Topic Name Description
Course Introduction Page Course Syllabus
Page Course Terms of Use
1.1: Basic Introduction to Marketplace Economics URL Principles of Macroeconomics: "Chapter 3: 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.

URL Principles of Macroeconomics: "Chapter 4: 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.

1.2: Markets in Aggregate Form: An Introduction to Macroeconomics URL Charles Feng's "AP Macroeconomics Study Guide"

Read this study guide, which provides a brief outline for the study of macroeconomics and will help prepare you for economics exams. This study guide covers most of the topics presented in this course.

Page Macroeconomics from Boundless
Read this introduction to Macroeconomics, which provides an overview of the field.
File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L5-L7: The Demand Side of the Economy"

Read these lecture notes, which will provide an introduction to two important expenditure components of the GDP. This reading will also prepare you for further exposure to other macroeconomic variable, which you will study in the remainder of this course. Note that consumption is the largest expenditure component and investment is the most volatile expenditure component.

File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L2: Introduction to Macroeconomic Data"

Read these lecture notes, which will provide an introduction to the scope and major topics covered by a course in macroeconomics. This reading represents an outline of the course and adds context. You will gain a solid foundation on which the upcoming units build. For instance, the course will refer numerous times to the four components of the expenditure approach - consumption, investment, government, and net exports - and will elaborate on their causes and consequences, what variables alter them, and what effects they have on aggregate demand, aggregate supply, GDP, and so forth.

1.2.1: Macroeconomic Goals Page John Petroff's "Macroeconomics, Chapter 15: 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.
URL John Petroff's "Macroeconomics, Chapter 15 Quiz: Economic Growth"

Click on the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.

1.2.2: The Circular Flow Model URL Economics: Theory through Applications: "Chapter 18, Section 3: The Circular Flow of Income"

Read this section for a detailed explanation of the circular flow of income model.

URL Khan Academy: "Circular Flow of Income and Expenditures"

Watch this lecture about the circular flow of income and expenditures and the fiscal policy cycle.

2.1: Rationale for GDP: A Monetary Measure URL Principles of Macroeconomics: "Chapter 6: Measuring Total Output and Income"

Read this chapter, which is about measuring domestic output, and attempt the "Try It" exercises. This material concentrates on the purpose and function of GDP. More importantly, this reading will help you prepare for the deeper, detailed approaches that receive coverage in subunits 2.2 through 2.5.

URL Khan Academy: "Parsing Gross Domestic Product"

Watch this lecture, which discusses parsing gross domestic product.

2.2: Avoidance of Double Counting URL Khan Academy: "More on Final and Intermediate GDP Contributions"

Watch this video, which discusses final and intermediate GDP contributions.

2.3: Calculating GDP: Expenditure and Income Approaches URL Khan Academy: "Investment and Consumption"

Watch this lecture, which discusses investment and consumption.

URL Khan Academy: "Income and Expenditure Views of GDP"

Watch this lecture, which discusses the income and expenditure views of the GDP cycle.

URL Khan Academy: "Components of GDP"

Watch this lecture, which discusses the components of GDP.

URL Khan Academy: "Examples of Accounting for GDP"

Watch this lecture, which reviews examples of accounting for GDP.

Page John Petroff's "Macroeconomics, Chapter 5: National Income Accounting"

Read this information on gross national product (GNP) and gross domestic product (GDP). GDP refers to production counted within a country's borders, whereas GNP refers to production by domestic factors inside and outside of a country's borders. Global economists use the same method for calculating GDP so they can measure and compare each country's economic welfare or well-being. Note that some countries use GNP as a metric, but GDP is the standard accounting system.

URL John Petroff's "Macroeconomics, Chapter 5 Quiz: National Income Accounting"

Click the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.

2.4: Calculating Nominal GDP vs. Real GDP URL Khan Academy: "GDP Deflator"

Watch this lecture about the GDP deflator.

URL Khan Academy: "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.

File OpenStax College: "Macroeconomics, Chapter 6.1: Measuring the Size of the Economy: Gross Domestic Product"

Read this chapter to review GDP calculations. In addition, you will gain a foundation to support your forthcoming focus on inflation concept and its measurements. Be sure to complete the problems presented in this section.

URL Khan Academy: "Real GDP and Nominal GDP"

Watch this lecture, which discusses real and nominal GDP.

2.5: Problems Using GDP as a Measure of Well-Being Folder MIT: Veronica Guerrieri's "Principles of Macroeconomics Lecture Notes"

Read both sets of lecture notes. Note that you have already encountered the L2 notes in Subunit 1.2. Use these notes as a review of the material covered in Unit 1 and Unit 2 in preparation for Unit 3.

