hey econ students this is Jacob Clifford welcome to ac/dc econ so in this quick video I'm gonna cover everything you need for an introductory macroeconomics class or an AP macroeconomics class I'm gonna go super fast but keep in mind this is not designed to reteach you all the concepts it's designed to help you get ready right before you walk into the big AP test your big final also it's a great way to review what you know and don't know by watching the entire class over again you can spot the things that you have to go back instead if you've been watching my videos you know I sell something called the ultimate review pack it has a bunch of practice questions and access to hidden videos to help you learn economics these summary videos they cover everything in greater detail than this video I'm doing right now now I was gonna make this video available only to people who buy the packet but then I thought you know I can trust people man if you like my videos if these videos help you learn economics please go get the packet I'm gonna make this video available to everyone but if you like my stuff please support my channel and help me continue to make great econ videos okay let's start it up now whether or not you're enrolled in a microeconomics class or a macroeconomics class it all starts the same for a basic introductory econ course it's starting the idea of scarcity scarcity ideas we have unlimited wants and limited resources also you learn the idea of opportunity costs that's the idea that everything has a cost or it doesn't matter what you're producing you gotta give up something to produce or any decision you make has a cost now those concepts come together with the production possibilities curve it's the first graph you learn in economics it shows the different combinations of producing two different goods using all of your resources so any point on the curve is efficient like you're using all of your resources to the fullest any point inside the curve is inefficient and a point out here outside the curve is impossible given your current resources and there's two different shapes you have to remember if it's a straight line production possibilities curve that means there's constant opportunity costs which means the resources to produce the different products are very similar so similar resources if it's a straight line if it's a boat outline concave to the origin that means that resources are not very similar so when you produce more of one to give the more and more of the other one that's called the law of increasing opportunity cost now this curve can shift if you have more resources like land labor and capital or less resources or better technology that can shift the curve another thing that shifts a curve is train if another country trades with another country that can shift out their production possibilities curve but it shows how much they can consume not actually produced so it doesn't actually change how much you can but you can consume beyond your production possibilities curve and that brings us to the hardest part of this unit the idea of comparative advantage compared advantage is the idea that country should specialize in the product where they have a lower opportunity cost so if you're producing one thing and I'm producing something else if I can produce a lower opportunity cost than you I should produce this you should present a thing and then we should trade now there's two different things gotta remember absolute advantage and comparative and absolute advantage is a joke it's easy you just figure out who produces more if that means they have an absolute advantage compared advantage requires you do some calculations or the quick and dirty if you saw my unit summary video and it tells you who should specialize in what now another thing you have to learn is that you have terms of trade which means how many units of one product should they trade for the other product that wouldn't benefit both countries that's the idea of terms of trade in this unit you also get a basic overview of different economic systems like the free market system capitalism and the idea of a command economy and a mixed economy we're gonna focus on capitalism in this class and so you learn the circular flow model the circular flow model shows you that there's businesses and individuals and the government and how they interact with each other just remember businesses both sell and buy two different things they sell products and they buy resources so there's a product market and there's a resource market and individuals you and me we buy products and we sell our resources and the government does some stuff as well another thing you're going to learn here is some vocab like transfer payments this is when the government pays individuals like welfare but it's not to buy anything it's just to provide some public service and you also learn the idea of subsidies when the government provides businesses money to produce more and also you're going to talk about the idea of factor payments so individuals sell their resources and businesses pay the factor payments to those individuals unit one sets the foundation for everything you're gonna be doing later on you start with demand and supply remember the man is a downward sloping curve that shows you the loved man when price goes up people buy less and stuff right when price goes down people buy more that's the idea price and quantity demanded there's also a lot of supply when the price goes up people produce more price goes down people produce less right price goes up quantity supply goes up price goes down client supply goes down now together they formed equilibrium please note if price goes up there is no shift price does not shift the curve it just moves along the curve creates either shortage when the price is low or a surplus from the price is higher you should also understand there's actual individual shifts so there's only four things gonna happen the man can go up the man can go down so pi can go up or a supply can go down and you just watch the graph draw the graph tells you exactly happens the price in quantity every single time now to microeconomics class you got a lot more details about