Introductory Macroeconomics Review Lecture by Jacob Clifford

Introduction

• Purpose: Quick review for AP Macroeconomics/class final exam
• Not a detailed retelling of concepts but a final review before exams
• Mention of "Ultimate Review Pack" with practice questions and more detailed videos

Basic Economic Concepts

Scarcity and Opportunity Cost

• Scarcity: Unlimited wants but limited resources
• Opportunity Cost: Everything you do has a cost; you give up something to do something else

Production Possibilities Curve (PPC)

• Illustrates different combinations of producing two goods
• Efficient points on the curve; Inefficient points inside; Impossible points outside
• Shapes of PPC:
  • Straight line: Constant opportunity cost
  • Bowed out: Increasing opportunity cost
• Shifts: More/less resources, better technology, or trade

Comparative and Absolute Advantage

• Comparative Advantage: Specialize in goods with lower opportunity costs
• Absolute Advantage: Who can produce more
• Terms of Trade: Agreement on how much of one product can be exchanged for another

Economic Systems and Models

• Types: Free market, command economy, mixed economy
• Circular Flow Model: Interaction between businesses, individuals, and government
  • Markets: Product Market and Resource Market

Economic Measures

Goals of Every Economy

• Grow over time
• Limit unemployment
• Limit inflation

GDP (Gross Domestic Product)

• Definition: Dollar value of all final goods/services within a country in a year
• GDP Per Capita: GDP divided by population
• Excluded from GDP:
  • Intermediate goods
  • Nonproduction transactions
  • Non-market transactions
• Calculation Methods:
  • Expenditures Approach: GDP = C + I + G + (X-M)
  • Income Approach

Business Cycle

• Phases: Peak, Recession, Trough, Expansion
• Full Employment: Economy is performing well
• Recessionary Gap: High unemployment
• Inflationary Gap: Overheating economy causing inflation

Unemployment

• Defined by people actively seeking work
• Types:
  • Frictional
  • Structural
  • Cyclical
• Natural Rate of Unemployment: Frictional + Structural only

Inflation

• Inflation: Money loses purchasing power
• Deflation: Prices falling
• Disinflation: Rate of inflation slowing
• CPI (Consumer Price Index): Measures price changes
• GDP Deflator: Adjusts for the price changes across the economy
• Causes of Inflation:
  • Printing money
  • Demand-pull inflation
  • Cost-push inflation

Aggregate Demand and Supply

Aggregate Demand (AD)

• Total demand for goods/services at different price levels
• Slopes downward due to:
  • Wealth effect
  • Interest rate effect
  • Foreign trade effect

Aggregate Supply (AS)

• Short-run vs Long-run supply curves
• Shifters: Changes in resource prices, technology, government intervention

Fiscal Policy

• Expansionary Policy: Increase government spending or cut taxes
• Contractionary Policy: Decrease government spending or increase taxes
• Multiplier Effect: Spending increases income and consumption in cycles

Money and Banking

Money

• Types: Commodity vs Fiat money
• Functions: Medium of exchange, unit of account, store of value

Banking System

• Fractional Reserve Banking
• Bank Balance Sheets: Assets and liabilities
• Money Multiplier: 1/Reserve Requirement

Monetary Policy

• Tools: Reserve requirement, discount rate, open market operations
• Objectives: Control money supply, set interest rates

International Economics

Balance of Payments

• Current Account: Exports and imports
• Financial Account: Financial assets inflow/outflow

Exchange Rates

• Appreciation vs Depreciation

• Effects on Exports/Imports

• Foreign Exchange Market

• Floating vs Fixed Exchange Rates

• Conclusion: Final advice for exam preparation and encouragement to support the channel