between changes in MEA-3.B.2
the value of goods
nominal interest rates, Lenders and borrowers establish nominal interest rates as the
and services, and expected inflation, and real sum of their expected real interest rate and expected inflation.
interest rates provide a interest rates.
MEA-3.B.3
measure of the price of c. Calculate the nominal and
real interest rate. A real interest rate can be calculated in hindsight by subtracting
money that is borrowed the actual inflation rate from the nominal interest rate.
or saved.
MEA-3.C MEA-3.C.1
a. Define money and Money is any asset that is accepted as a means of payment.
its functions.
b. Calculate (using data as MEA-3.C.2
appropriate) measures Money serves as a medium of exchange, unit of account, and
of money. store of value.
MEA-3.C.3
The money supply is measured using monetary aggregates
designated as M1 and M2.
MEA-3.C.4
The monetary base (often labeled as M0 or MB) includes
currency in circulation and bank reserves.

a. Define the current account The current account (CA) records net exports, net income from
Foreign trade (CA), the capital and abroad, and net unilateral transfers.
accounting measures financial account (CFA),
the flow of goods, and the balance of MEA-4.A.2
payments (BOP). The CA is not always balanced; it may show a surplus or a
services, and financial b. Explain how changes deficit. A nation’s balance of trade (i.e., net exports) is part of the
capital between in the components of current account and may also show a surplus or a deficit.
countries. the CA and CFA affect a
country’s BOP. MEA-4.A.3
c. Calculate the CA, the CFA, The capital and financial account (CFA) records financial capital
and the BOP. transfers and purchases and sales of assets between countries.
MEA-4.A.4
The CFA is not always balanced; it may show a surplus (financial
capital inflow) or a deficit (financial capital outflow).
MEA-4.A.5
The balance of payments (BOP) is an accounting system that
records a country’s international transactions for a particular
time period. It consists of the CA and the CFA.
MEA-4.A.6
Any transaction that causes money to flow into a country is
a credit to its BOP account, and any transaction that causes
money to flow out is a debit. The sum of all credit entries should
match the sum of all debit entries (CA+CFA=0).

Big Idea 2: Markets (MKT)
Competitive markets bring together buyers and sellers to exchange goods and services for mutual gain.
The simple model of supply–demand can be applied in different market contexts.
Enduring
MKT-1 MKT-1.A MKT-1.A.1

a. Define absolute advantage Absolute advantage describes a situation in which an individual,
Production and and comparative a business, or a country can produce more of a good or service
consumption increase advantage. than any other producer with the same quantity of resources.
by engaging in trade. b. Determine (using data
from PPCs or tables as MKT-1.A.2
appropriate) absolute and Comparative advantage describes a situation in which an
comparative advantage. individual, a business, or a country can produce a good or
service at a lower opportunity cost than another producer.
MKT-1.B MKT-1.B.1
a. Explain (using data Production specialization according to comparative advantage
from PPCs or tables results in exchange opportunities that lead to consumption
as appropriate) how opportunities beyond the PPC.
specialization according
to comparative advantage MKT-1.B.2
with appropriate terms Comparative advantage and opportunity costs determine the
of trade can lead to gains terms of trade for exchange under which mutually beneficial
from trade. trade can occur.
b. Calculate (using data

a. Define (using graphs The law of demand states there is an inverse relationship
In a competitive as appropriate) the law between price and quantity demanded, leading to a downward-
market, demand for of demand. sloping demand curve.
and supply of a good or b. Explain (using graphs as
appropriate) the relationship
service determine the between the price of a good
equilibrium price. or service and the quantity
demanded.
MKT-2.B MKT-2.B.1
Explain (using graphs as Factors that influence consumer demand, such as changes in
appropriate) the determinants consumer income, cause the market demand curve to shift.
of demand.
MKT-2.C MKT-2.C.1
a. Define (using graphs The law of supply states there is a positive relationship between
as appropriate) the law price and quantity supplied, leading to an upward-sloping
of supply. supply curve.
as appropriate) the
price of a good or service
and the quantity supplied.
MKT-2.D MKT-2.D.1
Explain (using graphs as Factors that influence producer supply, such as changes in
appropriate) the determinants input prices, cause the market supply curve to shift.
of supply.

