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Macroeconomics Crash Course - Key Points
Jul 22, 2024
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Introductory Macroeconomics Crash Course
Lecture Overview
Presenter:
Jacob Clifford
Purpose:
Help students prepare for AP macroeconomics or final exams
Structure:
Fast-paced review focusing on key macroeconomics concepts
Additional Resources:
Ultimate review pack with practice questions and hidden videos
Unit 1: Basics of Economics
Core Concepts
Scarcity:
Unlimited wants vs. limited resources
Opportunity Costs:
Every decision has a cost
Production Possibilities Curve (PPC):
Efficient points (on curve), inefficient points (inside curve), impossible points (outside curve)
Shapes: Straight line (constant opportunity cost), Bowed outwards (increasing opportunity costs)
Shifts in PPC
Impact of more/less resources, technology, and trade
Trade shifts consumption possibilities beyond the PPC
Comparative Advantage
Specialization and lower opportunity cost
Absolute advantage: Who produces more
Calculations for specialization
Terms of trade for mutual benefit
Economic Systems
Free market (capitalism), command economy, mixed economy
Circular flow model:
Interaction between businesses, individuals, government
Product market and resource market
Government roles: transfer payments, subsidies, factor payments
Supply and Demand
Demand:
Downward sloping, price β quantity demanded β, price β quantity demanded β
Supply:
Upward sloping, price β quantity supplied β, price β quantity supplied β
Equilibrium:
No shift in curves, only movement along curve, understanding shortage and surplus
Unit 2: Macro Measures
Goals of Economy
Growth
Low unemployment
Stable prices (inflation control)
GDP (Gross Domestic Product)
Definition: Dollar value of all final goods/services produced within borders in a year
GDP Per Capita:
GDP divided by population
Percent Change Calculation:
Analyze changes over years
Components Excluded from GDP
Intermediate goods
Non-production transactions (e.g., stocks)
Non-market transactions (illegal goods/services)
Calculating GDP
Expenditure Approach:
C + I + G + Xn
Business spending β stocks/bonds
Income Approach:
Sum of rent, wages, interest, profit
Nominal vs Real GDP:
Adjusting for inflation
Business Cycle
Four phases: Peak, recession, trough, expansion
States of Economy: Full employment, recessionary gap, inflationary gap
Unemployment
Definition: Actively looking, can't find work
Types: Frictional, Structural, Cyclical
Natural Rate of Unemployment:
Frictional + Structural (~5% in USA)
Discouraged Workers:
Not counted but want jobs
Part-time Workers:
Counted as fully employed
Inflation
Definition:
Money loses purchasing power
Types: Inflation, deflation, disinflation
Impact on wages, interest rates
Consumer Price Index (CPI):
Measure changes in price levels
GDP Deflator:
Broader measure including all goods/services
Causes of Inflation
Printing too much money
Demand-pull Inflation:
Increased demand
Cost-push Inflation:
Increased production costs
Unit 3: Aggregate Demand and Supply
Aggregate Demand (AD)
Downward sloping: Wealth effect, interest rate effect, foreign trade effect
Shifters: Changes in consumer/investment spending, government policies
Aggregate Supply (AS)
Short-run (SRAS): Upward sloping
Long-run (LRAS): Vertical, full employment GDP
Shifters: Resources, technology, government regulations, taxes/subsidies
Economic Gaps
Stagflation:
High inflation + low output
Adjustments from short-run to long-run
Economic Growth
Increase in investment and capital shifts PPC and LRAS
Phillips Curve
Short-run: Negative relationship between inflation and unemployment
Long-run: Vertical, no relationship between inflation and unemployment
Fiscal Policy
Expansionary:
Increase government spending, cut taxes
Contractionary:
Increase taxes, decrease government spending
Spending Multiplier:
MPC and MPS influence total changes in spending
Issues in Fiscal Policy
Deficits and national debt
Crowding Out:
Government borrowing impacts private investment
Unit 4: Monetary Policy
Nature of Money
Commodity vs. Fiat Money:
Intrinsic value vs. no intrinsic value
Functions of Money:
Medium of exchange, unit of account, store of value
Money Supply
M1 Money Supply:
Includes checking accounts (demand deposits)
Fractional Reserve Banking:
Banks hold a portion of reserves, loan out the rest
Bank Balance Sheets
Determine required/excess reserves
Money Multiplier
Formula: 1 / Reserve Requirement
Impact on total change in money supply
Money Market Graph
Demand for money (transaction and asset), supply determined by Fed
Monetary Policy:
Expansionary vs. Contractionary
Shifters: Reserve requirement, discount rate, open market operations
Loanable Funds Market
Supply and demand for loans, real interest rates
Government borrowing and crowding out effect
Unit 5: International Trade and Foreign Exchange
Balance of Payments
Current Account:
Exports/imports, investment income, net transfers
Financial Account:
Financial assets inflow and outflow
Foreign Exchange Market
Appreciation vs. Depreciation:
Impact on net exports
Supply and demand graph for currencies
Four shifters: Tastes, income, inflation, interest rates
Exchange Rates
Floating vs. Fixed Exchange Rates:
Market-determined vs. government-controlled
Conclusion
Review Strategies:
Watch for key concepts, practice calculations
Final Encouragement:
Stay confident, you got this!
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