TEACHER GUIDE | 5TH EDITION

RUTH COOKSON
MATTHEW GHERMAN
BARBARA BLAKE GONZALEZ
ALEX LAMON
CATHY LATHAM
THEODORE OPDERBECK
STACY QUIROZ-BROWN
AUTHORS

AUTHORS, FIFTH EDITION

Matthew Gherman
Teacher, Edward R. Murrow High School, New York City, NY
Alex Lamon
Lead Teacher, Business Education, Livingston High School, Livingston, NJ
Cathy Latham
Retired Educator
Theodore Opderbeck
Social Studies Teacher, Waldwick High School, Waldwick, NJ
Stacy Quiroz-Brown
Economic Education Teacher Advisor, Arizona Council on Economic Education

AUTHORS, FOURTH EDITION

Gary L. Stone
Margaret A. Ray

PROJECT DIRECTOR/AUTHOR
Ruth Cookson
Senior Manager, Educational Content
Council for Economic Education

EDITOR/AUTHOR
Barbara Blake Gonzalez
Chief Administrative Officer, The Dragas Center for Economic Analysis and Policy,
Department of Economics, Strome College of Business, Old Dominion University

DIGITAL CONSULTANT/PROJECT MANAGER

Veronica Tomaiuolo

This publication was made possible through funding by the WoodNext Foundation.
Copyright © 2023, Council for Economic Education, 122 East 42 Street, Suite 1012, New York, NY 10168. All rights reserved. The
visuals and student activities may be duplicated for classroom use, the number not to exceed the number of students in each
class. Notice of copyright must appear on all pages. With the exception of the visuals and student activities, no part of this book
may be reproduced in any form by any means without written permission from the publisher. Printed in the United States of
America.

ISBN: 978-1-7348096-3-3

ii AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY

TABLE OF CONTENTS

Acknowledgments v
Introduction vi

Unit 1 Basic Economic Concepts

Unit Overview 3
Lesson 1 The Economic Way of Thinking 5
Lesson 2 Scarcity and Opportunity Cost 9
Lesson 3 Production Possibilities Curves 11
Lesson 4 Absolute Advantage, Comparative Advantage, Specialization, and Trade 21
Lesson 5 Understanding Demand 37
Lesson 6 Understanding Supply 49
Lesson 7 Equilibrium Price and Quantity 61
Supplemental Supply and Demand Graph Practice 73
Lesson
Unit 1 Multiple-Choice Sample Questions 78

Unit 2 Measuring Economic Performance

Unit Overview 87
Lesson 1 The Circular Flow Model 89
Lesson 2 Gross Domestic Product 95
Lesson 3 Price Indices and Inflation 105
Lesson 4 Costs of Inflation 113
Lesson 5 Unemployment 121
Lesson 6 The Business Cycle 129
Unit 2 Multiple-Choice Sample Questions 135

Unit 3 National Income and Price Determination

Unit Overview 143
Lesson 1 Aggregate Demand 145
Lesson 2 Introducing the Multiplier 155
Lesson 3 The Expenditure Multiplier and the Tax Multiplier 163
Lesson 4 Short Run Aggregate Supply 167
Lesson 5 Equilibrium and Changes in AS and AD 173
Lesson 6 Aggregate Supply in the Long Run 181
Lesson 7 Fiscal Policy 195
Lesson 8 Automatic Stabilizers 203
Unit 3 Multiple-Choice Sample Questions 211

AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY iii
TABLE OF CONTENTS

Unit 4 The Financial Sector

Unit Overview 219
Lesson 1 Financial Assets 221
Lesson 2 Nominal vs. Real Interest Rates 231
Lesson 3 Definition, Measurement, and Functions of Money 237
Lesson 4 Banks and the Creation of Money 245
Lesson 5 The Supply and Demand for Money 255
Lesson 6 The Loanable Funds Market 261
Lesson 7 Introducing the Federal Reserve System 271
Lesson 8 Monetary Policy 277
Unit 4 Multiple-Choice Sample Questions 291

Unit 5 Long-Run Consequences of Stabilization Policies

Unit Overview 297
Lesson 1 Fiscal and Monetary Policy Actions in the Short Run 299
Lesson 2 Money Growth and Inflation 309
Lesson 3 The Deficit and the Debt 315
Lesson 4 Crowding Out 321
Lesson 5 The Phillips Curve 327
Lesson 6 Economic Growth and Productivity 341
Lesson 7 Public Policy and Economic Growth 349
Unit 5 Multiple-Choice Sample Questions 357

Unit 6 An Open Economy: International Trade and Finance

Unit Overview 365
Lesson 1 Review of Comparative Advantage and Barriers to Trade 367
Lesson 2 Balance of Payments Accounts 373
Lesson 3 Exchange Rates 383
Lesson 4 The Foreign Exchange Market 389
Lesson 5 Monetary and Fiscal Policy Effects with an Open Economy 395
Lesson 6 Changes on the Foreign Exchange Market and Net Exports 401
Lesson 7 Real Interest Rates and International Capital Flows 405
Unit 6 Multiple-Choice Sample Questions 413

iv AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY

ACKNOWLEDGMENTS

The Council for Economic Education would like to thank the following contributors to the 4th edition of Advanced
Placement Economics: Macroeconomics.

