A. P. Economics (APE)

Seating Chart

APE: The Course

Course Objectives  Learn vs. Achieve  3 Choices  Learn vs. Achieve  3 Choices

The Choices  One  Teach to the test!!!!  Two  Think like an economist!!!!  Three  Reach for the stars!!!!  Do Both.  This is the correct answer.  One  Teach to the test!!!!  Two  Think like an economist!!!!  Three  Reach for the stars!!!!  Do Both.  This is the correct answer.

The A. P. Economics Test  2 separate Tests  Microeconomics & Macroeconomics  Scores (0-5)  One Semester of college credit each  May 17th, 2012  2 separate Tests  Microeconomics & Macroeconomics  Scores (0-5)  One Semester of college credit each  May 17th, 2012

Course Focus  Real world  Application of material to current events  Opening Q’s  Test Preparation  Problem sets  Graphing  Grading  Real world  Application of material to current events  Opening Q’s  Test Preparation  Problem sets  Graphing  Grading

What is economics?  How to allocate limited resources with unlimited wants and desires.  Choices  Incentives  Costs vs. benefits  How to allocate limited resources with unlimited wants and desires.  Choices  Incentives  Costs vs. benefits

Areas of study  Microeconomics  Demand  Supply  Price equilibrium  Market structures  Sources of capital  Microeconomics  Demand  Supply  Price equilibrium  Market structures  Sources of capital  Macroeconomics  Monetary policy  Fiscal policy  Government  International Trade  Performance  Challenges  Macroeconomics  Monetary policy  Fiscal policy  Government  International Trade  Performance  Challenges

Grading  Participation  Tests  Homework  Group work  Current events/Readings  Investment portfolio  Honours paper  Depends on completed assignments within grading period  Participation  Tests  Homework  Group work  Current events/Readings  Investment portfolio  Honours paper  Depends on completed assignments within grading period

Expectations  Participate  Adults  Meet deadlines  Have fun!  Do well!  Participate  Adults  Meet deadlines  Have fun!  Do well!

A Brief History of Economics  The development of different schools of thought

Early Influences  British Maritime Trade  Edmund Burke, British Parliament  “Some of the chief principles of commerce; such as the advantage of free intercourse between all parts of the same kingdom...the evils attending restriction and monopoly...and that the gain of others is not necessarily our loss, but on the contrary an advantage by causing a greater demand for such wares as we have for sale”  Alexander Hamilton, First U.S. Treasury Secretary  “A national debt, if it is not excessive, will be to us a national blessing.”

Adam Smith  Wealth of Nations (1776)  Invisible Hand  Laissez faire  Growth of wealth  Anti-government  Fueled by growth of labor pool  Wealth of Nations (1776)  Invisible Hand  Laissez faire  Growth of wealth  Anti-government  Fueled by growth of labor pool

Smith leads to Birth of ….  Economics  Capitalism  Classical School of Economic Thought  Economics  Capitalism  Classical School of Economic Thought

Classical & Neoclassical Economics  Positive or Good Influences  Market  Trade  Negative or Bad Influences  Government/taxes  Trade restrictions  Many Unknowns  Positive or Good Influences  Market  Trade  Negative or Bad Influences  Government/taxes  Trade restrictions  Many Unknowns  Continued Development (neo)  Alfred Marshall  Math  Supply & Demand  Continued Development (neo)  Alfred Marshall  Math  Supply & Demand

Industrial Revolution  Renowned for Communist Manifesto (1848)  Politics based on economic analysis  Labor & wealthy fighting over profits  Increase in wealth at expense of workers  Capitalism as unstable  Socialism  Renowned for Communist Manifesto (1848)  Politics based on economic analysis  Labor & wealthy fighting over profits  Increase in wealth at expense of workers  Capitalism as unstable  Socialism Karl Marx

Downfall Of Neoclassical Economics

John Maynard Keynes  Intellectual  Challenged Treaty of Versailles  Gold Standard  Intellectual  Challenged Treaty of Versailles  Gold Standard

Keynesian School of Thought  The General Theory of Employment, Interest & Money (1936)  Business Cycle  Government needed to guide capitalism  Father of modern economics & “mixed economy.”  Sammuelson 1948 Textbook  The General Theory of Employment, Interest & Money (1936)  Business Cycle  Government needed to guide capitalism  Father of modern economics & “mixed economy.”  Sammuelson 1948 Textbook

Bretton Woods  1944 Allied Conference  Creates Modern Financial System  World Bank  IMF  1944 Allied Conference  Creates Modern Financial System  World Bank  IMF

Keynesian Economics  WW II - 70’s  Monetary & Fiscal Policy  Government can help  Great Society  WW II - 70’s  Monetary & Fiscal Policy  Government can help  Great Society

Downfall Of Keynesian Economics

New Classical / Monetarism  Milton Friedman - Creator of “Chicago School”  Expectations  Anti-Keynesian  Monetary Supply Growth equal to Economic Growth  Government is the problem  Milton Friedman - Creator of “Chicago School”  Expectations  Anti-Keynesian  Monetary Supply Growth equal to Economic Growth  Government is the problem

Efficient Market Hypothesis  Assumptions:  Efficiency  The markets immediately incorporates all information  Rationality  People act in a rational manner at all times  Risk  Since the market knows all, the only risk is how closely does an investment follow the market  Beta  Assumptions:  Efficiency  The markets immediately incorporates all information  Rationality  People act in a rational manner at all times  Risk  Since the market knows all, the only risk is how closely does an investment follow the market  Beta

Efficient Market Hypothesis  Conclusions:  Econometrics  Mathematical Models  Laissez-faire  Economists enter the Boardroom & Wall Street  Moderation  Belief that proper Monetary Policy can override the business cycle (& Keynesians too!)  Greenspan  Conclusions:  Econometrics  Mathematical Models  Laissez-faire  Economists enter the Boardroom & Wall Street  Moderation  Belief that proper Monetary Policy can override the business cycle (& Keynesians too!)  Greenspan

New Classical  Econometrics  Monetary Policy  Anti-inflation  Sustained Growth  Laissez-Faire  Underlying assumptions problematic  Econometrics  Monetary Policy  Anti-inflation  Sustained Growth  Laissez-Faire  Underlying assumptions problematic

Downfall Of the New Classical School

New Keynesian  Addresses problems from New Classical  Irrational Behavior  Long-term vs. Short-term  Market Inefficiencies  Sticky Prices  Addresses problems from New Classical  Irrational Behavior  Long-term vs. Short-term  Market Inefficiencies  Sticky Prices

The Ongoing Debate Saltwater vs. Fresh Water

Additional Readings  Paul Krugman, Princeton University  “How did Economists get it so wrong?” (NY Times 9/6/09)  Gregory Mankiw, Harvard University  “The Macroeconomist as Scientist & Engineer” (May 2006)  John Cassidy, New Yorker Magazine  After the Blow-up: Laissez-faire Economists do some soul-searching & finger-pointing. (1/11/10)  Paul Krugman, Princeton University  “How did Economists get it so wrong?” (NY Times 9/6/09)  Gregory Mankiw, Harvard University  “The Macroeconomist as Scientist & Engineer” (May 2006)  John Cassidy, New Yorker Magazine  After the Blow-up: Laissez-faire Economists do some soul-searching & finger-pointing. (1/11/10)