Big Idea 2: Markets (MKT) cont’d
Enduring
MKT-2 MKT-2.E MKT-2.E.1

Define (using graphs Equilibrium is achieved at the price at which quantities
In a competitive as appropriate) market demanded and supplied are equal.
market, demand for equilibrium.
and supply of a good or
MKT-2.F MKT-2.F.1
service determine the a. Define a surplus and Whenever markets experience imbalances—creating
equilibrium price. shortage. disequilibrium prices, surpluses, and shortages—market forces
b. Explain (using graphs drive prices toward equilibrium.
as appropriate) how
prices adjust to restore
equilibrium in markets
that are experiencing
imbalances.
c. Calculate (using graphs as
appropriate) the surplus
or shortage in a market
experiencing an imbalance.
MKT-2.G MKT-2.G.1
Explain (using graphs as Changes in the determinants of supply and/or demand result in
appropriate) how changes a new equilibrium price and quantity.
in demand and supply
affect equilibrium price and
equilibrium quantity.

a. Define (using graphs as The demand for money shows the inverse relationship between
In the money market, appropriate) the money the nominal interest rate and the quantity of money people
demand for and supply market, money demand, want to hold.
of money determine the and money supply.
b. Explain (using graphs MKT-3.A.2
equilibrium nominal as appropriate) the Given a monetary base determined by a country’s central bank,
interest rate and relationship between the money supply is independent of the nominal interest rate.
influence the value of nominal interest rate and
the quantity of money
other financial assets. demanded (supplied).
MKT-3.B MKT-3.B.1
Define (using graphs as In the money market, equilibrium is achieved when the nominal
appropriate) equilibrium in the interest rate is such that the quantities demanded and supplied
money market. of money are equal.
MKT-3.C MKT-3.C.1
Explain (using graphs as Disequilibrium nominal interest rates create surpluses and
appropriate) how nominal shortages in the money market. Market forces drive nominal
interest rates adjust to interest rates toward equilibrium.
restore equilibrium in the
money market.

Enduring
MKT-3 MKT-3.D MKT-3.D.1

a. Explain (using graphs Factors that shift the demand for money, such as changes in
In the money market, as appropriate) the the price level, and supply of money, such as monetary policy,
demand for and supply determinants of demand change the equilibrium nominal interest rate.
of money determine the and supply in the
money market.
equilibrium nominal b. Explain (using graphs as
interest rate and appropriate) how changes
influence the value of in demand and supply in
the money market affect
other financial assets. the equilibrium nominal
interest rate.

a. Define (using graphs as The loanable funds market describes the behavior of savers
The interaction of appropriate) the loanable and borrowers.
borrowers, who funds market, demand for
demand loanable loanable funds, and supply MKT-4.A.2
of loanable funds. The demand for loanable funds shows the inverse relationship
funds, and savers, b. Explain (using graphs between real interest rates and the quantity demanded of
who supply loanable as appropriate) the loanable funds.
funds, determines relationship between the
real interest rate and the MKT-4.A.3
the equilibrium real quantity of loanable funds The supply of loanable funds shows the positive relationship
interest rate. demanded (supplied). between real interest rates and the quantity supplied of
loanable funds.
MKT-4.B MKT-4.B.1
Define national savings in In the absence of international borrowing and lending, national
both a closed and an open savings is the sum of public savings and private savings.
economy.
MKT-4.B.2
For an open economy, investment equals national savings plus
net capital inflow.
MKT-4.C MKT-4.C.1
Define (using graphs as In the loanable funds market, equilibrium is achieved when the
appropriate) equilibrium in the real interest rate is such that the quantities demanded and
loanable funds market. supplied of loanable funds are equal.
MKT-4.D MKT-4.D.1
Explain (using graphs as Disequilibrium real interest rates create surpluses and
appropriate) how real interest shortages in the loanable funds market. Market forces drive real
rates adjust to restore interest rates toward equilibrium.
equilibrium in the loanable
funds market.

