ACDC Econ - Introductory Macroeconomics Lecture Notes

Introduction

Presenter: Jacob Clifford
Purpose: Overview of key concepts in introductory macroeconomics and AP macroeconomics class.
Focus: Quick review before the AP test or final exam.
Resources: Ultimate Review Pack with practice questions and hidden videos to aid learning.

Scarcity
- Unlimited wants vs. limited resources.
Opportunity Costs
- Every decision has a cost; producing one good requires giving up another.
Production Possibilities Curve (PPC)
- Shows combinations of two goods produced with all resources.
- Points:
  - On the curve = Efficient
  - Inside curve = Inefficient
  - Outside curve = Impossible
- Shapes:
  - Straight line = Constant opportunity cost
  - Concave = Increasing opportunity cost.
- Shifts due to changes in resources, technology, and trade.

Overview of free market, capitalism, command economy, and mixed economy.
Circular Flow Model: Interaction between businesses, individuals, and the government.
- Businesses sell products and buy resources.
- Individuals buy products and sell resources.
- Government: Transfer payments (e.g., welfare) and subsidies.

Demand Curve: Downward sloping; inverse relationship with price.
Supply Curve: Upward sloping; direct relationship with price.
Equilibrium: Intersection of supply and demand curves.
- Price changes cause movement along the curve, not shifts.
- Shifts in demand and supply can occur.
Basic understanding of applications in macroeconomics (aggregate demand and supply).

Goals of Economy:
- Economic growth
- Low unemployment
- Stable prices (limit inflation)
Gross Domestic Product (GDP): Total dollar value of all final goods produced in a year.
- Calculate GDP per capita and percent change.
- Exclusions: Intermediate goods, nonproduction transactions, non-market transactions.
Calculating GDP:
- Expenditure approach: GDP = C + I + G + (X - M).
- Income approach: Rent + Wages + Interest + Profit.
Nominal vs. Real GDP:
- Nominal: Not adjusted for inflation.
- Real: Adjusted for inflation.
Business Cycle: Phases include peak, recession, trough, expansion.
- Concepts of full employment, recessionary gap, inflationary gap.
Unemployment Types:
- Frictional, Structural, Cyclical
- Natural rate of unemployment around 5%.
Inflation Concepts:
- Inflation, deflation, disinflation.
- Consumer Price Index (CPI): Measures price changes over time.
- GDP Deflator: Adjusts nominal GDP for price changes.
- Causes of inflation: Quantity theory of money, demand-pull, cost-push.

Aggregate Demand: Downward sloping; total demand in the economy.
- Reasons for downward slope: Wealth effect, interest rate effect, foreign trade effect.
Aggregate Supply: Upward sloping in the short run; vertical in the long run.
- Understand shifts in both curves.
- Concepts of stagflation, inflationary gap, recessionary gap.
Fiscal Policy: Change in government spending and taxes to influence the economy.
- Expansionary vs. contractionary fiscal policy.
- Understanding the spending and tax multipliers.
- Government debt and crowding out effects.

Functions of Money: Medium of exchange, unit of account, store of value.
M1 Money Supply: Currency and demand deposits.
Fractional Reserve Banking: Banks hold a fraction of deposits as reserves.
Money Multiplier: 1 / Reserve Requirement.
Money Market Graph: Supply and demand for money, interested rates.
- Expansionary vs. contractionary monetary policy.
- Shifters: Reserve requirement, discount rate, open market operations.
Loanable Funds Market: Demand and supply for loans, real interest rate.

Balance of Payments: Current and financial accounts.
- Trade surplus vs. deficit.
Foreign Exchange: Currency value relative to others.
- Appreciation vs. depreciation effects on net exports.
Graphing Foreign Exchange: Demand and supply for currencies.
- Shifters: Preferences, income, inflation, interest rates.
Exchange Rate Systems: Floating vs. fixed exchange rates.