The lecture notes, "Introduction to Macro Data," covers:

  1. Gross Domestic Product (GDP)
        • What is Gross Domestic Product and how we measure it? Why is this measure important?
        • What are the definitions of the major expenditure components?
        • What are the trends in these components over time?
  1. Inflation
        • What is the difference between ‘Real’ and ‘Nominal’ variables?
        • How is inflation measured?
  1. Interest Rate
        • How is inflation measured?
        • Why do we care about Inflation?
  1. Unemployment 
        • How is Unemployment measured?
        • Why do we care about Unemployment?

The lecture notes, "Supply Side of the Macro Economy" covers:

  1. Production Function
  2. Labor Market
        • Labor Demand
        • Labor Supply
        • Equilibrium Wages and Employment
Unit 2 Discussion and Assessment URL ECON102 Discussion

After reviewing the material in this unit, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' posts as well.

  1. Identify the two basic approaches to measuring GDP. How do they differ? Explain why the amounts of the two approaches are unequal.
  2. What are the three major goals of macroeconomics? Explain which goal is the most important to you and/or someone you know.
  3. Why is GDP an inappropriate measure of well-being?

3.1: Measuring Unemployment File OpenStax College: "Macroeconomics, Chapter 8: Unemployment"

Read this chapter on the unemployment rate. This chapter provides analyses and insights into the composition of the labor force and connections to the nature and duration of unemployment periods.

URL Khan Academy: "Unemployment"

Watch this lecture about unemployment. Discouraged workers are those individuals who remove themselves from the labor force, as they are no longer seeking employment regularly. Underemployed workers are those who are typically seeking a better job but are performing in jobs through minimal use of their skill sets.

URL Khan Academy: "Unemployment Rate Primer"

Watch this lecture about the unemployment rate.

Page "Unemployment Rate"

Read this article, which includes data from the United States Bureau of Labor Statistics, to learn how to calculate the unemployment rate.

URL The Economic Policy Institute: "The State of Working America: Unemployment and Underemployment"

Read this article to learn about some of the shortcomings of unemployment statistics and alternative metrics to see a more full picture.

3.2: Types of Unemployment URL Principles of Macroeconomics: "Chapter 5, Section 3: Unemployment"

Read this section and attempt the "Try It" exercises. This reading serves as an introduction to unemployment and provides a foundation for deeper study later in this course. This reading also covers the three types of unemployment: frictional unemployment, structural unemployment, and cyclical unemployment.

Page Saylor Academy: "Unemployment: Types, Kinds and Quantities"

As you saw in the previous reading, we can measure unemployment in many ways. This reading will provide 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.

3.3: A Macroeconomic Goal: Full Employment URL Wikipedia: "Full Employment"

Read this article to learn about the concept and goal of full employment. This reading will draw your attention to the types of unemployment. Note that full employment occurs when cyclical unemployment is nonexistent. You will also gain information about the controversies surrounding the notion of full employment.

3.4: Inflation, Hyperinflation, Deflation, and Stagflation URL Principles of Macroeconomics: "Chapter 5, Section 2: Price-Level Changes"

Read this section and attempt the "Try It" exercises. This reading serves as an introduction to price-level changes.

URL Khan Academy: "Introduction to Inflation"

Watch this lecture about inflation.

URL Khan Academy: "Stagflation"

Watch this lecture about stagflation.

URL Khan Academy: "Hyperinflation"

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.

Page Dr. Mary J. McGlasson "Real GDP"

Watch this brief lecture for information on real GDP.

URL Principles of Macroeconomics: "Chapter 16, Section 1: Relating Inflation and Unemployment"

Read this section and attempt the "Try It" exercises for an introductory discussion of inflation and unemployment.

3.5: Redistributive Effects of Inflation URL Research Department of the Federal Reserve Bank of Cleveland: Paul Gomme's "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.

URL Wikibooks: "Macroeconomics: Inflation"

Read the "Role of Inflation" section to learn about some effects of inflation.

3.6: Money Illusion URL Wikibooks: "Bestiary of Behavioral Economics: Money Illusion"

Read this article to learn about how people tend to ignore the inflation component in focusing on nominal income or current values.

3.7.1: Consumer Price Index URL Khan Academy: "Actual CPI-U Basket of Goods"

Watch this lecture, which discusses an actual CPI-U basket of goods. As you prepare to cover various measures of inflation, keep in mind that the CPI captures the changes in prices of items consumers typically purchase from retail outlets. Some measures are broader in scope than others.

