Foreign Exchange Market presentation for AP Macroeconomics

Foreign exchange market from Gene Hayward

Smartphone/Creative Destruction Cartoon. I see lots of consumer and producer surplus value. How about you?

Stop and think about ALL the separate and distinct products we used to have to purchase individually to do all the things a Smartphone can do today.

One way to think of Smartphones is it is a plus for the environment.  Think about all the resources, most non-renewable, that are not employed because they are contained in one small rectangular case.

I am not sure the real value of these devices is captured in the price we pay.  I have to think the surplus value far (?) exceeds the price.

What do you think?

Found on Twitter. No real source to cite.

Keynesian Multiplier Effect Illustrated

Here is a presentation I created that explains the Keynesian Multiplier Effect in as simple terms as I can make it.  I bit long in number of slides for that reason.

This is an important part in the Unit on Fiscal Policy.  The math, while simple, seems to be a stumbling block for many students. Hopefully this eases that tension!

Keynesian Multiplier Effect Illustrated. from Gene Hayward

Wording for Correct answers for Foreign Exchange Market (FOREX) on the AP Macroeconomics FRQ's

On the AP Macroeconomics exam you can be 99% certain you will be asked Foreign Exchange Market question(s) on the FRQ section of the test.

Precise and to the point answers are required.  They are looking for the proper linkages from the various cause and effect scenarios you are presented with.

Below I wrote out what would be the "best way" to respond to these questions.  You may be asked to identify and explain ALL the effects under each bullet point or maybe just one (for example, only what happens to Exports given an event---all the rest is implied and you have to understand it in order to get to what happens to Exports).

My advice is to memorize these until they "click".  Again, they contain ALL the key words/phrases that past FRQ rubics have required students explicitly mention.

NOTES:  BE CAREFUL with #3 through #6.  They seem very counter-intuitive what happens to the value of the dollar given the scenario.  These can easily trip you up.

1. “If the interest rate in the U.S. INCREASES relative to the Rest of the World (ROW), U.S. financial assets become more desirable.  The demand for the dollars INCREASES and APPRECIATES the value of the dollar internationally. “

Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.

Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.

Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

2. “If the interest rate in the U.S. DECREASES relative to the Rest of the World (ROW), U.S. financial assets become less desirable.  The supply of the dollars INCREASES and DEPRECIATES the value of the dollar internationally. “

Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively LESS expensive and Exports will INCREASE.

Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.

Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

3. If price levels in U.S. are LOWER relative to Rest of the World (ROW) then U.S. goods and services become MORE desirable. The demand for the dollars INCREASES and APPRECIATES the value of the dollar internationally. “

Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.

Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.

Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

4. If price levels in U.S. are HIGHER relative to Rest of the World (ROW) then Foreign goods and services become MORE desirable. The supply of dollars INCREASES and DEPRECIATES the value of the dollar internationally.

Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively LESS expensive and Exports will INCREASE.

Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.

Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

5. If GDP INCREASES in the U.S. relative to the Rest of the World, then Americans will want to buy not only MORE domestic goods/services, but MORE foreign goods/services also. The supply of dollars INCREASES and DEPRECIATES the value of the dollar internationally.

Effect on Exports: When the dollar DEPRECIATES in value, U.S. goods and services become relatively  LESS expensive and Exports will INCREASE.

Effect of Imports: When the dollar DEPRECIATES in value, Foreign goods and services become relatively MORE expensive and Imports will DECREASE.

Effect on Net Exports (N(x): If Exports Increase and Imports Decrease, then net exports will INCREASE.

6. If GDP DECREASES in the US relative to the Rest of the World. then Americans will not only buy FEWER domestic goods/services, but FEWER Foreign goods/services also.  The supply of dollars DECREASES and APPRECIATES the value of the dollar internationally.

Effect on Exports: When the dollar APPRECIATES in value, U.S. goods and services become relatively MORE expensive and Exports will DECREASE.

Effect of Imports: When the dollar APPRECIATES in value, Foreign goods and services become relatively LESS expensive and Imports will INCREASE.

Effect on Net Exports (N(x): If Exports Decrease and Imports Increase, then net exports will DECREASE.

Calculating Comparative Advantage with Output and Input Methods Made Easy...I think.

One of the hardest concepts to intuitively understand in economics is Comparative Advantage. Seems like most of the time with students a deep understanding is elusive. It just takes practice and thought.

While we wait for those "AH HA!" moments, students still need to understand the "nuts and bolts" of the math behind the concept.  This can be elusive as well, especially for students who are not strong in math.

These two very short presentations will walk you through the basics so at least you can get the math right. It is important to get the "set-up" of the problems correct before proceeding with the math.

I hope this helps someone!

IOU Method to determine Comparative Advantage

Comparative Advantage: "IOU" method from Gene Hayward

"OOO" Method to determine Comparative Advantage

"OOO" Method to calculate Comparative Advantage from Gene Hayward

Absolute and Comparative Advantage for Dummies...like me.

Here is my very detailed look at how to calculate Absolute and Comparative Advantage for AP Economics.  Overkill? Maybe, but it is a step by step look at how to do it that I think would be helpful to teachers and students alike.  Kinda wish I had the "Trade for Dummies" breakdown when I was first learning it.

Hope it helps someone have a breakthrough.

Absolute and comparative advantage from Gene Hayward