ACDC Econ: Macro Review with Jacob Clifford

Introduction

• Overview of concepts for introductory and AP Macroeconomics classes
• Designed for quick review before exams
• Mention of an Ultimate Review Packet

Basic Economic Concepts

Scarcity and Opportunity Cost

• Scarcity: Unlimited wants vs. limited resources
• Opportunity Cost: Every decision has a cost

Production Possibilities Curve (PPC)

• Shows combinations of two goods using resources
• Efficient (on curve), inefficient (inside curve), impossible (outside curve)
• Shapes:
  • Straight line: Constant opportunity cost
  • Bowed out: Increasing opportunity cost
• Shifts in PPC:
  • More/less resources or better technology
  • Trade affects consumption, not production

Comparative and Absolute Advantage

• Comparative Advantage: Specialize in the product with lower opportunity cost
• Absolute Advantage: Producing more of a good
• Terms of Trade: Beneficial exchange rates for countries

Economic Systems

• Free market, command economy, mixed economy
• Circular Flow Model: Interaction between businesses, individuals, government

Supply and Demand

Basic Concepts

• Law of Demand: Price increase leads to less quantity demanded
• Law of Supply: Price increase leads to more quantity supplied
• Equilibrium: No shifts with price change, only movement along the curve

Graph Analysis

• Demand/Supply shifts: Four possibilities (demand/supply increase/decrease)
• Focus for macroeconomics is more on aggregate demand/supply

Macroeconomic Measures

Three Economic Goals

1. Economic Growth
2. Unemployment Reduction
3. Price Stability (control inflation)

Gross Domestic Product (GDP)

• GDP: Dollar value of all final goods/services within a country's borders
• GDP per capita
• Not included in GDP: Intermediate goods, non-production transactions, non-market transactions

Nominal vs. Real GDP

• Nominal: Not adjusted for inflation
• Real: Adjusted for inflation

Business Cycle

• Phases: Expansion, peak, recession, trough
• Full employment, recessionary gap, inflationary gap

Unemployment

• Types: Frictional, structural, cyclical
• Natural Rate of Unemployment: Only frictional and structural
• Criticisms: Discouraged workers, part-time workers

Inflation

• Inflation: Decrease in purchasing power of money
• CPI: Consumer Price Index for measuring inflation
• GDP Deflator: Comprehensive price index for all goods/services

Aggregate Demand and Supply

Aggregate Demand (AD)

• Downward sloping due to wealth, interest rate, and foreign trade effects
• Shifts: Changes in consumer spending, investment, government spending, net exports

Aggregate Supply (AS)

• Short-run AS: Upward sloping
• Long-run AS: Vertical at full employment GDP
• Shifts: Changes in resource prices, technology, taxes, subsidies

Long-run Adjustments

• Automatic adjustments back to full employment via wage changes

Phillips Curve

• Shows inverse relationship between inflation and unemployment in short-run

Fiscal Policy

• Expansionary vs. Contractionary: Government spending and taxation
• Spending Multiplier
• Tax Multiplier
• Crowding Out: Impact of government borrowing on interest rates

Monetary Policy

Money Basics

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

Money Supply

• M1 includes demand deposits
• Fractional Reserve Banking: Reserves and lending by banks

Money Multiplier

• Multiplier effect of banking on money supply

Money Market Graph

• Supply of money is vertical
• Interest rate determination via money supply

Federal Reserve Tools

• Reserve requirement
• Discount rate
• Open market operations

Loanable Funds Market

• Shows demand/supply of loans
• Real interest rate determination

International Trade and Finance

Balance of Payments

• Current account: Exports/imports, investment income, net transfers
• Financial account: Financial asset flows

Foreign Exchange

• Appreciation and depreciation of currency
• Effects on net exports
• Foreign exchange market graphs

Exchange Rate Systems

• Floating vs. fixed exchange rates

• Review and preparation tips for AP tests or final exams.
• Encouragement and invitation to support the channel through purchasing review materials.