- Course Introduction
Economics is traditionally divided into two parts: microeconomics and macroeconomics. The main purpose of this course is to introduce you to the principles of macroeconomics. Macroeconomics is the study of how a country's economy works while trying to discern among good, better, and best choices for improving and/or maintaining a nation's standard of living and level of economic and societal well-being. Historical and contemporary perspectives on the roles and policies of government are part of the mix of interpretations and alternatives that surround questions of who or what gains and loses the most or least within a relatively small set of key interdependent players. In the broadest view, that set consists of households, consumers, savers, firm owners, investors, agency and elected officials, and global trading partners in which some wear many hats and face price considerations at two levels.
Consider one distinction between macroeconomics and microeconomics through the way prices are taken into account in both divisions. On one hand, microeconomics focuses on how supply and demand within a given market determine prices. On the other hand, macroeconomics focuses on changes in the price level across all markets. Another distinction resides within goals. A study of microeconomics orients itself toward firm profit maximization and output optimization as well as consumer utility maximization and consumption optimization. In contrast, a study of macroeconomics situates itself around a number of goals including economic growth, price stability, and full employment.
Macroeconomic performance relies on measures of economic activity, focusing on variables and data at the national level within a specific period of time. Macroeconomics entails analyses of aggregate measures such as national income, national output, unemployment and inflation rates, and business cycle fluctuations. This course will prompt you to think critically about the national and global issues we currently face, to consider competing views that may agree or disagree with your own, and to draw challenging conclusions from a vast array of perspectives, tools, and alternatives.
- Unit 1: Overview of Economics
A study of economics usually begins by dividing the subject into microeconomics and macroeconomics. The former focuses on the exchanges between consumers and firms in markets for goods and services. In contrast, the latter focuses on exchanges that occur across all markets within a country, taking into account the interrelated actions of consumers, businesses, government agencies, financial intermediaries, and global trading partners as they exchange resources, goods, and services as well as facilitate currency and quantity flows. Furthermore, microeconomics concerns itself narrowly with the profit maximization goal, and macroeconomics addresses what should be done to achieve a greater, broader set of goals. Moreover, a feature common to a successful study of economics is your ability to distinguish changes that occur moving along a curve versus those that occur shifting a curve outward or inward.
Completing this unit should take you approximately 17 hours.
- 1.1: Basic Introduction to Marketplace Economics
- 1.2: Markets in Aggregate Form: An Introduction to Macroeconomics
- 1.2.1: Macroeconomic Goals
- 1.2.2: The Circular Flow Model
- Topic 7
- Unit 2: Macroeconomics: Goals, Measures, and Challenges
A major focal point of macroeconomics is the total output generated within an economy. Measurement of that output includes Gross Domestic Product (GDP), which is the dollar value of all final goods and services produced within a nation's borders during the course of one year. Macroeconomics also focuses on the difference between nominal GDP and real GDP. The latter version removes the effect of inflation, which increases its importance as a useful measure because total output might be increasing in terms of current dollars but not in constant dollars.
Economic growth, which is the increase in real GDP over time, is one of three major goals. The other two goals are full employment and price level stability. Fiscal and monetary policies, which are introduced in Unit 5, are formed, implemented, and evaluated against those three goals. You will likely find that macroeconomics focuses on what should be done to achieve those goals as opposed to what is done. Accordingly, this unit and those that follow will uncover scenarios and philosophical debates about the role of government in a market-based economy and whether the GDP is an accurate measure of societal well-being, quality of life, and the standard of living.
Completing this unit should take you approximately 17 hours.
- 2.1: Rationale for GDP: A Monetary Measure
- 2.2: Avoidance of Double Counting
- 2.3: Calculating GDP: Expenditure and Income Approaches
- 2.4: Calculating Nominal GDP vs. Real GDP
- 2.5: Problems Using GDP as a Measure of Well-Being
- Unit 2 Discussion and Assessment
- Unit 3: Unemployment and Inflation
Most individuals probably understand the economic concepts of unemployment and inflation. Unemployment reflects the number of people out of work who are actively seeking work, and inflation indicates an overall rise in the price level of most, but not all, goods and services. This unit will give you a deeper look at these concepts, as well as their interrelationship.
Consider first that inflation erodes the purchasing power of the dollar - or any other monetary unit, like the euro, yen, or pound. By distinguishing between nominal income, or the actual amount of money, and real income, or the amount of goods and services it can buy, macroeconomics helps measure the effects that inflation has on an economy and on its constituents' standards of living. Second, consider some details about unemployment. There is the labor force, which includes both the employed and unemployed, or those able and willing to work but not currently working, and those not in the labor force, including full time students, nonworking spouses, and retirees. Third, adding another layer of evolving depth, this unit defines and describes three types of unemployment: frictional unemployment (or temporary unemployment); structural unemployment (affecting whole sectors of the economy); and cyclical unemployment (caused by downturns in the economy).
