Macroeconomics- Everything You Need to Know

Summary

In this comprehensive overview, Jacob Clifford covers the essentials for an introductory macroeconomics class, including the concept of scarcity, production possibilities curve, comparative advantage, and economic systems. He delves into macroeconomic measures such as GDP, inflation, unemployment, and fiscal policy, as well as monetary policy and the intricacies of international trade and exchange rates. The video serves as a valuable review for students preparing for exams and a tool for identifying knowledge gaps.

Takeaways

• 📘 Introduction to Economics: The video covers essential concepts for an introductory宏观经济学 class, focusing on scarcity, opportunity costs, and the production possibilities curve.
• 📈 Understanding the Production Possibilities Curve: The curve shows efficient, inefficient, and impossible production points and can shift due to changes in resources or technology.
• 🌍 Comparative Advantage: Countries should specialize in products where they have lower opportunity costs, leading to efficient trade between them.
• 💰 Economic Systems: The video provides an overview of different economic systems like free market capitalism, command economy, and mixed economy, with a focus on capitalism.
• 🔄 Circular Flow Model: The model illustrates the interactions between businesses, individuals, and the government in an economy, highlighting product and resource markets.
• 📊 Demand and Supply: The basic principles of demand and supply, including equilibrium, shifts, and the concepts of shortage and surplus, are discussed.
• 📈 Macroeconomic Measures: The three goals of an economy are growth, low unemployment, and stable prices, with GDP being a central measure of economic activity.
• 💵 Money and Banking: The unit on money introduces the functions of money, the banking system, and the money multiplier effect.
• 📊 Fiscal Policy: The video explains the use of fiscal policy through government spending and taxation to influence the economy, including the concepts of spending and tax multipliers.
• 🌐 International Trade and Foreign Exchange: The final unit covers the balance of payments, foreign exchange rates, and the impact of currency appreciation and depreciation on trade.
• 🎓 Study Tips: The video is designed as a quick review for exams, encouraging students to identify areas of strength and weakness for targeted study.

Q & A

What is the primary purpose of the video?

The primary purpose of the video is to provide a quick review and preparation guide for students taking an introductory macroeconomics class or an AP macroeconomics exam.

What is the concept of scarcity in economics?

Scarcity in economics refers to the fundamental economic problem where human wants are unlimited, but resources are limited, leading to the necessity of making choices and trade-offs in the allocation of resources.

How is the production possibilities curve (PPC) used to illustrate efficiency and opportunity costs?

The PPC is used to show the maximum attainable combinations of two goods given the available resources. Points on the curve represent efficient combinations where resources are fully utilized. Points inside the curve indicate inefficiency, while points outside the curve are unattainable given current resources.

What are the two shapes of the production possibilities curve and what do they represent?

The two shapes are the straight line and the concave (or 'bowl-shaped') curve. A straight line PPC indicates constant opportunity costs, meaning resources are very similar for producing different products. A concave curve indicates increasing opportunity costs, meaning resources are not similar, and producing more of one good requires giving up more of the other good.

What is the law of comparative advantage and how does it relate to trade?

The law of comparative advantage states that countries should specialize in the production of goods for which they have the lowest opportunity cost. This allows countries to trade with each other, exchanging goods they can produce efficiently for those they are less efficient at producing, leading to mutual benefits.

How does the circular flow model illustrate the interactions between different economic agents?

The circular flow model shows the interactions between businesses, individuals, and the government. Businesses sell products and buy resources (factors of production), individuals buy products and sell their resources, and the government provides public services and redistributes income through transfer payments and subsidies.

What are the three goals of every economy?

The three goals of every economy are to grow over time (production of more goods and services), to keep unemployment low, and to maintain stable prices (limiting inflation).

How is GDP calculated using the expenditure approach?

GDP is calculated using the expenditure approach by adding up all the spending on final goods and services in the economy, which includes consumption (C), investment (I), government spending (G), and net exports (X - M).

What is the difference between nominal and real GDP?

Nominal GDP is the market value of all final goods and services produced in a year without adjustment for inflation. Real GDP adjusts for inflation, providing a more accurate reflection of the economy's actual production and growth.

What are the three causes of inflation?

