Progress Report: 12 weeks




APMacro: AP Test Review

Graphs to Know

  • Production Possibilities
  • Supply and Demand
  • Circular Flow
  • Business Cycle
  • Aggregate Demand and Aggregate Supply (AD-AS)
  • Money Market
  • Loanable Funds
  • Investment Demand
  • Phillips Curve
  • Foreign Exchange Market


Equations to Know

  • Comparative Advantage (output)
  • Comparative Advantage (input)
  • GDP (expenditure model)
  • GDP (income model)
  • GDP deflator
  • real GDP
  • CPI
  • Inflation Rate
  • Interest Rate (Fischer Effect)
  • Labor Force
  • Unemployment Rate
  • Labor Force Participation Rate
  • Money Multiplier
  • Rule of 70
  • Spending Multiplier
  • Tax Multiplier
  • MPC
  • MPS


Gov: Caucuses and Primaries

In most states, the road to nomination in partisan races is the primary election. But some states use a different method, the party caucus.

A caucus is a closed meeting of people from one political party who will select candidates or delegates. In a caucus state, small groups of party members meet in their communities to discuss the various candidates. Each caucus then chooses delegates to represent its views at the party’s state convention. Approximately a dozen states hold caucuses. The best known are the Iowa caucuses, which take place early in presidential election years. The Iowa caucuses are watched closely, because they provide the first indications of how well each candidate is doing at winning the support of average voters.

To prepare for caucuses and primaries, candidates must develop a campaign strategy. If this plan of action works well and the candidate wins the nomination, some of that strategy may carry over to the general election. Key elements of a strategy include tone, theme, and targeting.

Candidates must decide whether to adopt a positive or a negative tone for their campaigns. This means determining how much time and money to spend stressing the positive things about their candidacy and how much to spend criticizing their opponents.

Every candidate needs a theme. A simple, appealing idea that gets repeated over and over. A theme helps distinguish a candidate from his or her opponents in the primaries. It is also critical in the general election, when candidates from different parties compete.

Candidates must also decide whether to target specific groups of voters. Is there any group: blue-collar workers, women, the middle class, or the elderly, that is particularly unhappy with the status quo? If so, that group is a likely target for specially designed appeals from the candidates.

Another aspect of campaign strategy is how to present the candidate’s political views during the primaries as opposed to during the general election. For the primaries, candidates tend to craft their message in terms that will appeal to the party base. The party base consists of party activists, who are more likely to vote in primary elections than are less-committed centrists. This base also holds more extreme views than the average middle-of-the-road voter. As a result, candidates often emphasize more liberal or conservative views in the primaries than they would in a general election campaign.

Candidates for public office try to reach voters in various ways, both during the primaries and in the run-up to the general election. There are three general approaches: retail politics, wholesale politics, and microtargeting.

Retail politics is a meet-and-greet style of campaigning that relies on direct, personal contact with voters. Candidates take part in parades, dinners, and other local events. During these face-to-face encounters with voters, candidates try to present themselves as leaders who are in touch with ordinary people.

Wholesale politics communicates with voters that can be reached only by large-scale mail or media campaigns. Candidates may develop direct-mail campaigns, in which thousands of letters are sent to voters asking for their support. Even more common is the use of both paid and free media. Candidates and their staff prepare television ads and take part in televised town hall meetings and debates. These broadcasts can reach millions of people at a time. The Internet is also being used to reach voters on a large scale.

Microtargeting is a campaign approach that uses databases to target narrow groups of voters and then reach them with carefully crafted messages. Candidates who adopt this technique use the latest data-mining technology to gather information about voters. Armed with that data, they churn out custom-tailored messages designed to herd supporters to the polls. These messages present the candidate’s position on issues of importance to each targeted group.

 Before the presidential election, the Democratic and Republican parties each hold a national convention. Historically, party conventions are a critical step in the nomination process. Party delegates would argue over the candidates, sometimes going through several ballots before picking a nominee. Occasionally, an underdog would emerge from the pack to challenge, and even overtake, the leading candidate. Today, presidential nominees are chosen through the primary and caucus process. The winner then announces his or her choice for vice president. As a result, the national convention has evolved into a ritual to formally announce the party nominees and present them to the nation. The nominees also work with party leaders to frame a platform, laying out the party’s position on major issues. Additionally, the convention helps unite the party and excite the party base.