To better understand the interrelationship between unemployment and inflation consider the following unlikely event. Suppose everyone who was seeking a job got one tomorrow, began earning income, and spent their income. As it would take longer for the products to arrive in retail stores, there would be a lot of money chasing a few goods. Consequently, unemployment would fall and the overall price level would rise. Gaining further depth in the progression of this course, the differences between our expectations for inflation and our observations of it tend to reinforce the notion that expectations play a large role in macroeconomics.
Completing this unit should take you approximately 20 hours.
- 3.1: Measuring Unemployment
- 3.2: Types of Unemployment
- 3.3: A Macroeconomic Goal: Full Employment
- 3.4: Inflation, Hyperinflation, Deflation, and Stagflation
- 3.5: Redistributive Effects of Inflation
- 3.6: Money Illusion
- 3.7: Measurements of Inflation
- 3.7.1: Consumer Price Index
- 3.7.2: Producer Price Index
- 3.7.3: The GDP Deflator
- 3.8: Tensions between Macroeconomic Goals: Price Stability and Unemployment
- 3.9: Inflation Trends and Causes: Demand-Pull Inflation and Cost-Push Inflation
- Unit 3 Discussion and Assessment
- Unit 4: Aggregate Economic Activities and Fluctuations
In studying macroeconomics, the focal point is the whole economy versus markets for goods and services. This approach entails looking at the forces affecting growth, inflation, and unemployment at the aggregate level whether it is output, income, or the set of components within GDP. In essence, macroeconomics involves studying demand and supply for all goods and services in a nation's economy. Aggregate demand is the total amount of goods and services people want to buy; in other words, it measures what people wish to purchase rather than what is actually produced. The aggregate demand is the sum of consumption, investment, government expenses, and net exports. Aggregate supply is the total output an economy produces at a given price level. As you learned in microeconomics, firms achieve equilibrium when they produce the quantity of goods and services consumers want to buy - that is, when aggregate supply equals aggregate demand. This unit will examine shifts in aggregate supply and aggregate demand and their short-term and long-term effects for the whole economy.
Completing this unit should take you approximately 27 hours.
- 4.1: The Business Cycle
- 4.1.1: Basic Perspectives on Stability of the Economy
- 4.1.2: Fluctuations and Trends in Nominal and Real GDP
- 184.108.40.206: Phases of Business Cycle
- 220.127.116.11: The Great Depression
- 18.104.22.168: Occasional Need for Government Intervention
Many consider the federal government to be a lender of last resort. The Great Depression is partly the consequence of many factors including, but not limited to, common thinking in the 1920s that government has no role in managing the economy, the absence of a division of the economy into microeconomics and macroeconomics, and the lack of awareness that equilibrium can occur alongside unemployment and business cycles.
- 4.2: The Macroeconomic Model
- 4.2.1: Determinants
- 22.214.171.124: Domestic Market Forces
- 126.96.36.199: External Shocks
- 188.8.131.52: Policy Levers
- 4.2.2: Outcomes
- 184.108.40.206: Output
- 220.127.116.11: Jobs
As a brief refresher, three major macroeconomic goals are price stability, economic growth, and full employment. Some primary and interrelated outcomes from the goal-based macroeconomic model are outputs and jobs. Those two outcomes that represent employment as resources such as labor, land, and capital are employed in producing outputs. In essence, workers produce outputs, their work generates income, and their income is spent on the outputs from the work of others. The association between outputs and incomes, in part, influences both the prices of goods and services and the price level.
- 18.104.22.168: Prices
- 22.214.171.124: Growth
- 126.96.36.199: International Balances
- 4.3: A Model of the Macro Economy
- 4.3.1: Aggregate Demand and Aggregate Supply Curves
The "Aggregate Demand” video lecture assigned below Subunit 4.3 covers this topic. Please pay special attention to the components that constitute aggregate demand and the factors that affect each of these components, resulting in shifts of the AD curve. These lecture notes also explain why the AD curve is negatively-sloped. If you have studied microeconomics, you may remember that the reason for the negative slope of the AD curve is different than what it was for the individual/market demand curve. For Aggregate Supply (AS), please be aware of the distinction between the Short-Run AS curve and the Long-Run AS curve and the factors that lead to shifts or changes in the two curves, respectively. Finally, look at how the AD and the AS interact to reach equilibrium.
The aggregate demand curve slopes downward due to the price level and consumption (i.e., the wealth effect), the price level and investment (i.e., the interest rate effect), and the price level and net exports (i.e., the exchange rate effect).
There are numerous factors that affect the quantity of goods and services demanded at a given price level. When a factor changes, the aggregate demand curve shifts left or right.
- 4.3.2: Macroeconomic Equilibrium
Macroeconomic equilibrium is determined when a country's data indicates that its GDP is equal to its aggregate expenditures and when its savings is equal to its investments. Adjustments toward equilibrium occur when a country's consumption equals its investments and its savings equals its investments. Consequently, the country has zero unplanned changes in inventory and its GDP equals its aggregate expenditure.