The three causes of inflation are an increase in the money supply (quantity theory of money), demand-pull inflation (where demand outpaces supply, causing prices to rise), and cost-push inflation (where increased production costs lead to higher prices).

How does the Phillips curve illustrate the relationship between inflation and unemployment?

The Phillips curve shows an inverse relationship between inflation and unemployment in the short run, suggesting that higher inflation is associated with lower unemployment and vice versa. In the long run, the curve is vertical, indicating no relationship between inflation and unemployment as the economy converges to its natural rate of unemployment.

Outlines

00:00

📚 Introduction to Macroeconomics and Scarcity

This paragraph introduces the viewer to the basics of macroeconomics, emphasizing the concept of scarcity and the production possibilities curve. It explains the ideas of unlimited wants versus limited resources, opportunity costs, and the efficient allocation of resources. The video aims to prepare students for their AP宏观经济学考试 or final exams, offering a quick review of essential concepts rather than a comprehensive re-teaching. The speaker also promotes his Ultimate Review Pack, a resource for further practice and understanding of economics.

05:01

📈 Understanding Macro Measures and GDP

The second paragraph delves into the three primary goals of every economy: growth over time, low unemployment, and stable prices. It introduces the concept of GDP (Gross Domestic Product) as a measure of economic activity and explains how to calculate it using both the expenditure and income approaches. The paragraph also discusses the importance of distinguishing between nominal and real GDP, the business cycle, and the different types of unemployment, including frictional, structural, and cyclical unemployment. Additionally, it touches on the labor force participation rate and the natural rate of unemployment.

10:01

💰 Inflation, Unemployment, and Fiscal Policy

This paragraph covers the concepts of inflation, deflation, and their impact on wages and interest rates. It explains the Consumer Price Index (CPI) and how it measures price changes over time. The deflator, which adjusts nominal GDP for inflation, is introduced as a key concept. The paragraph also discusses the causes of inflation, including excessive money printing, demand pull, and cost push. Fiscal policy, which involves government spending and taxation, is explained as a tool to manage economic performance, with a focus on expansionary and contractionary policies. The spending multiplier effect and the potential issues with fiscal policy, such as government debt and crowding out, are also discussed.

15:02

📉 Aggregate Demand, Supply, and Economic Fluctuations

The fourth paragraph introduces aggregate demand and supply, explaining their downward and upward sloping curves, respectively. It discusses the factors that cause these curves to shift and the implications for the economy, including recessionary and inflationary gaps. The concept of stagflation, where inflation and low output occur simultaneously, is highlighted as a particularly challenging economic scenario. The paragraph also covers the long-run adjustment of the economy back to full employment following economic shocks, and the relationship between fiscal policy, the spending multiplier, and economic growth.

20:03

💹 Money, Banking, and Monetary Policy

This paragraph focuses on the nature and functions of money, differentiating between commodity and fiat money, and the roles of money as a medium of exchange, unit of account, and store of value. It explains the concept of M1 money supply and the practice of fractional reserve banking. The paragraph also covers the mechanics of bank balance sheets, required reserves, and the money multiplier. The role of the Federal Reserve in controlling the money supply through reserve requirements, the discount rate, and open market operations is detailed, as well as the impact of these tools on monetary policy, including expansionary and contractionary measures.

25:04

🌐 International Trade and Exchange Rates

The final paragraph discusses international trade and foreign exchange, starting with the balance of payments, which records all transactions between countries. It differentiates between the current account, which includes trade balances, investment income, and net transfers, and the financial account, which tracks financial assets. The concept of exchange rates and how they are influenced by supply and demand is explained, along with the impact of currency appreciation and depreciation on net exports. The paragraph also covers the factors that shift exchange rates, including tastes and preferences, income levels, and interest rates. It concludes with a discussion on floating versus fixed exchange rates and their implications for international trade.

Keywords

💡Scarcity

Scarcity refers to the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It is the starting point for studying economics, emphasizing the need to make choices and prioritize among competing needs. In the video, scarcity is introduced as the core idea that sets the stage for understanding macroeconomics and microeconomics, highlighting the reality that resources are finite and choices must be made wisely.

💡Opportunity Cost

Opportunity cost is defined as the cost of foregoing the next best alternative when making a decision. It is a key concept in economics that helps individuals and societies make efficient decisions by considering what must be given up to obtain something else. The video uses this concept to explain the trade-offs involved in producing goods or making decisions, emphasizing its importance in evaluating the economic choices people make.