3.7.2: Producer Price Index URL Wikipedia: "Producer Price Index"

Read this article, which covers several aspects of the index, including its calculations and emphasis on the prices that producers typically pay for inputs like raw resources or intermediate goods from vendors and wholesale outlets. Keep in mind that some measures of inflation are broader than others.

3.7.3: The GDP Deflator URL Wikipedia: "GDP Deflator"

Read this article, which covers several aspects of the GDP deflator, including its calculations. As the deflator covers the components of GDP, it is the broadest among several measures of inflation. Comparisons of the deflator against the PPI and the CPI can reveal information about the sources of inflation.

3.8: Tensions between Macroeconomic Goals: Price Stability and Unemployment Page John Petroff's "Macroeconomics, Chapter 14: Unemployment vs. Inflation"

Read this chapter about unemployment versus inflation.

URL John Petroff's "Macroeconomics, Chapter 14 Quiz: Unemployment vs. Inflation"

Click the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.

3.9: Inflation Trends and Causes: Demand-Pull Inflation and Cost-Push Inflation URL Khan Academy: "Demand-Pull Inflation under Johnson"

Watch this lecture, which discusses demand-pull inflation in the US under President Johnson.

URL Khan Academy: "Cost-Push Inflation"

Watch this lecture, which discusses cost-push inflation.

Unit 3 Discussion and Assessment URL Unit 3 Discussion

After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' posts as well.

  1. Compare and contrast the inflation rate and the changes in prices that occur within markets.
  2. Including borrowers and savers, which groups benefit and which lose as a consequence of inflation?
  3. Provide an example of a situation in which there are too many dollars chasing too few goods.

4.1: The Business Cycle Page John Petroff's "Macroeconomics, Chapter 6: 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.

URL John Petroff's "Macroeconomics, Chapter 6 Quiz: Business"

Click the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.

4.1.1: Basic Perspectives on Stability of the Economy URL Khan Academy: "Keynesian Economics"

Watch this lecture about Keynesian economics.

URL Khan Academy: "Risks of Keynesian Thinking"

Watch this lecture about the risks of Keynesian thinking.

4.1.2: Fluctuations and Trends in Nominal and Real GDP Page Boundless: "The GDP Deflator"

Read this overview of the GDP deflator.

Page John Petroff's "Macroeconomics, Chapter 7: Classical - Keynesian Controversy"

Read this chapter to learn about some of the differences among various schools of thought with respect to the role of government, the nature of adjustments in equilibrium, the level of unemployment, and so forth. Those perspectives can affect the timing and effectiveness of government actions or inactions.

URL John Petroff's "Macroeconomics, Chapter 7 Quiz: Classical - Keynesian Controversy"

Click the "Review Quiz" link at the bottom of the page and follow the instructions to take the quiz.

File Bureau of Economic Analysis: "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.

You will note that for 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 Google 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.

4.1.2.1: Phases of Business Cycle URL Wikibooks: "Macroeconomics: Business Cycle"

Read this article to learn about the business cycle and the four phases that help define this cycle. Real GDP varies over time, and the business cycle describes the pattern of its fluctuations.

4.1.2.2: The Great Depression File MIT: Veronica Guerrieri's "Principles of Microeconomics: Global Imbalances"

Read these lecture notes, which provide context for the Great Depression and some commonalities with the recent recession. The first page of these lecture notes provides data on trends in real GDP, bank reserves, and other important variables. You will also gain information about changes in the demand for money and in thinking about the banking system.

File MIT: Roberto Rigobon's "Applied Macro- and International Economics: The Disinflation Spiral"

Read these lecture notes, which will provide details on changes in various key variables such as prices of assets and consumer goods that occurred during the Great Depression. These lecture notes will provide you with comparisons to the recent recession and the global setting.

4.1.2.3: Occasional Need for Government Intervention File MIT: Roberto Rigobon's "Applied Macro- and International Economics: Fiscal Multiplier"

Read these lecture notes, which provide a foundation for studying fiscal policy - i.e., managing government taxing and spending - and monetary policy, or managing banking system, money markets, and interest rates. Those policies are presented in Unit 5 and Unit 6. The common element across those two policies is that the outcome is a multiple of the initial amount of change.

4.2.1.1: Domestic Market Forces URL Wikipedia: "Washington Consensus"

Read this article about the rationale for economic assistance to the developing world. The reading also points out how the rationale obscures the differences between microeconomics and macroeconomics. You should make note of the extent to which the rationale takes into account income distribution and related issues.

