The Test today is a multiple choice Test on Chapter 16.
Put your name on the Scantron and the Test. You may write on the Test. If you finish early you may take out non-Economics material.
If there is time we will continue on Chapter 20.
Chapter Appendix, p. 521
Deriving the Aggregate Demand Curve
The Appendix illustrates how the aggregate demand curve can be derived from the
aggregate expenditures model by changing the price level (thus changing the position of the AE line) and finding the new equilibrium level of Y. These points are then translated onto a second set of axes to show the aggregate demand curve.
Examples Used in the End-of-Chapter Questions
Question 13 refers to consumer confidence. Chapter 18 introduced students to the
Conference Board’s monthly survey of 5,000 households called the Consumer
Confidence Index. To learn more about the Index visit the Conference Board’s Web
site at: http://www.conference-board.org/economics/consumerConfidence.cfm.
Many analysts and policymakers also track the index published by Reuters in conjunction with the University of Michigan. See sites like Bloomberg.com for recent releases, or view previous press releases at: https://customers.reuters.com/community/university/default.aspx.
For Further Analysis
The Best of Times and the Worst of Times? Using the AS/AD Model to Explain
the 1970s and the 1990s
This example can be used as an in-class small group exercise or as an individual inclass exercise. It is designed to complement the text’s material by employing the graphical analysis of the AS/AD model to illustrate stagflation and the low inflation–low unemployment that characterized the 1990s. For simplicity the handout uses only short-run analysis, but it is not difficult to incorporate a discussion of whether or not the long-run aggregate supply curve shifts.
Web-Based Exercise
The Effect of Oil in the 1990s; Not Like the 1970s
This example can be used as a small group exercise or as an individual exercise.
The exercise provides an opportunity for students to read research from a Federal
Reserve Bank’s research department and apply it to what they have learned in the
chapter. This serves a subtle purpose of introducing the Federal Reserve System in
advance of its coverage in later chapters. You may also decide to have students read recent articles about oil prices and about whether or not there is still concern about stagflation in order to make this a more extensive assignment.
The Effect of Oil in the 1990s; Not Like the 1970s
Visit the Web site of the Federal Reserve Bank of San Francisco (http://www.
frbsf.org/) to read an article from its Economic Letter (2005-31; November 18, 2005) titled “Why Hasn’t the Jump in Oil Prices Led to a Recession?” The authors (John Fernald and Bharat Trehan) compare the effect of oil prices in the 1970s and in the 1990s. Summarize the main points of the article. This is still a topic very much in the news. (The article reinforces the text material
about the importance of disposable income and about whether price increases are
seen as permanent or temporary. It also makes mention of monetary policy,
which might be a good “promo” for material to come.)
Tips from a Colleague
Perhaps the hardest part of this chapter is the explanation why the aggregate
demand curve has a downward slope, as students are quick to relate it to demand
curves for individual goods. You may want to recall the material about biases in the CPI due to consumers switching among goods when prices change to reinforce the
substitutions that occur when we look at aggregate demand.
Web of Debt, The Shocking Truth About Our Money System
Author Ellen Hodgson Brown talks about her book, how money is created by the banks using an illusion and how we can fix the coming economic meltdown.
As we have time, we will pick up where we left off in Chapter 20.
1. Be sure to review Chs. 17-19 (we will have Quizzes and Tests on this material as well, TBA).
2. Ch. 19, this material, in contrast to the older material, is new and you should answer in writing as part of your HW:
Question: Between 2004 and 2006, the price of petroleum products in the United
States more than doubled and gasoline and diesel fuel peaked at roughly $3.00 a gallon.
Describe the impact of this price increase on aggregate supply. How might it
affect employment, unemployment, and the price level? Would the impact depend
on whether consumers and business thought the price increase was permanent?
The point is to check that students can: understand how changes in the price of oil affect the economy. It might be useful to point out that the initial effect is a decrease in aggregate supply against an unchanging aggregate demand.
3. As review for HW, a typical question that you may encounter on the actual AP Economics Macro Test is included daily:
#3.
Which of the following is NOT a determinant of demand?
a) A change in consumer tastes and preferences
b) A change in the price of inputs
c) A change in the number of buyers
d) A change in the price of a substitute
e) A change in the level of consumer information
