|Unit 1: Introduction to Economics
|Macroeconomics Study Guides
Keep the following two comprehensive study guides handy throughout your macroeconomics course study. They provide brief oulines for many of the major macroeconomics topics studied in this course and can help prepare you for your final economics exams.
|1.1: The Economic Way of Thinking
|Economics: The Study of Choice
Read this chapter to learn about the economic way of thinking and the principles of scarcity and opportunity cost. Be sure to click through each of the sections. Note how individuals and businesses make everyday decisions at the margin. Learn about the differences between macroeconomics and microeconomics.
|Resources, Scarcity, and Choice
Watch these two videos to learn about resources, scarcity and how we make choices when resources are scarce. As we know, satisfying unlimited wants is impossible. Finding ways to use our scarce resources in ways that optimize society's well-being is one of the most important tasks of the science of economics.
|Introduction to Macroeconomics
Read this introduction to Macroeconomics, which provides a brief overview of the overall science of economics. Pay attention to the key the differences between microeconomics and macroeconomics.
|Hypotheses, Theories, and Models
The following two videos show you the economist's toolkit and explain how economists test hypotheses, develop economic theories, and use models in their analysis.
|1.2: Choices in Production and the Production Possibilities Curve
|Confronting Scarcity: Choices In Production
Read this chapter to learn about the factors of production and the way they are combined in production. Use the production possibilities curve to represent the alternative combinations of goods and services that an economy can produce. Make sure to understand how the curve represents efficient, inefficient, and unattainable levels of production. Pay attention to how economic growth can be represented by shifts in the curve. Also in this chapter, learn about how economic systems compare.
|The Production Possibilities Curve (PPC)
Watch these two videos to learn how a production possibilities curve is constructed. Pay close attention to the way changes in resources affect the PPC curve. As you will see, some combinations of products may be unattainable, given the limited existing resources, whereas other combinations of products may be inefficient as they leave some unused resources. The PPC curve helps us find levels of production that utilize all of the available resources in the economy.
|1.3: Demand, Supply, and Market Equilibrium
|Demand and Supply
Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve. Make sure to carefully study the difference between demand and quantity demanded (and the difference between supply and quantity supplied).
|More on Demand
Watch these three videos to learn about Demand, the Law of Demand, and the variables that shift the Demand curve. Make sure to understand the difference between Demand and Quantity Demanded. Knowing this difference will help you determine if a change in a specific variable causes a movement along the Demand curve or a shift of the curve.
|More on Supply
Watch these two videos to learn about Supply, the Law of Supply, and the variables that shift the Supply curve. Note that, similarly to the discussion of the difference between Demand and quantity demanded, here we have to distinguish between Supply and quantity supplied. As you will see, a change in quantity supplied causes a movement along the supply curve, whereas a change Supply is a shift of the entire curve.
Watch this video to put together Demand and Supply on the same graph and determine equilibrium quantity and price. Learn about the ways in which changes on the demand and/or supply side of the market affect the equilibrium outcome.
|1.4: The Circular Flow of Income and Expenditures
|Demand, Supply, and Equilibrium
Read this section on the Circular Flow of Economic Activity. Learn about the how the circular flow model provides a link between the demand and supply in the product and factor markets.
|Circular Flow of Income and Expenditures
Watch this lecture about the circular flow of income and expenditures in a closed economy. Note that goods and services are exchanged in product markets and factors of production are exchanged in factor markets.
|1.5: Applications of Demand and Supply
|Applications of Demand and Supply
Read this chapter and attempt the "Try It" exercises. This chapter will help you gain familiarity and competencies with regard to basic demand and supply concepts. At a minimum, you should be able to list the factors that shift the demand curve and those that shift the supply curve after completing these chapters. This will help you prepare for similar types of analyses in the units ahead.
|Price Floors and Price Ceilings
Watch this video to learn about the way in which government price controls (price floors and price ceilings) can sometimes alter the market outcome. Note if price controls are set at levels that make them ineffective. Some notable examples of real world price controls are also discussed.
|2.1: Defining GDP and the Business Cycle
|Macroeconomics: The Big Picture
Read this chapter and attempt the "Try It" exercises. Also, complete the concept problems and the numerical problems at the end of the chapter. In the first section of this chapter, you will read about the definition of Gross Domestic Product and some of the issues around measuring it. You will also learn about the 4 phases of the business cycle. As you will see, the economy goes through naturally alternating periods of economic growth and recession. You will review certain sections of this chapter later in the unit.
|Gross Domestic Product
Watch these three videos to analyze the definition of Gross Domestic product and the ways in which this definition avoids double-counting and the effects of price changes.
