APMacro: Aggregate Demand

5 AD graph2

Aggregate demand help to explain how and why real GDP and price levels change in the national economy. Aggregate demand illustrates the total amount of demand for a country’s products at each price level. The aggregate demand curve slopes downward for three reasons. The real balances effect explains that higher price levels reduce the real value of assets, so households reduce spending. The interest rate effect shows that when higher prices and the resulting demand for money cause interest rates to rise, households and firms are less likely to borrow, reducing spending and investment.

With the foreign purchases effect, an increase in U.S. price levels, compared to foreign price levels, leads Americans and foreigners to buy fewer U.S. products in favor of the now relatively less expensive foreign products. On the other hand, all three effects serve to increase the quantity demanded when price levels fall.

6 AD Shifters

Aggregate demand shifts in response to changes in all four sectors of the economy. Consumer spending can change as a result of changes in consumer wealth, expectations about the economy, household borrowing, and personal taxes. Investment spending changes in response to fluctuations in real interest rates and expected returns on investment, caused by changes in expected business conditions, technology, excess capacity, and business taxes. The government sector affects aggregate demand through changes in spending, and net exports affect aggregate demand as a result of changes in national incomes and exchange rates.



Gov: Supreme Court Cases Amendments 1-5

The case of Engel v Vitale challenged the recitation of a standard prayer each day in New York’s public schools. In its decision, the Court struck down the practice. State-sponsored prayer in schools was wholly inconsistent with the Establishment.

In West Virginia State Board of Education v Barnette, the Court said that Jehovah’s Witnesses could refuse to salute the flag. Jehovah’s Witnesses view pledging allegiance to the flag as a form of idolatry prohibited by the Bible. Their right to do so was protected under their First Amendment rights to religious freedom and free speech.

In Lemon v Kurtzman, using public funds to support private religious schools was unconstitutional. This case established a three-point “Lemon test” to determine if and when a government action violates the Establishment Clause. To be constitutional, a government action must have a secular, or nonreligious, purpose; neither help nor hurt religion; not result in an excessive entanglement of the government and religion.

In the case of Brandenburg v Ohio, a Ku Klux Klan leader was arrested for giving a speech advocating illegal activities. In its decision, the Court offered a two-part test to determine whether a clear and present danger exists that might justify suppressing free speech. First, such speech has to be directed to inciting or producing imminent lawless action. Second, the speech must be likely to incite or produce such action. The Court found that the Klan leader’s speech, though containing hateful statements, was unlikely to produce any unlawful actions.

In Texas v Johnson, the Court concluded that flag burning as an expression of opinion was protected symbolic speech. Gregory Lee Johnson had been arrested in Texas for burning a flag to protest government policies. His actions violated a state law against flag desecration.It said that a state could not prohibit such actions, even if it found them offensive.

The Near case involved a newspaper that Minnesota officials wanted to shut down. The paper had published articles exposing political corruption. In Near v. Minnesota, the Court declared such attempts at prior restraint to be unconstitutional. The Court declared that a government had no right to call for prior restraint. Keeping information from being published could be allowed only under very special circumstances, such as protecting national security. If officials were worried about possibly libelous articles, they could sue the publisher after the materials were in print.

In the United States v. Miller case, the Court supported the conviction of two men who had failed to register a sawed-off shotgun. The Court’s decision directly tied gun ownership to militias. Because militias never used sawed-off shotguns for common defense, the Court determined that government had the right to regulate such weapons.

No court cases.

The case of Katz v. United  States hinged on recordings of a suspect’s conversation made from a public phone booth. Because the recording device was placed outside the booth and recorded only the suspect’s voice, the police believed they did not need a warrant. The Court disagreed and concluded that a warrant was required because the suspect had a “reasonable expectation of privacy” in a phone booth.

In the case of Terry v. Ohio, three men’s behavior caused a police officer to suspect that they were about to rob a store. After questioning the men, the officer frisked them by patting down the outside of their clothing. Two of the suspects had guns, and they were later convicted for carrying concealed weapons. The men appealed their conviction claiming that the officer did not have probable cause to frisk them. The Court decided that the officer’s observations provided adequate cause for the search. His actions and suspicions were reasonable given the behavior of the suspects.

Amendment 5
In Miranda v. Arizona, Ernesto Miranda was arrested at his home and taken in custody to a police station where he was identified by the complaining witness. He was then interrogated by two police officers for two hours, which resulted in a signed, written confession. The Court set forth a procedure for ensuring that suspects know their rights. These rights of the accused became known as Miranda rights.


APMacro: Investment Demand

invest demand graph

The firm’s decision to invest in plant and equipment depends on the marginal benefit and marginal cost of the investment. Therefore, if the expected rate of return on the investment is greater than the real interest rate for the loan to make the purchase, the firm will make the investment. Other factors that can affect business investment include the costs to operate and maintain the capital, business taxes, changes in technology, the stock of capital goods on hand, planned inventory changes, and expectations for business conditions.

Household consumption tends to remain relatively stable, investment spending is the most volatile component of the economy. Unexpected changes in investment spending account for most of the changes in output and employment in the business cycle. Changes in investment result from changes in business expectations, the durability of capital, the irregularity of innovation, and the level of profit.


Gov: Principles of the Constitution

Priciples of Constitution

The framers’ main goal in crafting the Constitution was to create a system of limited government. They knew that absolute power often leads to the abuse of rights. On the other hand, they also knew that a lack of governmental power could result in chaos and instability. The limited government envisioned in the Constitution is based on six guiding principles: (1) popular sovereignty, (2) the rule of law, (3) separation of powers and checks and balances, (4) federalism, (5) an independent judiciary, and (6) individual rights.