the supply and demand graph and ceilings and floors and all sorts of crazy other stuff but you don't need to understand those concepts for most macroeconomics classes just understand where equilibrium comes from what happens when demand shifts right or left when supply shifts left or right and understand the idea of shortage and surplus that's usually enough and you add on to that concept when you learn about a great demand agar supply later on in unit 3 overall I give unit one five out of ten difficulty not because it's super hard because there's a lot of stuff you got a cover production possibilities curve supply and demand understand all these different graphs and it's gonna set the foundation for everything you do in the rest of the course here we go now we're going to jump into full macroeconomics we talk about the macro measures in unit two were talking about the three goals of every economy doesn't matter what kind of economy is they have three goals they want to grow over time they want to produce more stuff they want to keep unemployment down like limit unemployment they want to limit inflation or at least keep prices stable that's what you do in the student you cover each one of these concepts how do you measure these different things and one of the issues with those measurements and then we move on and ply that stuff in later units so it starts off with the idea of growth growth is the idea the economy's expanding over time and the most important concept probably in the entire course is GDP gross domestic product it's the dollar value of all final goods produce in a year in a country's border so anything you produce in your own country now you should also understand the idea of GDP per capita which is the GDP divided by population and get good at doing percent change so if I say the GDP in one year is this amount in the GDP in another year it's different amounts you should be able to calculate the percent change in the GDP and when it comes to GDP it's important to know it's not included in GDP and the first one is intermediate goods these are goods that go into the production of a final good so we only count the final good not the things that went into producing it so we count the final laptop not the computer chip that the laptop producer bought from another company so intermediate goods don't count also we don't count non production transactions these are situations where newest producer stocks and bonds they don't count in GDP because we have to count things that are goods and services provided in that year nothing old nothing counted in previous years that doesn't count towards GDP and the last one is non market transaction so illegal goods or illegal labor those don't count in GDP either there's two ways to calculate GDP even though the most important one for our purposes is usually the expenditures approach but there's also the into approach the expenditure approach adds up all the spending on all goods and services in the economy and that tells you how much we produce in a given year the income approach adds up all the income earned from producing those final goods and services so really it should just be the same number two different ways of calculating it but it does give us the most important equations remember GDP equals C plus I plus G + xn the super important concept remember business spending is investment it's not stocks and bonds stocks and bonds don't count towards GDP government spending government can buy stuff and other countries can buy stuff now for net exports remember exports - imports is the net exports in three united states actually a negative number and the income approach also has its own equation it's made up of rent wages interest and profits so if you add up all those you adds up what's called the factor payments then that should add up to the GDP of the things we produce in a year another concept you're gonna see is the idea of nominal and real GDP remember nominal GDP is not adjusted for inflation so when we talk about the economy we're usually analyzing real GDP because that's suggesting for inflation and showing us what we're actually producing and a great way to show that is the business cycle the business cycle shows you there's four different phases in the business cycle when there's a peak and then when the economy is up there eventually over time the economy moves towards a recession and it falls down to a trough and then it goes into expansion and goes right back up economy goes up and down over time and that tells you there's only three places the economy can be at any given period of time we can be at full employment this the idea that the country is doing great GP is real GP is moving nice and steady we can have a recession right this is a no recessionary gap or the economy is not doing well we have very high unemployment and we have something called an inflationary gap when the economy is kind of overheating and we're having more and more inflation you're gonna see those concepts later on as well and that leads to the second goal of every economy to limit unemployment unemployment is the idea people who are looking for work that can't find it who are in the labor force remember it's not by population it's the number of people who are not working who are actively looking divided by the labor force times 100 gives you percentage that percentage number people who are unemployed in the economy there's also the labor force participation rate and understand the idea of labor force is the group of people who can and are able and are willing to work above 16 not institutionalize not in jail and at this point you're to learn that's three types of unemployment there's frictional when people are between jobs and they're looking for jobs they're structural when people are replaced by robots or they don't have the skills that people actually want or that employers want so their skills are obsolete and they're cyclical unemployment when there's a recession that kind of has gone down and people have lost a job because no one's buying products so people don't need resources they don't need the workers so anytime in the economy whether it's good or bad there's always gonna be two