Watch these two videos to explore the components of the business cycle. As you will see, the business cycle is largely driven by the emotions of the market participants. Bouts of optimism can spur demand and increase economic activity whereas negative expectations can precipitate economic decline.
|Bureau of Economic Analysis
Explore the Bureau of Economic Analysis website to find out current real time measures of economic indicators such as GDP, unemployment, inflation, etc.
|2.2: Inflation, Nominal GDP, and Real GDP
Review section 2 of the Macroeconomics chapter assigned in Unit 2.1, which defines and discusses the concept of Inflation. Learn what hyperinflation and deflation are and identify the method of calculating inflation. Pay attention to the meaning and calculation of the term "Price Index" and the way it is used to calculate inflation.
|Inflation & Price Indexes, Real Income, and Real GDP
The following 3 episodes from Dr. McGlasson's Macroeconomics Modules video series explore inflation, the price indexes, and the way real variables such as real income and real GDP are derived.
|GDP Deflator, Real GDP, and Nominal GDP
Watch these two videos, which show the distinction between real GDP and nominal GDP and introduce the GDP deflator, which is the price index calculated on all goods and services that are included in GDP.
|Example Calculating Real GDP with a Deflator
Watch this lecture about calculating real GDP with a deflator. This is one among many approaches to removing the effect of inflation from nominal or current values. Watch for other approaches, some of which draw from a base broader or narrower relative to that under current consideration.
|Economic Commentary on the Costs of Inflation
Read this article, which discusses how inflation can distort the allocation of resources and adversely affect economic efficiency.
|Consumer Price Index
Inflation is the rise in the general price level in the country. One of the measures of inflation in the U.S. is the Consumer Price Index (CPI). Find the official published CPI levels on the Bureau of Labor Statistics site below. Pay attention to the way food and energy prices contribute to the overall price level.
|Introduction to Inflation
The following video introduces inflation, defined as an increase in the price level over time. The video shows how inflation is calculated using the consumer price index (CPI).
Watch this lecture, which discusses hyperinflation. Hyperinflation is defined as inflation rates in excess of 200 percent for a period of one year or longer.
Review these sections from the Macroeconomics chapter assigned in Unit 2.1, which define and discuss the concept of unemployment. As you will find out, there are specific characteristics that have to be present for for someone to be considered "unemployed". The mere fact of a person not having a job is not sufficient for that determination. Read this section of the text to find out more.
|Types of Unemployment
These episodes from Dr. McGlasson's Macroeconomics Modules video series give you a different angle on the meaning of unemployment and the main types of unemployment: frictional, structural, and cyclical.
|What Is the Natural Rate of Unemployment?
Learn about the meaning of "natural rate of unemployment". As it turns out, our goal is not to achieve 0% unemployment - that is impossible, but a certain rate of low unemployment (aka "the natural rate of unemployment") is not only possible but desirable.
|Unemployment and underemployment
Read this article to learn about some of the shortcomings of the available unemployment statistics and some alternative metrics to see a more full picture.
|Unemployment: Types, Kinds, and Quantities
As you saw, we can measure unemployment in many ways. This article gives a few additional measures of unemployment that were not discussed in the textbook. In the United States, we use six measures of unemployment. The table and numbers in this resource come from the Bureau of Labor Statistics, the federal agency that monitors and reports on unemployment. After you read this resource, you will confirm your understanding of the BLS unemployment categories in a quiz. You will need to reference the figures on this page as you take the quiz, so be sure to come back to it.
|The Bureau of Labor Statistics
In the U.S., unemployment statistics is collected and compiled by the Bureau of Labor Statistics of the Department of Labor. The unemployment reports are published monthly and available on the following web site. Explore the website and identify the current level of unemployment in the U.S. How does it compare to the natural rate of unemployment?