4.2.1.2: External Shocks URL Wikipedia: "Shock"

Read this article, which will introduce you to various types of economic shocks, including demand and supply side types.

4.2.1.3: Policy Levers URL Wikipedia: "Macroeconomic Policy Instruments"

Read this article, which covers two basic instruments used to achieve the macroeconomic goals that you need to keep in mind throughout this course. These two instruments are monetary policy and fiscal policy.

4.2.2.1: Output URL Wikipedia: "Output"

Read this article, which covers several aspects of quantifying national output for a country.

4.2.2.3: Prices URL Khan Academy: "Real GDP Driving Price"

Watch this lecture, which discusses real GDP driving price.

4.2.2.4: Growth URL Principles of Macroeconomics: "Chapter 5, Section 1: Growth of Real GDP and Business Cycles"

Read this section and attempt the "Try It" exercises. This material will provide you with a general understanding of how the present financial crisis can be contextualized by studying macroeconomics, which is the analysis of aggregate values of economic variables. Keep in mind that economic growth is partly a function of the extent to which there are employments of land, labor, and capital. Issues such as worker productivity, technological state, and public policy influence economic growth. Economic growth is evident in the rise in real GDP over time, for example, when the peaks in business cycle become higher and higher and the outward movement of the production possibilities curve. Keep in mind that there are many ways to measure economic growth.

4.2.2.5: International Balances URL Wikipedia: "Balance of Payments"

Read this article, which covers several aspects of the financial outflows and inflows among countries.

4.3: A Model of the Macro Economy File MIT: Veronica Guerrieri's "Principles of Macroeconomics: AS-AD Model"

Read these lecture notes, which provide details on macroeconomic equilibrium. This resource also provides a foundation for distinguishing time frames, policy impacts, and other important aspects of a key model.

URL Principles of Macroeconomics: "Chapter 7: Aggregate Demand and Aggregate Supply"

Read this chapter and answer the "Try It" exercises at the end of each section. This reading will provide you with the details and examples needed to master aggregate demand and aggregate supply.

URL Khan Academy: "Aggregate Demand"

Watch this lecture about aggregate demand and aggregate supply.

4.3.1: Aggregate Demand and Aggregate Supply Curves URL Khan Academy: "Shifts in Aggregate Demand"

Watch this lecture about shifts in aggregate demand.

4.3.2: Macroeconomic Equilibrium URL ECON102 Discussion

After reviewing the material in the previous resource, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' posts as well.

After working with the three case studies in the previous resource, consider posting some of your findings, your thoughts, and your questions. Perhaps you will find other students with whom you can discuss possible solutions to the deflationary trap in which Japan finds itself. Consider this: the US may soon be in the same kind of deflationary trap as Japan. What do you think can be done?


4.4: Competing Theories about Short-Run Instability URL New World Encyclopedia: "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.

4.4.1: Demand-Side Theories URL Wikipedia: "Keynesian Economics"

Read this article, which covers several aspects of contemporary macroeconomic thinking. Note the emphasis on managing aggregate demand by changing variables that can alter aggregate expenditures. Some economists argue it is easier and better to prompt changes in consumption, investment, government spending, and net exports than to prompt changes in variables that affect aggregate supply.

4.4.2: Supply-Side Theories URL Wikipedia: "Supply Side Economics"

Read this article, which covers several aspects of contemporary macroeconomic thinking. Note the emphasis on managing aggregate supply by changing variables including tax rates, deregulating industries, providing incentives for employers to hire workers, and so forth. Some economists argue it is easier and better to prompt changes in the supply side than to prompt changes in variables that affect aggregate demand.

4.5: Long-Run Self Adjustment URL Khan Academy: "Long-Run Aggregate Supply"

Watch this lecture about long-run aggregate supply. 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.

URL Khan Academy: "Short-Run Aggregate Supply"

Watch this lecture about short-run aggregate supply.

4.6: Four Components of Aggregate Demand - Consumption, Investment, Government Spending, Net Exports URL Principles of Macroeconomics: "Chapter 13: Consumption and the Aggregate Expenditures Model"

Read this chapter and attempt the "Try It" exercises. This chapter will show you how the aggregate demand curve can be derived from the aggregate expenditures model. Note that aggregate expenditures relate to the summation of planned levels of spending by consumers, businesses, government agencies, and global trade partners at a given price level. Notice also how the slope of the aggregate expenditures curve relates to the multiplier.