types of unemployment frictional and structural and that's the goal remember the goal is not to have 0% unemployment the goal is to have just frictional and structural unemployment so in United States that's about you know five percent unemployment that's called the natural rate of unemployment it's perfectly great to have only frictional and structural unemployment if the economy is doing poorly we have a recessionary gap when we also have cyclical unemployment and of course the unemployment rate also has some criticisms keep in mind that sometimes people aren't counted when they should be kind of it's called discouraged workers these are people who stopped looking for work and they're not counted in the labor force they're not considered unemployed but in real life like they are they wish they had job but they stopped looking we stop looking you're not part of labor force so that one makes the unemployment rate look lower than it actually should be and there's also the idea of part-time workers pipeline workers are counted as fully employed and so somebody might be all upset and sad that they're not working full-time but according to the numbers they're still considered fully employed and again the unemployment rate number is that perfect doesn't show actually what's happening in all situations in the economy and there's one more goal of every economy to keep prices stable to limit crazy inflation remember inflation is the idea that money loses its purchasing power right so it requires more money to buy the same number of goods as before when there's more inflation we have inflation there's also deflation when prices are falling and this inflation wins the economy or sorry when the inflation rates actually falling so inflation rates going up for a long time and the inflation rates going up by less and less that's called this inflation you should understand the idea of nominal and real wages if you know let's say your boss gave you a five percent raise yeah great my nominal wage increase my nominal wage went up by five percent but if you have ten percent inflation than in real life your real wage fell by five percent so you have to understand the idea that you know nominal is just looking at the regular numbers and then real adjust for inflation it's the same thing with interest rates if inflation goes up that's going to decrease the real interest rate right that's the idea of you know unexpected inflation which hurts lenders unexpected inflation hurts lenders it helps borrowers another country we have to understand is the idea of CPI it's the Consumer Price Index it's the best way and the most popular way we show it of measure you know prices changes over time and inflation basically it's a market basket that we can analyze and there's an equation you got to know the market basket of the year you're looking for the value of the goods that we analyze and track the market basket divided by that same goods and same stuff in a base year so what was the value is that price of all that stuff in the base year times 100 and it pops at a number and that number tells you how prices have changed since the base year so if you see a 120 prices went up 20% since the base here if you see a 200 prices went up 100% since the base year you see it 95 that means prices fell 5% since the base year probably one of the hardest concepts in this unit is the idea of the deflator the deflator conceptually is really easy it's like the CPI except it analyzes everything so instead of just consumer goods it's analyzing you know steel and concrete and other things that consumers don't really buy but the business would buy the government buys and it looks at the prices of everything in the economy so the deflator deflates the nominal GDP the equations right here the GDP deflator is the nominal GDP divided by the real GDP times 100 again it's a number it's an index number that tells you how prices changed relative to some base year you definitely wanna do some calculation and some practice on doing the deflator and the last concept you're gonna learn in this unit is the causes of inflation inflation happens for three reasons the first one is when a government just prints too much money and you learn something called the quantity theory of money it's an identity that shows you times V equals P times y now what does that mean and there's amount of money in the money supply V is the velocity of money it's how much time money is spent in how many times money is spent and Reis pence in a given period of time P is the prices of everything and Y is the amount of stuff we're actually producing so P times y is the nominal GDP so this has this Kennedy says the amount of money that's out there times how many times people spend that money over and over again equals the nominal GDP now it's important because it shows you when you increase the money supply and velocity stays the same and why the output stays the same you have an equivalent change in prices so if I know money supply goes up by ten percent price is gonna go up exactly by ten percent and the other two causes of inflation are actually super simple the first ones called demand pull this is the idea of demand goes up people want to buy a lot more stuff in your country and people put up the price for it so demand pulls up prices the other one is called cost push cost pushes the idea that there's some resource costs or you know we ran out of some key resource to produce stuff that cost the production costs to rice so now it costs more to produce stuff so we produce less stuff causing prices to go up so either demand goes up people want more stuff or you can't produce as much stuff either one causes prices to go up causes of inflation overall unit two is not that difficult I give it four out of ten difficulty but the concepts you actually have to know you have to understand the types of unemployment GDP I mean he's huge concepts that if you don't get these you're not gonna get future concepts at all now in unit three this where things get hard it's a bear of unit there's so much stuff you got to learn it starts off with the idea of a great demand aggregate demand is all the stuff that people want to buy in the