Enduring

a. Explain (using graphs The loanable funds market can be used to show the effects of
The interaction of as appropriate) the government spending, taxes, and borrowing on interest rates.
borrowers, who determinants of demand
demand loanable and supply in the loanable MKT-4.E.2
funds market. Factors that shift the demand (such as an investment tax credit)
funds, and savers, b. Explain (using graphs as and supply (such as changes in saving behavior) of loanable
who supply loanable appropriate) how changes funds change the equilibrium interest rate and the equilibrium
funds, determines in demand and supply in quantity of funds.
the loanable funds market
the equilibrium real affect the equilibrium
interest rate. real interest rate and
equilibrium quantity of
loanable funds.

a. Define the exchange rate, In the foreign exchange market, one currency is exchanged for
The interaction of currency appreciation, and another; the price of one currency in terms of the other is the
buyers and sellers currency depreciation. exchange rate.
exchanging the b. Explain how currencies
are valued relative to one MKT-5.A.2
currency of one country another. If one currency becomes more valuable in terms of the other, it
for the currency of c. Calculate the value of is said to appreciate. If one currency becomes less valuable in
another determines the one currency relative to terms of the other, it is said to depreciate.
equilibrium exchange another.
rate in a flexible MKT-5.B MKT-5.B.1

exchange market and a. Define the foreign The demand for a currency in a foreign exchange market
exchange market, demand arises from the demand for the country’s goods, services, and
influences the flow
for currency, and supply of financial assets and shows the inverse relationship between the
of goods, services, currency. exchange rate and the quantity demanded of a currency.
and financial capital b. Explain (using graphs
as appropriate) the MKT-5.B.2
between countries.
relationship between The supply of a currency in a foreign exchange market arises
the exchange rate and from making payments in other currencies and shows the
the quantity of currency positive relationship between the exchange rate and the
demanded (supplied). quantity supplied of a currency.
MKT-5.C MKT-5.C.1
Define (using graphs as In the foreign exchange market, equilibrium is achieved when
appropriate) the equilibrium the exchange rate is such that the quantities demanded and
exchange rate. supplied of the currency are equal.
MKT-5.D MKT-5.D.1
Explain (using graphs as Disequilibrium exchange rates create surpluses and shortages
appropriate) how exchange in the foreign exchange market. Market forces drive exchange
rates adjust to restore rates toward equilibrium.
equilibrium in the foreign
exchange market.

Enduring

a. Explain (using graphs Factors that shift the demand for a currency (such as the
The interaction of as appropriate) the demand for that country’s goods, services, or assets) and
buyers and sellers determinants of currency the supply of a currency (such as tariffs or quotas on the
exchanging the demand and supply. other country’s goods and services) change the equilibrium
b. Explain (using graphs as exchange rate.
currency of one country appropriate) how changes
for the currency of in demand and supply MKT-5.E.2
another determines the in the foreign exchange Fiscal policy can influence aggregate demand, real output,
market affect the the price level, and exchange rates.
equilibrium exchange equilibrium exchange rate.
rate in a flexible MKT-5.E.3
exchange market and Monetary policy can influence aggregate demand, real output,
the price level, and interest rates, and thereby affect
influences the flow exchange rates.
of goods, services,
MKT-5.F MKT-5.F.1
and financial capital
Explain (using graphs as Factors that cause a currency to appreciate cause that
between countries. appropriate) how changes in country’s exports to decrease and its imports to increase. As a
the value of a currency can result, net exports will decrease.
lead to changes in a country’s
net exports and aggregate MKT-5.F.2
demand. Factors that cause a currency to depreciate cause that
country’s exports to increase and its imports to decrease.
As a result, net exports will increase. [See EK MOD-2.A.3 and
EK MOD-2.H.1 for explanations of the effect of changes in net
exports on aggregate demand and the resulting effects on
output, employment, and the price level.]
MKT-5.G MKT-5.G.1
Explain (using graphs as In an open economy, differences in real interest rates across
appropriate) how differences countries change the relative values of domestic and foreign
in real interest rates across assets. Financial capital will flow toward the country with
countries affect financial the relatively higher interest rate. [See EK MKT-4.E.2 and
capital flows, foreign EK MEA-4.A.6 for explanations of the impact on the loanable
exchange markets, and funds market and on net exports.]
loanable funds markets.
MKT-5.G.2
Central banks can influence the domestic interest rate in the
short run, which in turn will affect net capital inflows.