4.7: Full Employment GDP versus Equilibrium GDP URL Wikipedia: "Output Gap"

Read this article, focusing your attention on the two types of GDP: full employment and equilibrium. You should be able to draw distinctions between these two types after reading this article. Full employment GDP occurs near what this reading refers to as potential GDP - where the long-run aggregate supply curve is vertical. In contrast, equilibrium GDP occurs where the short-run aggregate supply curve intersects the aggregate demand curve. Output gaps occur when the three curves intersect at different points.

The recessionary gap occurs to the left of long-run equilibrium in a graph depicting the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. In short, it means the business cycle is in a contractionary phase with high unemployment, low output, and low income levels.

The inflationary gap occurs to the right of long-run equilibrium in a graph depicting the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. In short, it means the business cycle is in a contractionary phase with high unemployment, low output, and low income levels.

4.8: Economic Indicators File OpenStax College: "Macroeconomics, Chapter 19: Introduction to Macroeconomic Policy Around the World"

Read this chapter introduction which explains how some indicators are used to compare global economies.

URL Wikipedia: "Economic Indicators"

Read this article.

In this article, you will observe the set of variables for the leading indicator, and you should be able to draw comparisons between it and the coincident and the lagging indicators.

Unlike the leading economic indicator, the coincident indicator provides an estimate of the current state of the economy. In this reading, you will observe the set of variables for this indicator, and you should be able to draw comparisons between this and the leading and the lagging indicators.

Unlike the other two indicators, the lagging indicator provides an estimate of the state of the economy after the fact. For instance, the unemployment rate, as a lagging indicator, will decrease (increase) after an economic expansion (contraction) already began. In this reading, you will observe the set of variables for this indicator, and you should be able to draw comparisons among this and the leading and coincident indicators.

URL Wikipedia: "Consumer Confidence Index"

Read this article. Consumer confidence is important to measure because it can provide a reading on whether consumers are optimistic or pessimistic in their economic outlook. Their perspectives give hints about future purchases. For example, durable goods last a long time and consumers will postpone a purchase until they believe the economy is moving in the right direction.

4.9.1: Leakages and Injections URL Wikipedia: "Five Sector Model"

Read this section, including the table listing leakages and injections. You should be able to write a formula equating the leakages to the injections and place each item into the expanded, comprehensive, and important version of the circular flow model.

4.9.2: Multipliers URL Wikibooks: "Macroeconomics: Multiplier Process"

Read this article about the simple multiplier. You should be able to use the formula from this article to calculate the multiplier's numeric value given MPC = 0.80. The result suggests an outcome such as income or GDP increases about five times the amount of a change in consumer expenditures, as articulated in the readings.

4.9.3: Adjustments URL Khan Academy: "The Business Cycle"

Watch this lecture about the business cycle.

Unit 4 Discussion and Assessment URL Unit 4 Discussion

After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' postings as well.

  1. Compare and contrast aggregate demand and market demand.
  2. What is the meaning and significance of a vertical short-run aggregate supply curve?
  3. What are the four phases of the business cycle and the official definition of a recession?

5.1: Fiscal Policy File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L18-L19: Fiscal Policy"

Read these lecture notes, which provide important details regarding fiscal policy, its complexities, and its potential.

URL Principles of Macroeconomics: "Chapter 12, Section 2: The Use of Fiscal Policy to Stabilize the Economy"

Read this section to learn about how the government's fiscal actions influence aggregate demand. This section first discusses automatic stabilizers and how they function. It then covers discretionary fiscal policy, which are changes in aggregate demand resulting from changes in government purchases, income taxes, and transfer payments. Attempt the "Try It” exercises at the end of the section.

Page John Petroff's "Macroeconomics, Chapter 9: Fiscal Policy"

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.

The government spending increase section explains how policy makers use the government spending multiplier to calculate how to manipulate the economy to mitigate inflation or recession, beyond the ordinary uses of taxes. The multiplier calculates how much governments should increase or decrease spending to foster economic stability.

The tax increase section explains how policy makers use the tax multiplier to calculate how to manipulate the economy to mitigate inflation or recession, beyond the ordinary uses of taxes. The tax multiplier calculates how much governments should increase or decrease taxes to foster economic stability.

The balanced budget multiplier section explains how policy makers use the balanced budget multiplier to calculate how to reduce the budget deficit by collecting more taxes. This allows governments to match their revenue and expenses to create a balanced budget.

URL John Petroff's "Macroeconomics, Chapter 9 Quiz: Fiscal Policy"

Click the "Review Quiz" link at the bottom of the page and follow the directions to take the quiz.

5.1.1: Stimulus and Restraint URL Khan Academy: "Tax Lever of Fiscal Policy"

Watch this lecture, which discusses the tax lever of fiscal policy.