Read this article, which includes data from the United States Bureau of Labor Statistics, to learn how to calculate the unemployment rate.
|2.4: GDP Components: Consumption, Investment, Government Purchases, and Net Exports
|Measuring Total Output and Income
Read this chapter, to learn about measuring domestic output, and attempt the "Try It" exercises. The material in this chapter concentrates on the four components of GDP: consumption, investment, government purchases, and net exports. Pay attention to the definition of these components as it may differ from your expectations. For example, note that Investment does not refer to the common knowledge definition of investment as in the trading of stock and bonds. Instead, the Investment component refers mainly to the purchase of physical machinery and equipment needed in the production of goods and services. You will revisit certain sections of the chapter later in this unit.
|Components of GDP
Watch these two videos which discuss the components of GDP and the income and expenditure approaches to measuring GDP.
|The Business Cycle
Read this chapter for an overview of the concepts that are associated with the business cycle. The business cycle provides information on the causes and characteristics of the economic problems associated with unemployment and inflation. Be sure to complete the assessment in this subunit that accompanies this reading.
|Gross Domestic Product
Download and examine this table, which contains statistics on various components of the GDP from 2013 to 2015 broken down by quarter. Observe how the United States has gone through growth and contraction at various points during this time period.
Each quarter the BEA produces an estimate of the annual GDP for that year. As the year progresses their estimate of the GDP becomes better and more refined. The fourth quarter estimate is the best estimate, although that number is modified in the following year, as "actual" numbers become available for the previous year. For the fourth quarter of 2014, the GDP is given as "17,615.9." The numbers in this table are expressed in Billions of US Dollars. What it means in words is 17 trillion, 615 billion, 900 million dollars. The US GDP today is heading for 18 trillion dollars.
When you search for this information, you will see slight differences from the numbers reported on various sites to that of the BEA. This slight difference happens because other sites reconcile/modify quarterly estimates to arrive at an annual estimate of GDP, while the BEA just reports quarterly estimates of the annual GDP.
|2.5: Problems Using GDP as a Measure of Well-Being
|GDP and Economic Well-Being
Review section 3 of the Macroeconomics chapter assigned in 2.1. Learn about the shortcomings of GDP as a measure of well-being. As we will see, GDP is an imperfect measure of happiness as it focuses exclusively on the material well-being of a country's citizens. Factors such as the quality of healthcare, education, and the environment, are not explicitly covered by GDP.
|3.1: Aggregate Demand
|Aggregate Demand and Aggregate Supply
This chapter introduces the Aggregate Demand/Aggregate Supply model of macroeconomics. Read the introduction and Section 1 to learn about Aggregate Demand and the three effects (weath, interest rate, and international trade) that cause the downward slope. Recall the difference between quantity demanded and demand - the same logic applies to Aggregate Demand. Identify the variables that change (shift) the Aggregate Demand curve. Read this chapter and attempt the "Try It" exercises. You will revisit certain sections of the chapter later in this unit.
|More on Aggregate Demand and Aggregate Supply
The following three videos will help you get a good understanding of the Aggregate Demand curve and the factors that shift it. Later we will put Aggregate Demand and Aggregate Supply together on the same graph and will analyze the resulting equilibrium and its implications on the economy's health.
|3.2: Consumption, Investment, and the Aggregate Expenditures Model
|Consumption and the Aggregate Expenditures Model
Read this chapter to examine consumption and its determinants within the aggregate expenditures model. Consumption is the largest component of Aggregate Demand the United States, therefore, the factors that determine consumption, also determine the success of the economy.
|Investment and Economic Activity
Read this chapter to examine factors that determine private investment and its link to output within the macroeconomy. Private investment plays an important role in the short run by influencing aggregate demand, and in the long run by influencing the rate of growth of the economy.
|More on the Aggregate Expenditure Model, and the Keynesian Cross
The following videos explore the aggregate expenditure model in detail. You will analyze planned expenditures relative to actual output using the Keynesian Cross and will see how a change in government spending can lead to a new equilibrium. The model also introduces the spending multiplier and shows how it links aggregate demand factors with the ultimate level of GDP in the economy.
|3.3: Aggregate Supply In the Short-Run and the Long-Run
|Aggregate Demand and Aggregate Supply: The Long Run and the Short Run
Review section 2 of Aggregate Demand and Aggregate Supply chapter assigned in 3.1, about short run aggregate supply and the way it differs from long-run aggregate supply.
|Short-Run Aggregate Supply and Long-Run Aggregate Supply
The following videos will walk you through the definitions of Short-Run Aggregate Supply and Long-Run Aggregate Supply. Pay attention to what distinguishes the short-run from the long-run. What causes price and wage stickiness in the short-run and what are the implications for the shape of the supply curves. For example, the short-run aggregate supply curve slopes upward due to the lag between product prices and resource prices that makes it profitable for firms to increase output when the price level rises. The long-run aggregate supply curve is vertical when a country is at full employment. The long-run aggregate supply curve is vertical because, in the long run, resource prices adjust to changes at the price level, which leaves no incentive for firms to change their output. In the long run, prices and wages have no effect on the aggregate supply curve.
|4.1: Short-Run and Long-Run Macroeconomic Equilibrium
|Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium
Review these sections, which show graphically recessionary and inflationary gaps and relates them to the labor market. Various policy choices are also discussed that address issues in the economy that result from these gaps.