Big Idea 3: Macroeconomic Models (MOD)
Macroeconomic models are simplified representations that depict basic economic relationships and
can be used to predict and explain how those relationships are affected by economic shocks.
Enduring
MOD-1 MOD-1.A MOD-1.A.1

Define scarcity and economic Individuals and societies are forced to make choices because
The production resources. most resources are scarce.
possibilities curve
MOD-1.B MOD-1.B.1
(PPC) model is used
a. Define (using graphs as The PPC is a model used to show the tradeoffs associated with
to demonstrate the full appropriate) the PPC and allocating resources.
employment level of related terms.
b. Explain (using graphs as MOD-1.B.2
output and to illustrate
appropriate) how the PPC The PPC can be used to illustrate the concepts of scarcity,
changes in full illustrates opportunity opportunity cost, efficiency, underutilized resources, and
employment. costs, tradeoffs, economic growth or contraction.
and economic growth or MOD-1.B.3
contraction under various The shape of the PPC depends on whether opportunity costs
conditions. are constant, increasing, or decreasing.
c. Calculate (using
MOD-1.B.4
data from PPCs or
tables as appropriate) The PPC can shift because of changes in factors of production
opportunity cost. as well as changes in productivity/technology.
MOD-1.B.5
Economic growth results in an outward shift of the PPC.
MOD-1.C MOD-1.C.1
Explain (using graphs as An outward shift in the PPC is analogous to a rightward shift of
appropriate) how the PPC the long-run aggregate supply curve. [See LO MOD-2.I]
is related to the long-run
aggregate supply (LRAS) curve.

a. Define (using graphs as The aggregate demand (AD) curve describes the relationship
Economists use the appropriate) the aggregate between the price level and the quantity of goods and services
aggregate demand– demand (AD) curve. demanded by households (consumption), firms (investment),
aggregate supply b. Explain (using graphs as government (government spending), and the rest of the world
appropriate) the slope (net exports).
model to represent the of the AD curve and its
relationship between determinants. MOD-2.A.2
the price level and The negative slope of the AD curve is explained by the real
wealth effect, the interest rate effect, and the exchange rate
aggregate output in effect. [See EK MKT-3.A.1]
an economy and to
MOD-2.A.3
illustrate how output,
Any change in the components of aggregate demand
employment, and the (consumption, investment, government spending, or net
price level respond exports) that is not due to changes in the price level leads to a
shift of the AD curve.
to macroeconomic
shocks.

Big Idea 3: Macroeconomic Models (MOD) cont’d
Enduring
MOD-2 MOD-2.B MOD-2.B.1

a. Define the expenditure A $1 change to autonomous expenditures leads to further
Economists use the multiplier, the tax multiplier, changes in total expenditures and total output.
aggregate demand– the marginal propensity to
aggregate supply consume, and the marginal MOD-2.B.2
propensity to save. The expenditure multiplier quantifies the size of the change
model to represent the b. Explain how changes in in aggregate demand as a result of a change in any of the
relationship between spending and taxes lead to components of aggregate demand.
the price level and changes in real GDP.
MOD-2.B.3
aggregate output in c. Calculate how changes in
spending and taxes lead to The tax multiplier quantifies the size of the change in aggregate
an economy and to changes in real GDP. demand as a result of a change in taxes.
illustrate how output, MOD-2.B.4
employment, and the The expenditure multiplier and tax multiplier depend on the
price level respond marginal propensity to consume.
to macroeconomic MOD-2.B.5
shocks. The marginal propensity to consume is the change in consumer
spending divided by the change in disposable income. The sum
of the marginal propensity to consume and marginal propensity
to save is equal to one.
MOD-2.C MOD-2.C.1
a. Define (using graphs as The short-run aggregate supply (SRAS) curve describes the
appropriate) the short-run relationship between the price level and the quantity of goods
aggregate supply (SRAS) and services supplied in an economy.
curve.
b. Explain (using graphs as MOD-2.C.2
appropriate) the slope of The SRAS curve is upward-sloping because of sticky wages
the SRAS curve and its and prices. [See EK MOD-2.E.1]
determinants.
MOD-2.C.3
Any factor that causes production costs to change, such as a
change in inflationary expectations, will cause the SRAS curve
to shift.
MOD-2.D MOD-2.D.1
Explain (using graphs as Moving along the SRAS curve, an increase in the price
appropriate) how movement level is associated with an increase in output, which means
along the SRAS curve implies employment must correspondingly rise. With the labor
a relationship between the force held constant, unemployment will fall. So, there is a
price level (and inflation) and short-run trade-off between inflation and unemployment.
unemployment. [See EK MOD-3.A.1]
MOD-2.E MOD-2.E.1
Define (using graphs as In the long run all prices and wages are fully flexible, while in the
appropriate) the short run and short run some input prices are fixed. A consequence of flexible
the long run. long-run prices and wages is the lack of a long-run trade-off
between inflation and unemployment.