economy at different price levels and it's kind of downward sloping demand curve just like a market demand curve except now instead of price it's price level it's the price level and the quantity demanded of everything bought by everybody now this is downward sloping for three reasons you need to understand the three reasons first is the wealth effect the idea that when price level goes up the assets and people's banks are worth less right now I can't buy as much as before and so when price level goes up people buy less stuff and the opposite as well price level goes down people buy more stuff there's also the interest rate effect when inflation happens interest rates tend to go up and so people would take out less loans again these are the reasons why that a great demand curve is downward-sloping the last reason is because the foreign trade effect this is the idea that when price level goes up people from other countries don't want to buy your stuff and so quite a bit again goes down just like a market demand curve the aggregate man curve can shift and increases the right a decrease to left and the shifters are really simple anything that changes what people want to buy so if other countries or if there's more investment or if there's more consumer spending any of those things can shift the aggregate demand either right or left there's also an aggregate supply curve which is upward sloping in the short run that means when price level goes up producers want to produce more stuff but there's also a long-run graph this is the idea of you know in the long run will produce the same exact quantity that's the idea of full employment GDP and the long-run aggregate supply shows you there's no relationship between price level and the real GDP we're actually producing in the long run in other words when in the long run eventually prices will go up or down and we'll still produce the same s stuff that we did before in the long run now both the short run aggregate supply and the longer tech supply can shift the short-run of course shifts right if it's an increase a left of this decrease anything that affects producers here so price of resources can do this technology can do this some sort of government regulations or taxes or subsidies that affects a lot of producers that could ship the short max supply curve this is by far the most important graph need be able to draw showing full employment showing a recessionary gap is showing an inflationary gap this shows the same concept we saw in the last unit on the business cycle another key concept to watch out for is the idea of stagflation when Agri supply shifts to the left price level goes up quantity goes down and this is like the worst case scenario we have inflation and low output which is bad now another thing you have to be able to do here is show what happens in the long run in other words when there's an event that occurs how do you go from the short run back to the long run if consumers want more stuff Agata man goes up right that leads to an inflationary gap but in the long run wages will go up cost the firm's will go up and the short night supply will shift back to the left and put us back in the long run it goes the same way for recessionary gap assume the economy's at full employment if consumption goes down people buy less stuff we end up with a recessionary gap and what happens well if wages are flexible which is debatable if wages are flexible eventually prices will fall for resources wages will fall and then cost will fall for firms so firms can produce more Eiger supply shifts right boom right back to the long-run that's creating the long-run aggregate supply curve that long-run adjustment is different than economic growth economic growth is the idea of GDP going up in the long run other words when there's an increase in investment there'd be more capital so a great demand will shift to the right and since we can produce more stuff short black supply would shift the right and the long-run Agra supply would also shift to the right and you've seen this before with the production possibilities curve the production possibilities curve shifting to the right is like the long-run aggregate supply curve shift ins right we can produce more stuff that we couldn't produce before that's economic growth before you get too excited that you can draw the concepts on one graph keep in mind there's another graph if the bills show recessionary gap inflationary gap in a full employment it's called the phillips curve the phillips curve shows the relationship between inflation and unemployment in the short-run there's a downward sloping relationship in other words a negative relationship between these two things either you get a high inflation or you know high unemployment but you usually don't have them at the same time and in the long run its vertical there's no relationship between inflation and unemployment in the long run so with these two graphs you should be able to show when the economy's at full employment when has an inflationary gap when it has a recessionary gap or when there's a shift in the short-run at supply curve and how that shifts these short run Phillips curve the next thing you're gonna learn in this unit is the idea of fiscal policy which is the change in government spending and taxes when the economy is doing poorly how do we fix the economy expansion airy fiscal policy is when we increase government spending or cut taxes and there's contractionary fiscal policy where you increase taxes or decrease government spending and we're the last concepts you're going to see is the spending multiplier spending multipliers the idea when people spend that become somebody else's income and then people save a portion of that and they spend the rest and that's spending become somebody else as income keeps happening over and over again you understand the idea of the marginal propensity to consume which shows you how much people consume of new income and then there's much plenty to say which is the opposite side how much people save of new income simple spending multiplier is won over the marginal propensity to save which means this is if initial change in spending happens that's going