APMacro: Money Supply and Banking Review

  • Anything that is accepted as (a) a medium of exchange, (b) a unit of monetary account, and (c) a store of value can be used as money.
  • There are several definitions of the money supply. M1 consists of currency and checkable deposits; M2 consists of M1 plus savings deposits, including money market deposit accounts, small time deposits (less than $100,000) plus money market mutual fund balances held by businesses.
  • Money represents the debts of government and institutions offering checkable deposits and has value because of the goods, services, and resources it will command in the market. Maintaining the purchasing power of money depends largely on government’s effectiveness in managing the money supply.
  • The U.S. banking system consists of (a) the Board of Governors of the Federal Reserve System, (b) the 12 Federal Reserve Banks, and (c) some 7600 commercial banks and 11,400 thrift institutions (mainly credit unions). The Board of Governors is the basic policymaking body for the entire banking system. The directives of the Board and the Federal Open Market Committee (FOMC) are made effective through the 12 Federal Reserve Banks, which are simultaneously (a) central banks, (b) quasi-public banks, and (c) banker’s bank.
  • The major functions of the Fed are to (a) issue Federal Reserve Notes, (b) set reserve requirements and hold reserves deposited by banks and thrifts, (c) lend money to banks and thrifts, (d) provide for the rapid collection of checks, (e) act as the fiscal agent of the Federal government, (f) supervise the operations of the banks, and (g) regulate the supply of money in the best interests of the economy.
  • The Fed is essentially an independent institution, controlled neither by the president of the united States nor by Congress. The independence shields the Fed from political pressure and allows it to raise and lower interest rates (vi changes in the money supply) as needed to promote full employment, price stability, and economic growth.
  • Modern banking systems are fractional reserve systems. Only a fraction of checkable deposits is backed by currency.
  • The operation of a commercial bank can be understood through its balance sheet, where assets equal liabilities plus net worth.
  • Commercial banks keep required reserves on deposit in a Federal Reserve Bank or as vault cash. These requires reserves are equal to a specified percentage of the commercial bank’s checkable deposit liabilities. Excess reserves are equal to actual reserves minus required reserves.
  • Banks lose both reserves and checkable deposits when checks are drawn against them.
  • Commercial banks create money, checkable deposits or checkable deposit money, when they make loans.The creation of checkable deposits by bank lending is the most important source of money in the U.S. economy. Money is destroyed when bankers repay bank loans.
  • The ability of a single commercial bank to create money by lending depends on the size of its excess reserves. A commercial bank can lend only an amount equal to its excess reserves. Money creation is therefore limited because checks drawn by borrowers will be deposited in other banks, causing a loss of reserves and deposits to the lending bank equal to the amount of money that a bank has lent.
  • The commercial banking system as a whole can lend by a multiple of its excess reserves because the system as a whole cannot lose reserves. However, individual banks can lose reserves to other banks in the system.
  • The multiple by which the banking system can lend on the basis of each dollar of excess reserves is the reciprocal of the reserve ratio. The multiple credit expansion process is reversible.

1. Central Bank & Money Supply #1-40
2. Money Banking & Financial Markets #1-31
3. Loanable Funds Market #1-30


Gov: Political Parties

A political party is an ongoing coalition of interests joined together in an effort to get its candidates for public office elected under  common label. Political parties are an indispensable component of democratic government. By offering voters a choice between policies and leaders, parties give them a chance to influence the direction of government. When the United States was founded, the formation of parties was also the first step toward the building of its democracy.

Political parties serve to link the public with its elected leaders. In the United States, this linkage is provided by the two-party system. Only the Republican and Democratic parties have any chance of winning control of government. The fact that the United States has only two major parties is explained by several factors: an electoral system characterized by single-member districts that makes it difficult for third parties to compete for power; each party’s willingness to accept differing political views; and a political culture that stresses compromise and negotiation rather than ideological rigidity.

When the Constitution was written, no political parties existed in the United States. Before long, however, the nation’s leaders had begun to divide into factions, or groups with differing views. These factions soon gave rise to the nation’s first political parties. By the early 1800s, a political system based on two major parties was beginning to emerge.

Over the years, the two parties have evolved and changed, and so have their bases of support. For example, the Democrats were once the strongest party in the South. Today the Republicans generally enjoy more support among southern voters.