Popular Sovereignty is the principle that lies at the heart of democratic rule. It means that power resides not with the government or its leaders, but with the people. The framers understood that making the people the source of power is the best assurance that government will act in the people’s interest. The principle of popular sovereignty is expressed in the opening phrase of the Preamble: “We the people.” Another provision ensures representative government in the states. By guaranteeing republican government in the states, the Constitution extends the principle of popular sovereignty to the states.

The rule of law is the principle which requires that the American people and their government abide by a system of laws. This is another way to ensure that power is limited and not used in an arbitrary manner.

The Constitution divides power in the national government among the three separate branches. This separation of powers was a key component in the framers’ vision of limited government. In the framers’ view, separating the powers of government among the three branches would ensure that no one branch could dominate. The framers took this principle a step further by inserting provisions in the Constitution that would allow each branch to check, or limit, the power of each of the other branches.

The fourth guiding principle, federalism, divides power between the central government and the various state governments. In creating a federal system of government, the Constitution also established three types of powers: delegated, reserved, and concurrent. Delegated powers are those powers granted to the national government. Delegated powers may be either enumerated or implied in the Constitution. The delegated powers of the federal government include regulating immigration, making treaties, and declaring war. Reserved powers are those powers kept by the states. Reserved powers allow states to set marriage and divorce laws, issue driver’s licenses, and establish public schools, among many other things. Under the Constitution, much of the exercise of day-to-day power affecting citizens is carried out by the states. Concurrent powers are those that are shared by the federal and state governments. Examples of concurrent powers include taxation and law enforcement.

The fifth guiding principle, an independent judiciary, was considered essential by the framers to support the rule of law and preserve limited government.

The sixth guiding principle, individual rights, played a major role in the struggle to ratify the Constitution. The Anti-Federalists argued that the Constitution did not offer adequate protection for individual rights. The Bill of Rights was added to address their concerns.

1. Read Chapter 4.4 pp.70-74


Gov: Constitution Amendments


The Civil War Amendments: Thirteen, Fourteen, and Fifteen, which were the result of that conflict. The Thirteenth Amendment outlawed slavery. The Fourteenth Amendment, similar to the Fifth Amendment, prohibits a state from depriving a person of life, liberty, or property without due process of law. The Fifteenth Amendment prohibits the government from denying a person’s right to vote on the basis of race. The later amendments, Sixteen through Twenty-seven, were added in the twentieth century. They deal with a range of topics that reflect some of the changes that occurred in American society during that period such as advances in the status of workers, African Americans, and women.


APMacro: Multiplier

Gov: Constitution Bill of Rights

bill of rights

With the Bill of Rights added to the Constitution, Americans were guaranteed a broad range of civil rights and civil liberties. But these were only formal guarantees. The enforcement of these rights was another matter. These rights and freedoms would be safeguarded only when protections were built into the structure of government. That is where the role of the Supreme Court and other federal courts come into play. Before free speech and other rights on paper could be safeguarded, the language of the Bill of Rights had to be interpreted and applied under actual circumstances. That task would fall to the Supreme Court under its power of judicial review.

first-amendment   The First Amendment protects the freedoms of religion, speech, and the press, and the rights of assembly and to petition the government. These rights are critical to life in a democratic society.

Freedom of religion which can be divided into two parts: the Establishment Clause and the Free Exercise Clause. The Establishment Clause guarantees the separation of church and state. It reads, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” The Free Exercise Clause establishes that all people are free to follow the religious practices of their choice. They are also free to follow no religion. If a person’s religious faith conflicts with the law of the land, however, the law must prevail.

second-amendment   The Second Amendment protects the rights of states to maintain a militia and of citizens to bear arms. Today lawmakers and citizens still argue over the exact meaning of the Second Amendment. Was it intended to apply only to a militia, or were all citizens guaranteed the right to “keep and bear arms”?

third-amendment   The Third Amendment restricts quartering of troops in private homes during peacetime. Although the Third Amendment has little direct application today compared to colonial times, it offers a general guarantee for the privacy and sanctity of people’s homes.

fourth-amendment   The Fourth Amendment protects against “unreasonable searches and seizures.” This means that law enforcement officials may not search a person’s home or property without prior consent or a legal order. A warrant must be based on probable cause, or reasonable suspicion of criminal behavior. It must also be very specific in describing the place to be searched and the persons or things to be seized.

Amendment 5   The Fifth Amendment includes protections for people accused of crimes: the right to a grand jury and protections against double jeopardy, self-incrimination, and government seizure of property without just compensation. It also requires that the national government follow due process of law. Self-incrimination was meant to prevent law enforcement officials from pressuring suspects into admitting guilt for a crime they did not commit.

Amendment 6  The Sixth Amendment guarantees additional rights to the accused: to have a speedy and public trial by an impartial jury, to hear and question witnesses, and to be defended by a lawyer.

Amendment 7   The Seventh Amendment assures the right to a jury trial in civil cases. Civil cases do not involve criminal matters.

Amendment 8    The Eighth Amendment protects against excessive bail or fines and forbids cruel or unusual punishment. Bail is money given over to the court in exchange for a suspect’s release until his or her trial begins. Most of the legal challenges to this amendment have involved the prohibition of cruel and unusual punishment.

Amendment 9     The Ninth Amendment provides that people’s rights are not restricted to those specified in Amendments 1 through 8. Some of these unlisted rights were later protected under other amendments and laws.

Amendment 10    The Tenth Amendment restates that any powers not granted to the federal government nor prohibited to the states are reserved to the states and to the people.

1. Read Chapter 4.3 pp.67-70