Author
Margaret A. Ray

Contributing Author
Gary L. Stone

Content Consultant
Dennis Placone

Project Director
Kevin Gotchet

Contributors
Eric Dodge
Michael Fullington
David Mayer
Dick Rankin
Matt Romano
Rob Zywicki

Reviewers
Steve Cobb
Tawni Ferrarini
Dennis Placone
Dick Rankin

Special Acknowledgment:
CEE extends special thanks to the authors who helped develop content for the previous editions: John Morton and
Rae Jean B. Goodman.

AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY v

INTRODUCTION

AP Macroeconomics is designed to help you teach Advanced Placement (AP) Macroeconomics courses and prepare
your students for the AP Macroeconomics Exam. The AP program offers two separate examinations in economics:
one in macroeconomics and one in microeconomics. Each AP exam is intended for qualified students who wish to
complete studies in secondary school that are equivalent to a one-semester college introductory course. The AP
Macroeconomics Exam is 2 hours and 10 minutes long and consists of a 70-minute multiple choice section and a
60-minute free-response section. The free-response section begins with a mandatory 10-minute reading period. The
multiple-choice section accounts for approximately two-thirds of the student’s exam grade and the free-response
section for the remaining one-third.

Using Advanced Placement Macroeconomics

AP Macroeconomics consists of the Student Workbook and the Teacher Guide. Each unit in the Student Workbook
begins with a key ideas section. The student activities teach basic economic principles and allow students to practice
applying economic concepts. It is best for each student to have his or her own Student Workbook.
The Teacher Guide provides unit overviews, lesson plans, objectives, Teacher Alerts, Bell Ringer activities to jump-
start each class, visuals, answers to the student activities, and multiple-choice test questions. The procedures in
the lessons include instructional activities that are not in the Student Workbook. The Teacher Guide is designed to
provide activities and lessons that, coupled with the AP Course and Exam Description, a teacher can use to design an
AP Macroeconomics course that best meets the needs of their students.
AP Macroeconomics is designed to be used with an AP-level economics textbook. The textbook provides the basic
content, and the lessons and activities in AP Macroeconomics provide practice, application of the content, and
review for the AP Macroeconomics Exam.
In addition to AP Macroeconomics and an AP-level textbook, a variety of different resources for teaching AP
Macroeconomics are available online, including lesson plans, in-class activities, classroom experiments, videos,
and supplemental readings. The Council for Economic Education provides a number of additional resources on
https://www.econedlink.org/ as well as print publications through the EconEdLink store. You can also find a
searchable database of resources for teaching AP Macroeconomics on the College Board website, https://apcentral.
collegeboard.org/

The New and Improved Advanced Placement Macroeconomics

The 5th edition of AP Macroeconomics has been significantly updated. Every lesson held over from the 4th
edition has been revised and new lessons have been added. The content has been updated to reflect the 2022 AP
Macroeconomics Course and Exam Description and all activities have been adapted to reflect the understanding of
economic principles that students are expected to demonstrate on the AP Macroeconomics Exam. We believe it is
the most complete and comprehensive supplementary package available for teaching AP Macroeconomics.
The major changes in the fifth edition are outlined below:
• Activities are now included after each lesson, instead of being added to the back of the curriculum.
• Content is reorganized using the 2022 AP Course and Exam Description including a substantial revision of
monetary policy to include teaching about ample reserves.
• Lessons have been broken down into shorter, easily managed sections that include more visuals.
• Bell Ringers have been updated to provide thought-provoking student-friendly openings for each lesson.
• Multiple Choice Questions have been removed from the Student Workbook so teachers can use them for quizzes
and tests without student prior knowledge.

vi AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY

INTRODUCTION

• New lessons have been added in response to CED content

– Supplemental activities for Graphing Supply and Demand
– Financial Assets
– Nominal vs. Real Interest Rates
– Monetary Policy