to get multiplied by this amount and the total change in spending after people spending saves Benna save what happens over and over and over again right there's also a tax multiplier which is one less than the spending multiplier and then the math isn't super difficult it's just something at the practice to get comfortable with the last thing in this unit is the idea of the debts the problems of fiscal policy right increasing government spending and lowering taxes seems like a good idea but you're gonna have to deficit spend which is spend more than you bring in in tax revenue so the government's gonna spend more than they bring in and tax revenue means they have to go into debt or they have to have a deficit for that given year now the debt is the accumulation of all the deficits the deficit is amount that they're overspending in that given year and you should understand this idea of crowding out when the government does a lot of borrowing that increases interest rates and kind of crowds out investors and consumers from taking out loans and buying more stuff now this unit I'm gonna give eight out of ten difficulty because it has a bunch of key grass a bunch of key concepts maybe get slowed down we talked about the multiplier but none of it's like super impossible hard but it's a lot of stuff going on it's the bulk of a macro economics class okay here we go we're talking about money it starts off by talking about what money is it's a mean of exchange and why it's better than the barter system then you talk about commodity money and fiat money commodity money has some sort of intrinsic value fiat money does not and the three functions of money there are the medium of exchange Univ account and a store of value the next in you talking about is m1 money supply so we talk about money in this class we're not just talking about money and currency and cash we're talking about money in people checking accounts so demand deposits as well also understand the idea of the fractional reserve banking the idea that banks hold a portion of reserves and they loan out the rest the money that ends up you know being spent by somebody and that ends up in another bank and that other bank holds a portion that money in loans the rest of it Out's you also understand the idea of bank balance sheets bank balance sheet shows the assets and liabilities for a given bank you should be able to use this to calculate the required reserve ratio the excess reserves required reserves is the amount of money that a bank has to hold by law excess reserves there's not money they can loan out if they want to at this point you're also going to learn about the money multiplier we learned about the spending multiplier in unit 3 now it's the same idea except talking about spending and you know consuming and saving or talked about banks lending so when a bank lends money someone takes the money spends it ends up in another Bank that bank holds a portion and then loans the rest out that keeps happening over and over and over again the multiplier for the money multiplier is right here one over the reserve requirement remember the spending multiplier was one over the marginal pensee to save the money multiplier one over the reserve requirement same concept though the initial change in money supply times multiplier shows you the total change in the money supply key graph in this unit is the money market graph it shows a supply and demand for money you've got interest rates you got the quantity money it's got a downward sloping demand demand for money it happens for two reasons transaction demand and asset demand people need you know money to buy stuff and they need money or they like to have their assets and money as opposed to have their assets and bonds or stocks or something that's not money so there's a demand for money the supply is vertical it's set by the Fed and that comes together and sets the nominal interest rate now the Fed can control that money supply they could increase it shift to the right and they lower the interest rate or they can decrease it shift it to the left and they can increase the interest rate that's called monetary policy remember the Fed controls money supply if they increase the money supply lowers interest rates which would increase investment and consumer spending people take out more loans buy more stuff it would increase aggregate that's called expansionary monetary policy if the Fed were decreasing the money supply that would increase interest rates decrease investment decrease consumer spending people take out less loans because it's more expensive to pay back the loan and that would decrease the higher demand that's called contractionary monetary policy but understanding that is not enough you have to understand how they shift the money supply there's three shifters reserve requirement the discount rate and open market operations the reserve requirement the Fed can decide to choose whether to increase or decrease the amount that banks have to hold discount rate is how much banks are charged by the Fed when they borrow money from the Fed and then open micro operations when the Fed buys or sells bonds here's the rules you gonna watch out for it shows you what happens when the reserve requirement goes up or down discount rate goes up or down and then the Fed buys or sells bonds to the money supply so make sure you memorize this you got to know this that right there is monetary policy keep in mind there's a difference between the discount rate is what the Fed charges banks and the federal funds rate is what banks charge each other so if a bank needs money they can either go they first they can go to the people they know lent the money to and say I will need the money back that's one option or they can go to another bank or the may and go to the Fed so when they go to the Fed that's a discount rate that's what they're charged they go to another bank that's called the federal funds rate the names horrible they should be reversed right but just remember if federal funds rate is what banks charge other banks the next concept you have to understand is the idea of loanable funds loanable funds is another key graph that shows a demand and the