Macroeconomic equilibrium may or may not reflect attainment of the three basic macroeconomic goals. A gap is likely to exist between the actual GDP and the full employment or potential GDP, which can mean that employment can be too low or too high. The former refers to unemployment, and the latter refers to inflation; both are undesirable and often lead to instability arising from actions that attempt to address the gap.
- 4.4: Competing Theories about Short-Run Instability
- 4.4.1: Demand-Side Theories
- 4.4.2: Supply-Side Theories
- 4.5: Long-Run Self Adjustment
- 4.6: Four Components of Aggregate Demand - Consumption, Investment, Government Spending, Net Exports
- 4.7: Full Employment GDP versus Equilibrium GDP
- 4.8: Economic Indicators
- 4.9: Aggregate Demand Issues
- 4.9.1: Leakages and Injections
- 4.9.2: Multipliers
- 4.9.3: Adjustments
- Unit 4 Discussion and Assessment
- Unit 5: Fiscal Policy
Using various policies and tools, a government attempts to steer the macroeconomy toward three main goals: full employment, price stability, and economic growth. The remaining units in the course will cover conflicts and complexities in relation to those policies and tools. This unit will focus on fiscal policy, which consists of taxing and spending, usually done through acts involving Congress or comparable legislative bodies.
Completing this unit should take you approximately 12 hours.
- 5.1: Fiscal Policy
- 5.1.1: Stimulus and Restraint
- 5.1.2: Issues
- 5.1.3: Budget Deficits and Surpluses
- 5.2: National Debt
- 5.2.1: Definitions
- 5.2.2: Major or Historical Sources of National Debt
- 5.2.3: Burden of Debt
- 5.2.4: External Debt
- Unit 5 Discussion and Assessment
- Unit 6: Monetary Policy and Various Complexities behind Macroeconomic Policies
Fiscal policy and monetary policy are the two main tools by which government attempts to steer the macroeconomy toward the three main goals and economic growth. Monetary policy consists of methods through which the Federal Reserve attempts to engage banks, businesses, and individuals in effecting changes to interest rates, the supply of money, the demand for money, and so forth. Money serves as a medium of exchange, a store of value, and a unit of account. Those three functions enable individuals to avoid bartering. The ways in which we define and measure money are important to managing an economy. Savings and investment are key elements within the circular flow model and are a function of interest rates.
Completing this unit should take you approximately 32 hours.
- 6.1: Introduction to Macroeconomic Policy
- 6.2: Monetary Policy
- 6.2.1: Purposes of Money
- 6.2.2: The Supply of Money
- 6.2.3: Money Creation
- 6.3: Banks and the Banking and Federal Reserve Systems
- 6.4: Monetary Tools
- 6.5: The Money Market
- 6.5.1: Equilibrium Interest Rates
- 6.5.2: Prices, Rates, and Linkages: Currencies, Stocks, and Bonds
- 6.6: Issues with Monetary Policy
- 6.6.1: Time Orientations
This subunit refers to the recognition lag, the decision lag, and the implementation lag. You need to place each one of these lags in a timeframe and gain information about the complexity of policy-related actions or inaction. Keep in mind that some economists contend that monetary policy takes effect faster than fiscal policy, which is essentially the product of Congressional legislation. However, debates linger about which policy is the most effective at any given time.
- 6.6.2: Lender Reluctance
- 6.6.3: The Liquidity Trap
- 6.7: Other Macroeconomic Issues
- 6.7.1: Short-Run Supply Side Options
- 6.7.2: The Phillips Curve
- 6.7.3: The Misery Index
- 6.7.4: The Laffer Curve
- 6.7.5: Policy Complexities
- 188.8.131.52: Goal Conflicts
- 184.108.40.206: Measurement, Design, and Implementation Problems
- 220.127.116.11: Economic Growth, Saving, and Investment
- Unit 6 Discussion and Assessment
- Unit 7: International Trade
Trade among countries serves many functions aside from the exchange of goods and services at a global level. For instance, trade facilitates movements of foreign currencies held in a country's bank because imports are paid in the unit of the exporting country's currency. Additionally, trading partners have more and a greater variety of goods available to them. In short, those gains from trade arise out of comparative advantage, specialization, and export activities. However, international trade can become and often is an emotionally or politically charged issue that cuts across microeconomics and macroeconomics; it is probably a good time now to recall the difference between them. Nonetheless, most of the content within this unit centers on the topic from an economic perspective and directs attention to factors such as trade balances, exchange rates, and other aspects of a country's macroeconomic performance.
Completing this unit should take you approximately 9 hours.
- 7.1: Introduction to Trade
- 7.2: Absolute Advantage and Comparative Advantage
- 7.3: Tariffs and Quotas
- Unit 7 Discussion and Assessment