5.1.2: Issues File OpenStax College: "Macroeconomics, Chapter 17, Section 5: Automatic Stabilizers"

Read this section, which explains actions the government enacts to adjust the economy.

URL Principles of Macroeconomics: "Chapter 12, Section 3: Issues in Fiscal Policy"

Use this reading as an opportunity to become familiar with the problems and controversies involved in choosing and implementing fiscal policy. Can you think of an example of "crowding out" that you have read about?

URL Principles of Macroeconomics: "Chapter 11, Section 2: Problems and Controversies of Monetary Policy"

Read only the portion of Section 2 which describes the several lags involved with the use of macroeconomic policy. Among them are the recognition lag, the decision lag, and the implementation lag. You need to place each of these lags in a timeframe and gain information about the complexity of action or inaction.

5.1.3: Budget Deficits and Surpluses Page Phil Holden's "Fiscal Policy and Automatic Stabilizers"

Watch this lecture for a discussion of fiscal policy and automatic stabilizers. Discretionary fiscal policy is how the executive and legislative branches exercise their choice of increasing or decreasing taxes or spending to attain economic stability. Automatic stabilizers are the non-discretionary occurrences that mitigate fluctuations in GDP. When that happens, the government automatically gains increases in revenues as a consequence of economic expansions.

5.2.1: Definitions URL Principles of Macroeconomics: "Chapter 12, Section 1: Government and the Economy"

Read this section, which elaborates on the major components of government spending and the sources of government revenue. You will also learn about the terms budget surplus, budget deficit, balanced budget, and national debt. As you read, note the trends in the US government's budget over time. Lastly, attempt the "Try It" exercises at the end of the section.

5.2.2: Major or Historical Sources of National Debt URL Wikipedia: "History of the United States Public Debt"

Read this article, which covers several aspects of how the national debt in the US grew including the major contributions that stem from spending on wars and issues related to national defense.

5.2.3: Burden of Debt URL Wikipedia: "Government Debt"

Read this article, focusing your attention on the "Implicit Debt" section. Among the interpretations to be gleaned from this reading are the facts that government can be the largest borrower, which drives interest rates higher than otherwise; other borrowers become reluctant to seek loans; and future generations inherit the debt without clarity regarding the associated benefits. You can probably come up with some interpretations on your own accord.

5.2.4: External Debt URL Wikipedia: "External Debt"

Read this article, which covers several aspects about who outside of a country owns the nation's debt. Entities outside a country lend money to a government or other entity within a country. As debt is handled, principal and interest is paid and sometimes debts are forgiven or eliminated.

Unit 5 Discussion and Assessment URL Unit 5 Discussion

After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' postings as well.

  1. How does a budget deficit differ from the national debt?
  2. What are the types of lags encountered when using fiscal policy? Which of the types do you think is the most realistic? Explain your reasoning.
  3. Explain some consequences of pursuing a balanced budget during a severe economic contraction and its implication for the size of a multiplier of your choice.

6.1: Introduction to Macroeconomic Policy Page US Department of State: Christopher Conte and Albert R Karr's "An Outline of the US Economy, Chapter 7: 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.

URL Khan Academy: "Monetary and Fiscal Policy"

Watch this lecture about the monetary and fiscal policy cycle.

6.2: Monetary Policy File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L16-L17: Monetary Policy"

Read these lecture notes, which provide important details regarding attempts to manage the money supply and interest rates while achieving macroeconomic goals. As you are likely aware by now, monetary policy and fiscal policy are two instruments by which governments address economic expansions or contractions. As you progress in this course, keep in mind one instrument may be more effective in addressing those matters.

File The Federal Reserve: "Everyday Economics"

Read this article for a chronological study of how the Federal Reserve System came into being.

6.2.1: Purposes of Money URL Principles of Macroeconomics: "Chapter 9, Section 1: What Is Money?"

Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).

URL Principles of Macroeconomics: "Chapter 9, Section 2: The Banking System and Money Creation"

Read this section and attempt the "Try It” exercises at the end of the section. The three functions of money are: A medium of exchange, that is, a means of payment; A store of value, that is, a safe or vault for assets; and A unit of account (that is, the total cost of an item).

File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L10: Money"

Read these lecture notes, which provide information about the functions and drawbacks of money.

6.2.2: The Supply of Money File The Federal Reserve: "Federal Reserve Statistical Release"

Read this report, which includes data on money stock measures, seasonally adjusted components of M1, and seasonally adjusted components of non-M1 and M2. This report by the Federal Reserve differentiates between the various levels of the money supply from one period of time to another. Read this report in order to learn about the growth and wealth of the United States' economy and perform some rough calculations of your own.