Enduring
MOD-2 MOD-2.F MOD-2.F.1

Define (using graphs as The LRAS curve corresponds to the production possibilities
Economists use the appropriate) the long-run curve (PPC) because they both represent maximum sustainable
aggregate demand– aggregate supply (LRAS) capacity. Maximum sustainable capacity is the total output an
aggregate supply curve. economic system will produce over a set period of time if all
resources are fully employed. [See LO MOD-2.I]
model to represent the
relationship between MOD-2.F.2
the price level and The LRAS curve is vertical at the full-employment level of
output because in the long run wages and prices fully adjust.
aggregate output in
an economy and to MOD-2.G MOD-2.G.1
illustrate how output, Explain (using graphs as Short-run equilibrium occurs when the aggregate quantity
appropriate) the short-run of output demanded and the aggregate quantity of output
employment, and the and long-run equilibrium price supplied are equal—i.e., at the intersection of the AD and
price level respond level and output level. SRAS curves.
to macroeconomic MOD-2.G.2
shocks. Long-run equilibrium occurs when the AD and SRAS curves
intersect on the LRAS—i.e., at the full-employment level of
real output.
MOD-2.G.3
The short-run equilibrium output can be at the full-employment
level of output, above it, or below it, creating positive
(i.e., inflationary) or negative (i.e., recessionary) output gaps.
MOD-2.H MOD-2.H.1
Explain (using graphs as A positive (negative) shock in AD causes output, employment,
appropriate) the response of and the price level to rise (fall) in the short run.
output, employment, and the
price level to an aggregate MOD-2.H.2
demand or aggregate supply A positive (negative) shock in SRAS causes output and
shock in the short run. employment to rise (fall) and the price level to fall (rise) in the
short run.
MOD-2.H.3
Inflation can be caused by changes in aggregate demand
(demand-pull) or aggregate supply (cost-push).
MOD-2.I MOD-2.I.1
Explain (using graphs as In the long run, in the absence of government policy actions,
appropriate) the response of flexible wages and prices will adjust to restore full employment
output, employment, and the and unemployment will revert to its natural rate after a
price level to an aggregate shock to aggregate demand or short-run aggregate supply.
demand or aggregate supply [See EK MEA-1.E.2]
shock in the long run.
MOD-2.I.2
Shifts in the long-run aggregate supply (LRAS) curve
indicate changes in the full-employment level of output and
economic growth.

Enduring

a. Define (using graphs as The short-run trade-off between inflation and unemployment
The Phillips appropriate) the short-run can be illustrated by the downward-sloping short-run Phillips
curve model is Phillips curve and the long- curve (SRPC).
used to represent run Phillips curve.
b. Explain (using graphs as MOD-3.A.2
the relationship appropriate) short-run and An economy is always operating somewhere along the SRPC.
between inflation long-run equilibrium in the
and unemployment Phillips curve model. MOD-3.A.3
The long-run relationship between inflation and unemployment
and to illustrate how can be illustrated by the long-run Phillips curve (LRPC), which is
macroeconomic shocks vertical at the natural rate of unemployment.
affect inflation and MOD-3.A.4
unemployment. Long-run equilibrium corresponds to the intersection of the
SRPC and the LRPC.
MOD-3.A.5
Points to the left of long-run equilibrium represent inflationary
gaps, while points to the right of long-run equilibrium represent
recessionary gaps.
MOD-3.B MOD-3.B.1
Explain (using graphs as Demand shocks correspond to movement along the SRPC.
appropriate) the response of
unemployment and inflation MOD-3.B.2
in the short run and in the Supply shocks correspond to shifts of the SRPC.
long run.
MOD-3.B.3
Factors that cause the natural rate of unemployment to change
will cause the LRPC to shift.