supply of loans the demand for loans is by borrowers you the people who want to borrow money the supply is by lenders all the people who want to lend out money and it gives you the real interest rate now this curve of course can shift both supply or demand for example the government does a lot of borrowing that increases the demand for loans because the Khmers say i want to borrow some that and again interest rates go out then the graph shows you the concept of crowding out which I talked about earlier if the government deficits bends they demand more money that increases demand for loans higher interest rate higher real estate means less investment and less consumption of you know things that people would pick out loans for so overall unit four is pretty hard I give it eight out of ten difficulty because it has some graphs and it has some calculation so as to bring a lot of different concepts together but it's all talking about one big concept monetary policy if you get that you're gonna be fine now for the last unit we talked about international trade and foreign exchange it's gonna start off the balance of payments this shows all the transactions between different countries it has two different accounts the current accounts and the financial account the current account is made up of first the balance of trade that's the first idea on understand exports and imports if you export more than you import then you have a trade surplus if you import more than you export you've a trade deficit so the first part that you need to understand is the goods and services that are sold are sold and kept track of in the current account now investment income is also counted in the current account and so is net transfers when one country you know gives aid to another country or remittance when one person in one country lives there they send money back to their family these things all count in the current account the financial account is basically financial assets it shows inflow and outflow of money coming in or out of a country now if the inflow into your country is greater than the outflow that means you have a surplus in financial account if outflow is more than the inflow then you have a deficit in the financial account now keep in mind when a country has a deficit in the current account that means they have to have a surplus in the financial account that's why it's got the balance of payment the next times that you're gonna learn is the big concept in this unit foreign exchange it talks about the relative value of currencies to each other now the first thing I understand is the idea of appreciation of this is the idea that a country's currency increases in value relative to other countries currency and the opposite is the idea of depreciation now keep in mind the relationship between appreciation depreciation and net exports when your current country's currency appreciates that's gonna cause your net exports of that country to fall people can buy less your stuff because it's more expensive to buy your stuff when your currency depreciates that's gonna cause the net exports to go up so don't get confusing all depreciation is a bad thing it's not it's actually great if you're an exporter it's bad if you're an importer also understand that there's a graph here it looks like this this shows you the supply and demand for dollars relative to euros so be able to draw the demand supply keep in mind the demand is buy because we're analyzing dollars here the demand is by Europeans and the supply is by Americans also understand that when there's a change in one market there's a change in a corresponding other market in other words this is the man for dollars and the supply for dollars there's also the supply and demand for euros and it's the exchange rate so for example Europeans want to go on vacation in the United States they need more American dollars so the demand for dollars increases and the dollar is going to appreciate relative to the euro but at the same time Europeans are going to supply more of their euros that causes the euro to depreciate so keep in mind for any graph there's also a phantom graph that goes along with it and the rule is when demand goes up for one the other country has to supply more of theirs also there are four shifters of foreign exchange the first one is the one we just did tastes and preferences of people prefer more things from one country then they're gonna demand more of that currency so they can go buy it so that will cause that currency to appreciate so tastes the premise is really easy next one is income if a country is richer they buy more things including things from other countries then there's inflation so if price level goes with my country I don't want to stuff in my country more at this higher price I go by other country stuff and last one is interest rates which gets tricky interest rates are now the opposite of what you'd normally thoughts all the way back in unit 3 and unit 4 now we talk about interest rates we're saying that interest is a good thing right in other words interest rates higher interest rates will bring in more inflow in your country because other countries want to get the higher rate of return keep in mind two currencies can't appreciate relative to each other at the same time so the dollar can't appreciate relative to the euro as the euro appreciates relative dollar one goes up and the other one has to go down last thing here is the idea of floating and it's a fixed exchange rates floating exchange rates allow supply and demand to set the exchange rate a fixed exchange rate is when the government of the country tries to manipulate their currency to keep it fixed or pegged to another country's currency now unit 5 is super short and it doesn't have a lot of graphs but I give it a six out of ten difficulty because it's just so darn important you have to understand how to get exchange rates and don't get it tripped up when you're analyzing two different countries and whether the currency appreciates or depreciates hey thank you so much for watching this video I wish you all the best of luck on AP test or on your big final exam hey you're gonna do awesome okay thanks watching Telex time