6.2.3: Money Creation URL Khan Academy: "Overview of Fractional Reserve Banking"

Watch this video, which explains 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.

URL Khan Academy: "Full Reserve Banking"

Watch this lecture about full reserve banking.

URL Khan Academy: "Simple Fractional Reserve Accounting (Part 1)"

Watch both parts of this lecture about simple fractional reserve accounting.

URL Khan Academy: "Simple Fractional Reserve Accounting (Part 2)"

Watch both parts of this lecture about simple fractional reserve accounting.

Page John Petroff's "Macroeconomics, Chapter 10: Money"

Read this chapter for a brief overview of money, including its definitions and functions.

URL John Petroff's "Macroeconomics, Chapter 10 Quiz: Money"

Click on the "Quiz" link at the bottom of the page and follow the instructions to take the quiz.

6.3: Banks and the Banking and Federal Reserve Systems URL Principles of Macroeconomics: "Chapter 10: Financial Markets and the Economy"

Read this chapter to learn how financial markets fit into the model of aggregate demand and aggregate supply and how they relate to the real GDP level as well as the price level. The money market model explains the determination of equilibrium rate of interest. Attempt the "Try It" exercises at the end of the chapter.

File OpenStax College: "Macroeconomics, Chapter 15: Monetary Policy and Bank Regulation"

Read this chapter, which explains the money creation process in the economy.

6.4: Monetary Tools URL Principles of Macroeconomics: "Chapter 9, Section 3: The Federal Reserve System"

Read this section and attempt the "Try It" exercises. This reading will provide additional perspectives and insight on the role of central banks and how they create and destroy money.

File 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.

Page John Petroff's "Macroeconomics, Chapter 12: Monetary Policy"

Read this chapter by John Petroff. Focus particularly on the section, "Open Market Operations."

URL John Petroff's "Macroeconomics, Chapter 12 Quiz: Monetary Policy"

Click the "Review Quiz" link at the bottom of the page and follow the instructions to complete the quiz.

6.5.1: Equilibrium Interest Rates URL Khan Academy: "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.

URL Khan Academy: "Money Supply and Demand Impacting Interest Rates"

Watch this lecture about money supply and demand impacting interest rates.

6.5.2: Prices, Rates, and Linkages: Currencies, Stocks, and Bonds File OpenStax College: "Macroeconomics, Chapter 16, Section 1: How the Foreign Exchange Market Works"

Read this section about the exchange of currencies. Exchange rates relate the price of a country's own currency compared to the price of another country's currency mainly for the purpose of international trade. Trading partners need to convert their own currency into that of the country from which imports originate. For example, when the United States imports vehicles from Japan, the United States pays for them in Yen and needs to purchase that currency using US Dollars. In essence, the demand for and supply of currencies determine the exchange rate.

URL Lawrence Mitchell’s “Financial Speculation: The Good, the Bad, and the Parasitic"

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.

Page Boundless: “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.

6.6.2: Lender Reluctance URL Khan Academy: "Weaknesses of Fractional Reserve Lending"

Watch this lecture about the weaknesses of fractional reserve lending.

6.6.3: The Liquidity Trap File OpenStax College: "Macroeconomics, Chapter 15, Section 5: Pitfalls for Monetary Policy"

Read this section about the inability of low interest rates to induce borrowing by business for investment purposes.

6.7.1: Short-Run Supply Side Options URL Wikipedia: "Supply-Side Economics"

Read this article, which covers several aspects of achieving short-run equilibrium. Focus your attention on how the approaches covered in this reading relate to shifts in the supply curve from the perspectives of macroeconomics and microeconomics. Essential to these approaches are changes in tax rates and regulatory burden.

6.7.2: The Phillips Curve URL Principles of Macroeconomics: "Chapter 16, Section 2: Explaining Inflation - Unemployment Relationships"

Read these sections about the Phillips curve, a short-run trade off between inflation and unemployment. The Phillips curve demonstrates that there is a trade-off between inflation and unemployment. According to the curve, when inflation is higher than expected, people will work at a lower real wage. Employers will in turn hire more workers at the lower real wage, increasing output and reducing unemployment. In the 1970s and 1980s, when both inflation and unemployment were continually rising - a phenomenon known as stagflation - many economists questioned the soundness of the Phillips curve. Attempt the "Try It” exercises at the end of each section.