Big Idea 4: Macroeconomic Policies (POL)
Government taxation and spending policies and central bank monetary policy can affect an
economy’s output, price level, and level of employment, both in the short run and in the long run.
Enduring
POL-1 POL-1.A POL-1.A.1

a. Define fiscal policy and Governments implement fiscal policies to achieve
Fiscal and monetary related terms. macroeconomic goals, such as full employment.
policy have short- b. Explain (using graphs as
appropriate) the short-run POL-1.A.2
run effects on
effects of a fiscal policy The tools of fiscal policy are government spending and taxes/
macroeconomic action. transfers.
outcomes. c. Calculate the short-run
POL-1.A.3
effects of a fiscal policy
action. Changes in government spending affect aggregate demand
directly, and changes in taxes/transfers affect aggregate
demand indirectly.
POL-1.A.4
The government spending multiplier is greater than the tax
multiplier.
POL-1.A.5
Expansionary or contractionary fiscal policies are used to
restore full employment when the economy is in a negative (i.e.,
recessionary) or positive (i.e., inflationary) output gap.
POL-1.A.6
Fiscal policy can influence aggregate demand, real output,
and the price level. [See also EK MKT-5.E.2 for the effect on
exchange rates.]
POL-1.A.7
The AD–AS model is used to demonstrate the short-run effects
of fiscal policy.
POL-1.B POL-1.B.1
Define why there are lags to In reality, there are lags to discretionary fiscal policy because of
discretionary fiscal policy. factors such as the time it takes to decide on and implement a
policy action.
POL-1.C POL-1.C.1
a. Define automatic Automatic stabilizers support the economy during recessions
stabilizers. and help prevent the economy from being overheated during
b. Explain how automatic expansionary periods.
stabilizers moderate
business cycles. POL-1.C.2
Tax revenues decrease automatically as GDP falls, preventing
consumption and the economy from falling further.
POL-1.C.3
Tax revenues increase automatically as GDP rises, slowing
consumption and preventing the economy from overheating.
POL-1.C.4
Government policies, institutions, or agencies may also have
social service programs whose transfer payments act as
automatic stabilizers.

Big Idea 4: Macroeconomic Policies (POL) cont’d
Enduring
POL-1 POL-1.D POL-1.D.1

a. Define monetary policy Central banks implement monetary policies to achieve
Fiscal and monetary and related terms. macroeconomic goals, such as price stability.
policy have b. Explain (using graphs as
appropriate) the short- POL-1.D.2
short-run effects
run effects of a monetary The tools of monetary policy include open market operations,
on macroeconomic policy action. the required reserve ratio, and the discount rate. The most
outcomes. c. Calculate (using data frequently-used monetary policy tool is open market
and balance sheets as operations.
appropriate) the effects of
POL-1.D.3
a monetary policy action.
When the central bank conducts an open-market purchase
(sale), reserves increase (decrease), thereby increasing
(decreasing) the monetary base.
POL-1.D.4
The effect of an open-market purchase (sale) on the money
supply is greater than the effect on the monetary base because
of the money multiplier.
POL-1.D.5
Many central banks carry out policy to hit a target range for an
overnight interbank lending rate. (In the United States, this is the
federal funds rate.)
POL-1.D.6
Central banks can influence the nominal interest rate in the
short run by changing the money supply, which in turn will affect
investment and consumption. [See also EK MKT-5.G.2 for the
influence on net capital inflows.]
POL-1.D.7
Expansionary or contractionary monetary policies are used to
restore full employment when the economy is in a negative (i.e.,
recessionary) or positive (i.e., inflationary) output gap.
POL-1.D.8
Monetary policy can influence aggregate demand, real output,
the price level, and interest rates. [See also EK MKT-5.E.3 for the
effect on exchange rates.]
POL-1.D.9
A money market model and/or the AD–AS model are used to
demonstrate the short-run effects of monetary policy.
POL-1.E POL-1.E.1
Define why there are lags to In reality, there are lags to monetary policy caused by the time
monetary policy. it takes to recognize a problem in the economy and the time it
takes the economy to adjust to the policy action.