The following video explores the labor market effects and role in creating short-run recessionary or inflationary gaps, and in re-establishing long-term equilibrium in the economy.
|Cost-Push Inflation and Demand-Pull Inflation
The following two videos discuss how inflation can happen in the economy. They discuss the specific cases of cost-push inflation and demand-pull inflation. Note which of the two curves - Aggregate Demand or Aggregate Supply - causes the inflation problem in each case. The second video discusses a specific case from our history - the demand-pull inflation that occurred in the U.S. under President Johnson.
|Macroeconomic Viewpoints & Keynesian Economics
The following two videos examine different schools of economic thought with respect to shape of the aggregate supply curve. Is there a way to reconcile these beliefs with a unifying theory? Watch these videos to gain perspective on the challenges of explaining and addressing economic problems over the years.
|4.2: Economic Growth
This chapter analyzes economic growth by examining the aggregate production function. Sources of economic growth are identified and growth rates of different countries are compared.
|Solow Growth Model
Robert Solow won the Nobel Prize in Economics in 1987 for his work in providing a framework and theory with which to think about all aspects of economic growth.
This simulation provides a simplified way to think about economic growth and how savings, depreciation, and population growth – or more precisely, the resulting growth in the labor force – all affect growth.
It is important to recall that in the Keynesian model, Saving = Investment = Business Spending. Depreciation is the using up of Investment. This model shows investment growing by the rate of saving and shrinking by the rate of depreciation. In our economy, consumers save about 5% of their income, while businesses tend to "save" (read: invest) more. Some societies save up to 15% of their income!
Once you have downloaded the software to your desktop, open the simulation and read the introduction. Experiment with each slider, examining what happens when depreciation increases or decreases or population increases or decreases. Look at the rate of saving slider, too, and note that .05 is 5%.
The model shows the relationship between capital/worker and economic growth. Remember this is a very general conceptual model and only shows general trends and possible issues that a growing economy could encounter.
As you examine various scenarios and their overall consequences, think of where the US may fit within the conceptual framework. Are we re-investing too little? Are we replacing capital as it depreciates or just consuming that capital with little thought of replacement?
Back up with your claims with evidence from the simulation and background from the other course resources. Consider posting your conclusions in the course discussion forum, and be prepared to defend your position!
|Achieving Economic Growth
Read this chapter, which explains various approaches to achieving economic growth. This reading also introduces the roles of government and other factors relevant to defining and sustaining increases in the production possibilities frontier, in real GDP, or both over time.
|More on Economic Growth
The following two videos discuss the topic of economic growth in more details. The second video walks you through calculations of economic growth under different scenarios for growth rates.
|5.1: Money and the Money Creation Process
|The Nature and Creation of Money
Read these sections, "What is Money?" and "The Banking System and Money Creation", to examine money and its impact on real GDP and the price level. Specifically, learn about what money is and its three functions. Distinguish between the M1 and M2 definitions of money. Also, learn about the money creation process and role of banks in it in a fractional reserve banking system. You will revisit certain sections of the chapter later in this unit.
|The Federal Reserve: "Federal Reserve Statistical Release"
Read this report to find out specific values of the different measures of money – M1 and M2. Also learn about the growth of the U.S. economy overtime.
|What is Money?
