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1 Advanced PlacementECONOMICSM acroeconomics:Student Activities3rd editionJohn S. MortonRae Jean B. GoodmanThis publication was made possible through funding byAuthorsJohn S. Morton is Vice President for Program Development at the National Council on EconomicEducation. Previously, he was a high school economics Teacher , director of the Governors StateUniversity Center for economic Education and president of the Arizona Council on Jean B. Goodman, Director of Teaching and Learning and Professor of Economics, has had morethan 30 years of teaching and administrative experience at the Naval Academy.

2 She served as atable leader and the Chief Faculty Consultant for the Advanced Placement Economics Examinationsfrom 1989 until Patterson Grenier was a reporter, deputy bureau chief and bureau chief at the print andonline Wall Street Journal. A former Teacher , she was also the founding editor and publisher ofThe Wall Street Journal Classroom Edition, an award-winning educational program for high schooleconomics teachers and A. Mills received her bachelor of fine arts degree in art from the University of is employed as a Test Publishing Coordinator at Educational Testing Service in Princeton, DirectorClaire Melican is Vice President for Program Administration at the National Council on EconomicEducation.

3 In addition to teaching economics at the college level, Claire has worked at the EducationalTesting Service where she was instrumental in the development and implementation of the AdvancedPlacement Examinations in Economics until design and composition by World Composition Services, Inc., Sterling, by PMR Printing, Inc., Sterling, VirginiaAuthorsCopyright 2003, National Council on economic Education, 1140 Avenue of the Americas, New York, All rights reserved. Some material in this publication was previously published in Advanced PlacementEconomics, 1996 by the National Council on economic Education.

4 No part of this book may be kept in aninformation storage or retrieval system, transmitted or reproduced in any form or by any means withoutpermission in writing from the publisher. Printed in the United States of : 1-56183-567-6 Advanced Placement Economics macroeconomics : Student Activities National Council on economic Education, New York, 1 Basic economic ConceptsKey Ideas3 Activity 1 Scarcity, Opportunity Cost and Production Possibilities Curves5 Activity 2 Opportunity Cost and Comparative Advantage9 Activity 3 Demand Curves, Movements Along Demand Curves and Shifts in Demand Curves15 Activity 4 Reasons for Changes in Demand19 Activity 5 Supply Curves.

5 Movements Along Supply Curves and Shifts in Supply Curves21 Activity 6 Reasons for Changes in Supply25 Activity 7 Equilibrium Price and Equilibrium Quantity27 Activity 8 Elasticity: An Introduction33 Sample Multiple-Choice Questions39 Sample Short Free-Response Questions47 Sample Long Free-Response Questions51 Unit 2 Measuring economic PerformanceKey Ideas59 Activity 9 Test of Macroeconomic Thinking61 Activity 10 Understanding the Circular Flow of the Macroeconomy63 Activity 11 Measuring Broad economic Goals65 Activity 12 All About GDP71 Activity 13 Price Indexes75 Activity 14 Inflation Game: Royalty for a Day77 Activity 15 Who Is Hurt and Who Is Helped by Unanticipated Inflation?

6 81 Activity 16 Types of Unemployment85 Activity 17 The Business Cycle87 Activity 18 Test Your Understanding of Macroeconomic Indicators93 Sample Multiple-Choice Questions95 Sample Short Free-Response Questions99 Sample Long Free-Response Questions103 Unit 3 Aggregate Demand and Aggregate Supply:Fluctuations in Outputs and PricesKey Ideas107 Activity 19 Keynesian Equilibrium109aMacroeconomics | ContentsMacroeconomics | Contents Activity 20 Practice with APC, APS, MPC and MPS111 Activity 21 The Magic of the Multiplier113 Activity 22 Investment Demand119 Activity 23 An Introduction to Aggregate Demand123 Activity 24 An Introduction to Short-Run Aggregate Supply127 Activity 25 Short-Run Equilibrium Price Level and Output131 Activity 26 Reconciling the Keynesian Aggregate Expenditure Model with the AggregateDemand and Aggregate Supply Model135 Activity 27 Manipulating the AD and AS Model: Exogenous Demand and Supply Shocks137 Activity 28 The Macroeconomic Model.

7 Short Run to Long Run143 Activity 29 Long-Run Aggregate Supply (LRAS) and the Production Possibilities Curve (PPC)147 Activity 30 The Tools of Fiscal Policy151 Activity 31 Discretionary and Automatic Fiscal Policy155 Activity 32 Two Ways to Analyze Fiscal Policy157 Activity 33 Analyzing the Macroeconomy159 Sample Multiple-Choice Questions163 Sample Short Free-Response Questions169 Sample Long Free-Response Questions173 Unit 4 Money, Monetary Policy and economic StabilityKey Ideas181 Activity 34 Money183 Activity 35 What s All This About the Ms?

8 187 Activity 36 The Monetary Equation of Exchange191 Activity 37 The Multiple Expansion of Checkable Deposits195 Activity 38 The Federal Reserve: The Mechanics of Monetary Policy199 Activity 39 The Money Market205 Activity 40 The Federal Reserve: Monetary Policy and Macroeconomics209 Activity 41 Real Interest Rates and Nominal Interest Rates213 Activity 42 Monetary Policy219 Sample Multiple-Choice Questions223 Sample Short Free-Response Questions227 Sample Long Free-Response Questions231ivAdvanced Placement Economics macroeconomics : Student Activities National Council on economic Education, New York, | ContentsMacroeconomics | Contents Unit 5 Monetary and Fiscal Policy Combinations.

9 Stabilization Policy in the Real WorldKey Ideas237 Activity 43 Monetary and Fiscal Policy239 Activity 44 Crowding-Out: A Graphical Representation241 Activity 45 Graphing Monetary and Fiscal Policy Interactions245 Activity 46 Short-Run Phillips Curve249 Activity 47 economic Growth and the Determinants of Productive Capacity255 Activity 48 Why Economists Disagree261 Sample Multiple-Choice Questions267 Sample Short Free-Response Questions271 Sample Long Free-Response Questions275 Unit 6 International EconomicsKey Ideas283 Activity 49 Determining Comparative Advantage285 Activity 50 economic Efficiency and Gains from Trade289

10 Activity 51 Barriers to Trade293 Activity 52 Imbalance of Payments301 Activity 53 Exchange Rates305 Activity 54 How Monetary and Fiscal Policies Affect Exchange Rates309 Activity 55 The International Way of Thinking315 Sample Multiple-Choice Questions321 Sample Short Free-Response Questions325 Sample Long Free-Response Questions331 Advanced Placement Economics macroeconomics : Student Activities National Council on economic Education, New York, | ContentsMacroeconomics | Contents macroeconomics | Unit 1 macroeconomics | Unit 1 Basic economic ConceptsAdvanced Placement Economics macroeconomics : Student Activities National Council on economic Education, New York, IDEASUNIT Scarcity exists because we have limitedresources and unlimited wants.