While all kinds of Americans support either party, a Republican is more likely to be white, male, and relatively affluent. A Democrat is more likely to be a member of a minority group, female, and less affluent. In general, Republicans hold more conservative views, and Democrats more liberal views, on the issues that follow.

In general, Democrats support a strong federal government and look to it to solve a wide variety of problems. Most Republicans favor limiting the size of the national government and giving more power to the states to solve problems at a local level.

Republicans favor broad-based tax cuts to encourage economic growth and to allow people to keep what they earn. Although Democrats favor tax cuts for the poor, they are more willing to raise taxes for affluent Americans in order to support programs that they see as beneficial to society.

Democrats generally support government regulation of business as a way to protect consumers, workers, or the environment. Most Republicans oppose what they see as excessive business regulation by the government.

Republicans tend to favor prayer in public schools, while opposing abortion and gun control laws. Democrats are more likely to support abortion rights and gun control laws, while opposing school prayer.

Most Democrats favor regular increases in the minimum wage to support poor families. Republicans tend to oppose minimum wage laws as unnecessary economic regulation.

While these generalities hold for the two political parties, individual Democrats or Republicans may not share the same views on every issue. Nevertheless, for most Americans, identifying with one party or the other provides a useful way to make sense of the candidates at election time. In effect, party labels tell voters what the candidates stand for and help them make choices when they vote.


APMacro: Expansionary or Contractionary Policy Review

  • Fiscal policy allows policymakers to use changes in taxes and government spending to correct economic instability.
  • During a recession, aggregate demand falls, creating a recessionary gap which reduces output and employment. The government can use expansionary fiscal policy, reducing taxes, increasing government spending, or both to stimulate aggregate demand and restore the economy to full employment output. Expansionary fiscal policy creates a budget deficit, as the government spends more than its revenue in a year, and such deficits add to the national debt.
  • The government uses contractionary fiscal policy to combat inflation, raising taxes, reducing government spending, or both. Because of the ratchet effect, prices that rise tend not to fall to their previous levels, so the focus is on halting the rise of inflation and reducing aggregate demand to reduce further pressure on prices. The rise in tax revenue and fall in government spending would reduce the deficit or even cause a budget surplus, which would reduce the national debt.
  • The Fed has a number of monetary tools: the discount rate, reserve requirement, and open market operations, available to change the money supply and interest rates to affect real output, employment, and price levels.
  • The Fed uses expansionary monetary policy or easy money policy to expand the money supply during recessions. A decrease in the reserve requirement, a lower discount rate, or the Fed’s purchase of securities can achieve this result. As the money supply grows and interest rates fall. The increase in demand results in an increase in real GDP, employment, and price levels.
  • Contractionary or tight money policy is used to reduce the money supply during periods of significant inflation. An increase in the reserve requirement, an increase in the discount rate, or the Fed’s sale of securities will reduce the money supply, increasing interest rates. As a result, real output will fall back to full-employment output and employment will fall. Because of the ratchet effect, however, prices are unlikely to decline.

1. Fiscal & Monetary Policy #1-42
2. Phillips Curve #1-15


Gov: Campaigns and Elections


Primary elections choose a political party’s nominees. Before primary elections, nominees were often selected by party leaders who met behind closed doors. Primary elections brought the selection process out into the open and allowed party members to participate. Primary elections take several forms. States with a closed primary limit voting to registered party members. Independents are not allowed to participate. States with an open primary allow all voters to vote in primary elections. In this system, voters decide which party primary to vote in on Election Day. Independent voters like this system because it allows them to participate in the primary of their choice. In a blanket primary, voters can pick and choose one candidate for each office from any party’s primary list. In a nonpartisan primary, if one candidate wins a majority, that person takes office. If not, the two top vote-getters face each other in the general election.

To participate in a primary, the person running for office must become a declared candidate. Candidates simply declare their interest in seeking election to a public office. Self-announcement is usually done at a press conference or other public event. Before making a formal announcement, however, the candidate may form an exploratory committee. Exploratory committees test the waters and determine the level of public support for their candidate. If the committee decides that circumstances are favorable, the candidate makes a formal announcement of candidacy. Some candidates do not self-announce. They wait for a groundswell of public support for their candidacy and allow their supporters to draft them into the race.

For presidential candidates, announcements are sometimes made as early as two years before the election. Candidates give themselves extra time to raise the funds and the support they will need for the hard campaign ahead.