Enduring
POL-1 POL-1.F POL-1.F.1

Explain (using graphs as A combination of expansionary or contractionary fiscal and
Fiscal and monetary appropriate) the effects monetary policies may be used to restore full employment
policy have of combined fiscal and when the economy is in a negative (i.e., recessionary) or positive
short-run effects monetary policy actions. (i.e., inflationary) output gap.
on macroeconomic POL-1.F.2
outcomes. A combination of fiscal and monetary policies can influence
aggregate demand, real output, the price level, and interest
rates. [For additional details on fiscal and monetary policy
actions and how to demonstrate their effects graphically,
see LO POL-1.A and LO POL-1.D.]

a. Define key terms related Depository institutions (such as commercial banks) organize
The banking system to the banking system their assets and liabilities on balance sheets.
plays an important role and the expansion of the
in the expansion of the money supply. POL-2.A.2
b. Explain how the Depository institutions operate using fractional reserve
money supply. banking system creates banking.
and expands the
money supply. POL-2.A.3
c. Calculate (using data Banks’ reserves are divided into required reserves and excess
and balance sheets reserves.
as appropriate) the
POL-2.A.4
effects of changes in the
banking system. Excess reserves are the basis of expansion of the money
supply by the banking system.
POL-2.A.5
The money multiplier is the ratio of the money supply to the
monetary base.
POL-2.A.6
The size of expansion of the money supply depends on the
money multiplier.
POL-2.A.7
The maximum value of the money multiplier can be calculated
as the reciprocal of the required reserve ratio.
POL-2.A.8
The amount predicted by the simple money multiplier may
be overstated because it does not take into account a
bank’s desire to hold excess reserves or the public holding
more currency.

Enduring

a. Explain (using graphs Inflation (deflation) results from increasing (decreasing) the
There are long-run as appropriate) how money supply at too rapid of a rate for a sustained period
implications of inflation is a monetary of time.
monetary and fiscal phenomenon.
b. Define the quantity theory POL-3.A.2
policy. of money. When the economy is at full employment, changes in the money
c. Calculate the money supply have no effect on real output in the long run.
supply, velocity, the price
POL-3.A.3
level, and real output using
the quantity theory of In the long run, the growth rate of the money supply determines
money. the growth rate of the price level (inflation rate) according to the
quantity theory of money.
POL-3.B POL-3.B.1
a. Define the government The government budget surplus (deficit) is the difference
budget surplus (deficit) between tax revenues and government purchases plus transfer
and national debt. payments in a given year.
b. Explain the issues involved
with the burden of the POL-3.B.2
national debt. A government adds to the national debt when it runs a budget
deficit.
POL-3.B.3
A government must pay interest on its accumulated debt, thus
increasing the national debt and increasingly forgoing using
those funds for alternative uses. [See also LO POL-3.C on
crowding out.]
POL-3.C POL-3.C.1
a. Define crowding out. When a government is in budget deficit, it typically borrows to
b. Explain (using graphs finance its spending.
as appropriate) how
fiscal policy may cause POL-3.C.2
crowding out. A loanable funds market model can be used to show the effect
of government borrowing on the equilibrium real interest
rate and the resulting crowding out of private investment.
[See MKT-4]
POL-3.C.3
Crowding out refers to the adverse effect of increased
government borrowing, which leads to decreased levels of
interest-sensitive private sector spending in the short run.
POL-3.C.4
A potential long-run impact of crowding out is a lower rate of
physical capital accumulation and less economic growth as
a result.

Enduring
POL-4 POL-4.A [For a description of economic growth and information about

a. Explain (using graphs as how to show it graphically, see LO MEA-2.B, LO MOD-1.B, and
Authorities and appropriate) public policies LO MOD-2.I]
organizations institute aimed at influencing long-
run economic growth. POL-4.A.1
policies that affect
b. Define supply-side fiscal Public policies that impact productivity and labor force
economic growth. policies. participation affect real GDP per capita and economic growth.
POL-4.A.2
Government policies that invest in infrastructure and
technology affect growth.
POL-4.A.3
Supply-side fiscal policies affect aggregate demand, aggregate
supply, and potential output in the short run and long run by
influencing incentives that affect household and business
economic behavior.