The following videos discuss the definition of money and the money creation process in a fractional reserve banking system. Understanding the money creation process is key to understanding how to control the economy through changes in the money supply.
|Fractional Reserve Banking
Watch these videos, which explain fractional reserve banking. Be mindful that total reserves are the checkable deposits that the public has placed in a commercial bank. Required reserves are a percentage of the checkable deposits that must remain in a commercial bank as required by the Federal Reserve. Required reserves are set by the Federal Reserve to protect banks from customers running on the bank, i.e., reserves protects a bank from customer panic. Excess reserves are a percentage of checkable deposits that a bank is authorized by the Federal Bank to lend out. Consequently, required reserves are deposits from which the banks earn a profit through the loan and repayment process.
|Weaknesses of Fractional Reserve Lending
As banks are only required to keep a fraction of all deposits as reserves, the risk is there for depositors asking to withdraw their deposits in droves in the event of unfavorable market conditions. How can a bank operating in this system ensure that it can fulfil its obligations to its customers? Watch this lecture about the weaknesses of fractional reserve lending.
|5.2: Structure and Powers of the Federal Reserve System
|The Federal Reserve System
Read these sections to learn about the Federal Reserve System's structure, functions, and goals. Also, identify and explain the tools of monetary policy and way money is created or destroyed through the purchase and sale of government bonds.
Watch this video to learn about the Federal Reserve system of banks. As you learn about the Fed's structure, think about how this structure helps insulate this insitution and its decision making authority from the political processes in the country.
|The Fed Today
This video walks through the history of the Federal Reserve from its creation in through present day banking. It explores the structure of the Fed, its role in banking supervision and financial services, as well as its primary role in designing and carrying out monetary policy.
|The Federal Reserve: "Everyday Economics"
Read this article on the inception of the Federal Reserve system. Also learn about how this institution evolved over time to become one of the most important decision makers in our economy.
|5.3: Financial Markets
|Financial Markets and the Economy
Read this chapter to build a foundation for understanding financial markets. The first section discusses the bonds and foreign exchange markets and the way they are connected through the interest rate. The second section builds the model of the money market and connects it to the other financial markets. Pay attention to how the connection is made between the financial markets and the overall economy by showing the effects on the equilibrium real GDP and the price level, using the model of aggregate demand and supply.
|Overview of Bonds
Read this article about bonds and some factors related to their prices. Like stocks, an objective is to sell at a higher price than that at time of purchase. Part of this effort entails focusing on current and anticipated interest rates. Unlike stocks, bonds take the form of loans. You will learn about a specific relationship that exists between bond prices and interest rates.
Watch this video to learn about the foreign exchange market and the way the value of currency is determined through the demand and supply of currency. Also learn about how and why a country may manipulate its currency value.
|Interest as Rent for Money
Watch this lecture, which discusses interest as rent for money. Be mindful that equilibrium interest rates are the balance or combination of the market for money plus the investment demand for money. Consequently, equilibrium real GDP and the price level will determine the equilibrium based on transactional demand and investment demand.
|Money Supply and Demand Impacting Interest Rates
Watch this lecture about money supply and demand impacting interest rates. Note that the interest rate is the price of money (as it is money's opportunity cost). As individuals consider the interest rate when deciding how much of their income to save and how much to spend, they effectively make the choice of how much money to hold (for the purpose of spending).
Read this article about the stock market and how expectations play a role in terms of changes in the price of a stock. Speculators tend to focus on changes in prices and attempt to sell at a price higher than they bought the stock. You will learn that a stock is a share of ownership in an organization, and its price is determined largely by the supply of and the demand for stocks in the stock market.
|5.4: Monetary Policy and the Interest Rates
|Monetary Policy and the Fed
Read this chapter to understand in more detail the monetary policy tools, process, and impacts on the U.S. economy. Review specific monetary policies and their effects from our recent history.
Watch this video for an overview and explanation of the three tools of monetary policy: Open Market Operations, the Required Reserve Ratio, and the Discount Rate.
|The Federal Reserve: Monetary Policy
Read this article, which adds depth to the three tools of monetary policy and covers the difference between the federal funds rate, which is set by banks, and the targeted federal fund rate. Some of the reading describes how the Fed provides signals to the market for the purpose of stimulating economic activity and goal achievement.
|6.1: Fiscal Policy
|Government and Fiscal Policy
Read this chapter to learn about how the government's fiscal actions influence aggregate demand. The chapter first introduces the components of the government's budget and then discusses discretionary fiscal policy and automatic stabilizers used to influence the economy. Some lags in the implementation of fiscal policy are identified and the concept of crowding out is introduced. Attempt the "Try It" exercises at the end of the section.