💡Production Possibilities Curve (PPC)

The Production Possibilities Curve is a graphical representation that shows the different combinations of two goods that can be produced using all available resources efficiently. Points inside the curve represent inefficient production, points on the curve represent efficient production, and points outside the curve are unattainable given current resources. The video uses the PPC to illustrate concepts of efficiency, trade-offs, and the impact of resource availability on production capabilities.

💡Comparative Advantage

Comparative advantage is the concept that a country or individual should specialize in producing and trading goods in which they have a lower opportunity cost compared to others. This principle supports the idea of international trade being mutually beneficial. The video explains comparative advantage as a basis for trade, suggesting that specializing and trading according to comparative advantages can lead to an increase in overall economic welfare.

💡GDP (Gross Domestic Product)

Gross Domestic Product is a measure of the total economic output of a country within its borders, expressed as the dollar value of all final goods and services produced over a specific time period. It is used as an indicator of a country's economic health. The video emphasizes GDP as a crucial concept in macroeconomics, discussing its components, what it includes and excludes, and the difference between nominal and real GDP to account for inflation.

💡Unemployment

Unemployment refers to the situation where individuals who are willing and able to work are unable to find employment. The video discusses different types of unemployment (frictional, structural, and cyclical) and the natural rate of unemployment, illustrating the dynamic nature of labor markets and the impact of economic conditions on employment.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, eroding purchasing power. The video addresses the causes of inflation, including demand-pull and cost-push inflation, and its effects on the economy, such as influencing the real value of wages and interest rates. It also introduces measures like the Consumer Price Index (CPI) to track inflation rates.

💡Aggregate Demand and Supply

Aggregate demand and supply are macroeconomic concepts representing the total demand for and total supply of goods and services in an economy at different price levels. The video delves into these concepts to explain economic fluctuations, showing how shifts in aggregate demand and supply curves can lead to changes in overall economic output and price levels, and how they relate to concepts such as economic growth and stagflation.

💡Fiscal Policy

Fiscal policy involves the use of government spending and taxation to influence the economy. The video explains expansionary and contractionary fiscal policies, highlighting their role in managing economic cycles by affecting aggregate demand. It discusses the implications of government budget deficits and the national debt, as well as potential downsides like crowding out private investment.

💡Monetary Policy

Monetary policy refers to the actions taken by a central bank to control the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, managing unemployment, and stabilizing the currency. The video covers key tools of monetary policy, including open market operations, reserve requirements, and the discount rate, illustrating how these tools can influence economic activity by affecting lending, spending, and investment.

Highlights

Introduction to macroeconomics and AP宏观经济学 class overview

Scarcity and opportunity costs as fundamental economic concepts

Production Possibilities Curve (PPC) and its implications for efficiency and resource allocation

Comparative advantage and its role in international trade

Overview of economic systems: free market, capitalism, command economy, and mixed economy

The Circular Flow Model explaining interactions between businesses, individuals, and the government

Demand and supply fundamentals, including equilibrium and shifts

Macroeconomic measures: GDP, unemployment, and inflation as key indicators of economic health

Understanding GDP calculation, including expenditures and income approaches

The concept of nominal and real GDP, and the importance of adjusting for inflation

The business cycle and its phases: peak, recession, trough, and expansion

Unemployment types and measurements, including labor force participation rate

Inflation and deflation, and their impact on the economy and individual purchasing power

The Consumer Price Index (CPI) as a measure of inflation

The GDP deflator and its role in adjusting nominal GDP for inflation

The causes of inflation, including demand-pull, cost-push, and money supply issues

Aggregate demand and its determinants, including the wealth, interest rate, and foreign trade effects

Aggregate supply in the short and long run, and the concept of full employment GDP

Fiscal policy tools and their impact on the economy during recessions and expansions

The spending and tax multipliers, and their role in economic stimulation

Monetary policy and the Fed's control over the money supply and interest rates

The balance of payments, including current and financial accounts, and their significance in international trade

Foreign exchange rates, appreciation, and depreciation, and their effects on trade and investment

Floating and fixed exchange rate systems, and how they influence a country's currency value

Transcripts

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