Appendix:
AP Macroeconomics
Graphs and Visuals

AP Macroeconomics Graphs and Visuals
Students are expected to model economic situations using graphs or visual representations throughout the
AP Macroeconomics course. The pages that follow identify the graphs and visuals that are required on the AP
Macroeconomics Exam along with the associated learning objectives. One illustrative example of the set-up of
each graph or visual is provided for reference; however, it is only one example and students are expected to do
more than simply set up a graph or visual on the AP Macroeconomics Exam. As the AP Economics Skills outline,
students must be able to demonstrate their understanding of specific economic situations on accurately labeled
graphs (e.g., via properly labeled and placed points and curves) and demonstrate the effect of changes on
accurately labeled graphs or visuals (e.g., via properly labeled shifts in curves, new quantities and/or prices, and
arrows indicating the direction of change). Students must also be able to interpret and manipulate provided graphs
and visuals representing different economic situations. To access past AP Exam questions and formative practice
questions that use graphs or visual representations, teachers can visit the AP Question Bank on AP Classroom
and filter questions by stimulus, skill, topic, and other criteria.
Draw and Analyze Provided Graphs and Visuals

The following graphs and visuals are relevant in the context of both the multiple-choice and free-response
sections of the AP Macroeconomics exam. This means that students should be able to answer questions about
a provided graph or visual of each of the following models and be able to draw a graph or visual themselves using
each of the following models.
THE PRODUCTION POSSIBILITIES CURVE MODEL

Associated Learning Objectives
MOD-1.B MKT-1.A MKT-1.B MOD-2.F MOD-1.C POL-4.A
Example
Capital Goods
Consumption Goods
DEMAND AND SUPPLY

MKT-2.A MKT-2.B MKT-2.C MKT-2.D MKT-2.E MKT-2.F MKT-2.G
Example
Supply
Price
Pe
Demand
Qe Quantity

THE AGGREGATE DEMAND-AGGREGATE SUPPLY (AD-AS) MODEL
MEA-2.A MOD-2.A MOD-2.C MOD-2.D MOD-2.E MOD-2.F MOD-2.G MOD-2.H MOD-2.I POL-1.A POL-1.D POL-1.F
POL-3.A MEA-2.B MOD-1.C POL-4.A MKT-5.F
Example
Price Level
LRAS1
SRAS1
PL1
AD1
Y1 Yf Real GDP
BALANCE SHEETS (T-ACCOUNTS)

POL-2.A POL-1.D
Example
Bank A
Assets Liabilities
Required reserves $10,000 Demand deposits $100,000
Excess reserves $5,000
Loans $85,000 Owner’s equity $0
THE MONEY MARKET

MKT-3.A MKT-3.B MKT-3.C MKT-3.D POL-1.D POL-1.F
Example
Nominal
Interest Rate
MS1
i1
MD1
Q1 Quantity
of Money

THE LOANABLE FUNDS MARKET
MKT-4.A MKT-4.C MKT-4.D MKT-4.E POL-3.C MKT-5.G
Example
Real
Interest Rate
SLF1
r1
DLF1
Q1 Quantity of
Loanable Funds
THE PHILLIPS CURVE MODEL

MEA-2.A MOD-3.A MOD-3.B POL-3.A
Example
LRPC1
Inflation
Rate (%)
inf1
SRPC1
UN Unemployment
Rate (%)
THE FOREIGN EXCHANGE MARKET

MKT-5.B MKT-5.C MKT-5.D MKT-5.E MKT-5.F MKT-5.G
Example
Dollars
per Euro
S1
e1
D1
Q1 Quantity of
Euros

Analyze Provided Graphs and Visuals
Students will not be expected to draw the following graphs and visuals themselves on the free-response section of
the AP Macroeconomics Exam, but students should be prepared to answer multiple-choice questions in which the
following graphs and visuals are provided or referenced.
BUSINESS CYCLE GRAPH

MEA-2.A
Example
Potential
Real GDP
Real GDP
Actual
Real GDP
Y1 Y2 Y3 Y4 Y5 Time
THE CIRCULAR FLOW MODEL

MEA-1.A
Example
Government Taxes Investment

Purchases of Consumption Savings
Goods and Expenditures
Services
Goods and
Services
Households Firms
Factors of
Production
Imports Wages, Rent,

Exports Interest, Profit

THE AGGREGATE PRODUCTION FUNCTION
MEA-2.B POL-4.A
Example
Real GDP
Y1
Employment

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Unit 4: Financial Sector 18–23%

Unit 5: Long-Run Consequences of Stabilization Policies 20–30%

Unit 6: Open Economy—International Trade and Finance 10–13%

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MOD 1.1 Scarcity MEA 2.1 TheCircular Flow and

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POL 3.9 Automatic Stabilizers

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