URL Principles of Macroeconomics: "Chapter 16, Section 3: Inflation and Unemployment in the Long Run"

Read these sections about the Phillips curve, a short-run trade off between inflation and unemployment. The Phillips curve demonstrates that there is a trade-off between inflation and unemployment. According to the curve, when inflation is higher than expected, people will work at a lower real wage. Employers will in turn hire more workers at the lower real wage, increasing output and reducing unemployment. In the 1970s and 1980s, when both inflation and unemployment were continually rising - a phenomenon known as stagflation - many economists questioned the soundness of the Phillips curve. Attempt the "Try It” exercises at the end of each section.

URL Khan Academy: "Phillips Curve"

Watch this lecture about the Phillips curve.

6.7.3: The Misery Index URL Wikipedia: "The Misery Index"

Read this article, which covers several aspects of the misery index, including its calculations and some historical data.

6.7.4: The Laffer Curve URL Wikipedia: "Laffer Curve"

Read this article about how tax revenues relate to tax rates.

6.7.5: Policy Complexities URL Wikipedia: "Quantitative Easing"

Read this article about one of the unconventional policies the government can adopt to stabilize the financial system in the economy.

6.7.5.1: Goal Conflicts URL Jonathan M. Harris' "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.

6.7.5.2: Measurement, Design, and Implementation Problems URL Boundless: Economics "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?

6.7.5.3: Economic Growth, Saving, and Investment URL Wolfram Demonstrations Project: "Solow Growth Model"

To use this simulation, you must download and install the Mathematica Viewer from the Wolfram Demonstrations Project. Although this software is free, it is a sizable download. This activity is therefore optional.

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 of 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 Discourse discussion board, and be prepared to defend your position!

Unit 6 Discussion and Assessment URL Unit 6 Discussion

After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' postings as well. 

  • What are three tools of monetary policy?
  • Which one is rarely used, and why? 
  • Provide examples of how these tools are used.
  • Compare and contrast the three functions of money.
  • In what ways do the Keynesians differ from the Classics and the Monetarists? Explain your reasoning

7.1: Introduction to Trade File MIT: Veronica Guerrieri's "Principles of Macroeconomics, L20-L22: International Economics"

Read these lecture notes, which provide a comprehensive overview of international trade. This resource expands on what you learned in the preceding six units, including the application of fiscal and monetary policies to international trade, the relevance of inflation, and a set of factors affecting imports and exports. You will gain a broader, deeper, and perhaps more objective perspective on trade-related issues.

7.2: Absolute Advantage and Comparative Advantage URL Wikipedia: "Absolute Advantage"

Read this article about absolute advantage.

File MIT: Roberto Rigobon's "Applied Macro- and International Economics, L18: The Debate on Globalization"

Read these lecture notes, which cover important points about why countries trade. These lecture notes will clarify perspectives on the topics of absolute advantage and comparative advantage. This resource will also reinforce how gains from trade accrue from comparative advantage and specialization.

7.3: Tariffs and Quotas Page Russell Shannon’s "Trade Barriers"

Read this article, which provides information on the main barriers to trade.

URL Wikipedia: "Free Trade"

Read this article, which explains tariffs and quotas in free trade.

Unit 7 Discussion and Assessment URL Unit 7 Discussion

After reviewing the unit materials, please post and respond to the following topics on the course discussion board. Feel free to start your own related posts and respond to other students' postings as well.

  • In what ways is international trade a politically or emotionally charged topic?
  • What are the primary benefits from international trade?
  • How does international trade facilitate the flow of currencies around the globe?

Study Guide and Review Exercises Page Unit 1 Study Guide and Review: Overview of Economics
Page Unit 2 Study Guide and Review: Macroeconomics: Goals, Measures, and Challenges
Page Unit 3 Study Guide and Review: Unemployment and Inflation
Page Unit 4 Study Guide and Review: Aggregate Economic Activities and Fluctuations
Page Unit 5 Study Guide and Review: Fiscal Policy
Page Unit 6 Study Guide and Review: Monetary Policy and Various Complexities behind Macroeconomic Policies
Page Unit 7 Study Guide and Review: International Trade
Optional Course Evaluation Survey URL Optional Course Evaluation Survey

Please take a few moments to provide some feedback about this course. Consider completing the survey whether you have completed the course, you are nearly at that point, or you have just come to study one unit or a few units of this course.

Your feedback will focus our efforts to continually improve our course design, content, technology, and general ease-of-use. Additionally, your input will be considered alongside our consulting professors' evaluation of the course during its next round of peer review. As always, please report urgent course experience concerns to [email protected] and/or our discussion forums.