Read this chapter, which identifies fiscal policies governments use to combat inflation and recession. John Petroff provides information about government taxing and spending and prepares you to continue studying the role governments play in the macroeconomy.
|More on Government and Fiscal Policy
The following three videos walk you through the components of the government's budget - taxation (revenue) and government spending, and the way in which they are used as tools of discretionary fiscal policy. The issue of crowding out is shown to result from excessive government borrowing.
|Tax Lever of Fiscal Policy
Watch this lecture, which discusses the tax lever of fiscal policy or how government can impact aggregate demand through the use taxation while keeping government spending unchanged.
|6.2: Inflation and Unemployment
|Inflation and Unemployment
Read this chapter to examine the relationship between inflation and unemployment. As you will see, while there have been some periods in which a trade-off exists between inflation and unemployment, there are also periods in which such clear-cut negative relationship between these variables falls apart. The chapter offers some explanations for these variable behaviors and the stabilization policies that are used to address undesirable trends in the variables.
|More on Unemployment vs. Inflation
The Phillips curve shows a trade-off between a high rate of inflation and a high rate of unemployment during certain periods of time in our history. Read this chapter to learn about this trade-off.
Economist economist Bill Phillips described an inverse relationship between unemployment and inflation visible in the data in 1958. This relationship was later named the "Phillips Curve". Learn about the macroeconomic debates that this concept stirred over time.
|Monetary and Fiscal Policy
Monetary policy and fiscal policy pursue similar goals - the achievement of high employment and stable price. The two types of economic policy, however, differ in their tools, implementation, and the primary entity making policy decisions. This video compares and contrasts fiscal policy and monetary policy.
|Aggregate Demand and Aggregate Supply Review
Review sections 7.2 and 7.3 of Chapter 7 in order to examine the relationship between the labor market dynamics and the achievement of equlibrium in the short run and the long run. Note the role of wage and price stickiness.
|6.3: History of Economic Policy and the National Debt
|Brief History of Macroeconomic Thought and Policy
Read this chapter to examine macroeconomic attitudes towards economic policies of the three main schools of economic thought: Classical, Keynesian, and Monetarist. Also, learn about modern day interpretations of the main ideas.
|Macroeconomic Policy and Sustainability
Read this article for additional perspective about macroeconomic goals and the inherent conflict among them as they relate to a global environmental context.
|An Outline of the US Economy: Monetary and Fiscal Policy
Read this chapter by Christopher Conte, a former editor and reporter for the Wall Street Journal, and Albert R. Karr, a former Wall Street Journal reporter, for a historical perspective on fiscal and monetary policy, its evolution over the years, and its current functionality.
|Keynes and Classical Economics
Read this article for more information about these competing perspectives. This section contains four subsections: "Wages and Spending," "Excessive Saving and Interest Rates," "Active Fiscal Policy," and "Multiplier Effect". Focus your attention on the portions within the four subsections that emphasize the short-run. You may observe that the differences among the various subsections tend to deal with the underlying nature of change.
|Current Topics in Macroeconomics: Questions for Debate
Read each of the four webpages linked from this section: "Arguments For and Against Discretionary Monetary Policy," "Arguments For and Against Fighting Recession with Expansionary Monetary Policy," "Arguments For and Against Fighting Recession with Expansionary Fiscal Policy," and "Arguments For and Against Inflation Targeting Policy Interventions". You will gain additional insights about policy formation, implementation, and evaluation. In each case, consider whether the right questions were asked and whether the proper measures received focus. Which side of each of these debates would you find yourself?
|Unit 7: International Trade and Finance
|Net Exports and International Finance
Read this chapter to examine the reasons nations trade and the way net exports determinants influence aggregate demand and the equilibrium GDP and price level in a country. Also, learn about the balance of payments components and the way financial capital flows mirror the trade balance. The chaper also defines and compares various types of exchnage rate systems.
The principle of "comparative advantage" points to gains from trade when countries specialize in the goods and services in which they have lower opportunity costs. Countries sometimes impose "trade barriers" which prevents them from reaping the full benefits
of specialization and trade. Read this article, which provides information on the main barriers to trade.
|Balance of Payments: Current Account
The following video intoduces the components of the balance of payments and explores the connection between international capital flows and the trade balance.
|International Capital Flows and Trade Balance
The following videos show the connection between international capital flows and the trade balance. Learn about the savings and investment identity and how saving and investment relate to capital flows.
The twin deficits concept refers to a country having both a trade deficit and a budget deficit at the same time. These videos explore the connection between the two deficits and the consequences on the nation's economy. The analysis uses the savings and investment identity introduced before.
|ECON102 Study Guide
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|Course Feedback Survey