Top 10 Keys to Teaching an Effective AP Macroeconomics Course

Designing and teaching an AP Macroeconomics course is challenging. The course requires teaching college-level
material to high school students. Here are a few tips from veteran teachers that will help you be successful.
1. The Course Exam Description and AP Classroom are Your Best Friends
The CED framework provides a clear and detailed description of the course requirements necessary for student
success. It details the four skill categories - defining principles and models, interpreting economic outcomes,
manipulation of data to determine the outcome of specific situations, being able to model economic situations
using graphs and visuals - and the four big ideas – economic measurement, markets, macroeconomic models,
and macroeconomics policies - that should be the basis of your curriculum.
The AP Classroom online platform provides a variety of resources and tools to support teachers and students.
These include unit guides, personal progress checks and a progress dashboard that provides feedback to
teachers and students on areas that need more focus, and an AP question bank where teachers can create
customized tests that can be assigned online or on paper.
2. Get Teacher Training
The College Board offers several one-day workshops that provide background for AP Macroeconomics courses.
These workshops focus on the content covered and an analysis of past multiple-choice and free-response
questions. The workshop leader, who is often an AP reader, will provide valuable information to improve student
performance. It also helps to attend longer summer workshops that focus on the content in AP Macroeconomics
in more detail. These workshops cover the content more comprehensively and demonstrate activities.
CEE offers online professional development through EconEdLink.org. State Councils on Economic Education also
offer workshops for AP Economics teachers. Some of these affiliates of the Council for Economic Education can
also provide advice to individual teachers. To locate the state council or university center nearest you, log on to
the CEE website at https://www.councilforeconed.org/programs/for-teachers/state-affiliates/
3. Use the Best Textbook You Can Get
If you are involved in choosing the textbook for your course, look for a book that matches the AP course content.
Especially consider the reading level and readability of the book. If you have the option, also look for a textbook
that is compatible with your teaching style. Whichever textbook you use, be sure to ask about ancillary materials
such as student activities, teacher’s manual, study guide, or test bank. There are reviews of textbooks and other
instructional materials on the College Board website.
4. Organize the Course in Advance
The unit plans and lesson plans in this book are based on seventy-five 45-minute class periods each semester.
However, every school schedule is different and disruptions always interfere with even the best of plans. So, you
will need to adapt the plans provided here to meet the needs of your students and the requirements of your
school. Make sure you are aware of the exam date and be careful to complete the entire syllabus despite both
expected and unexpected disruptions. Also, be sure to allow for plenty of exam review time.

AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY vii
INTRODUCTION

5. Assess Often
Students need lots of practice and frequent assessments to make sure they have mastered the material. Brief
but frequent multiple-choice quizzes help students get used to the exam format. Unit tests should have AP-style
multiple-choice and free-response questions. Use released AP exam questions, and grade (and have students
grade) answers using the rubrics provided by the College Board. Students benefit from learning to answer free-
response questions. What is required for students to learn economics and succeed on the AP Macroeconomics
Exam is very different from what is required in other social science disciplines. Familiarity with past AP questions
is a key to student success. A list of past AP questions has been broken down by topic in the overview section of
each Unit.
6. Teach an Economic Way of Thinking
Content is very important in AP Economics, but a quality course goes beyond teaching a list of concepts.
Economics is a unique way of thinking that helps students develop decision-making skills. The goal of an
introductory economics course is to help students develop the economic way of thinking. Even if students don’t
remember a specific concept covered on the exam, they will be able to use the techniques of thinking they have
learned to draw correct conclusions. A good resource of ready-to-use lessons that reinforce the economic way of
thinking is Capstone: Exemplary Lessons for High School Economics (New York: Council for Economic Education,
2003).
7. Use Active Learning
An AP Macroeconomics class will not be effective if the focus is on memorizing definitions, information, and
rules. While the lecture-discussion method will be required for initial presentation of course content, economics
will be more relevant and stimulating if students are actively involved in the lessons. They will also learn the
content at the required, deeper level.
The Council for Economic Education and the companion website on EconEdLink.org are excellent sources for
active-learning activities that can help your students understand concepts critical to their performing well on an
AP Economics exam.
8. Practice Makes Perfect
The AP Macroeconomics Student Workbook provides students with the practice they will need to be successful
on the AP Macroeconomics Exam. The goal is not to cover every possible situation but to develop economic
reasoning so that students can apply what they have learned to any example they may be given.
9. Graph Early and Often
The students must be able to perform graphical analysis to do well on the AP Macroeconomics Exam. Important
graphs in Macroeconomics include production possibilities, aggregate demand and aggregate supply, the money
market, the loanable funds market, the Phillips curve, and the foreign exchange market.
It is essential for students to understand that they are applying an economic model, not memorizing graphs.
Students need to know that graphs must be clearly and correctly labeled to receive credit on AP Economics
exams. When you provide feedback on students’ graphs, always point out labeling errors and omissions.
10. Emphasize Historically Weak Areas
Each year the AP Macroeconomics chief reader identifies areas in which students have done poorly. Because
these areas will be covered again in future tests, it pays to review the chief reader’s notes. These are available on
the College Board’s AP Central website for the Macroeconomics course. Use these notes to design your course
and prepare your students for their AP Macroeconomics Exam.

viii AP Macroeconomics Teacher Guide © Council for Economic Education, New York, NY