• Course Introduction

        Economists divide their discipline into two areas of study: microeconomics and macroeconomics. In this course we introduce you to the principles of macroeconomics—the study of how a country's economy works, while trying to discern among good, better, and best choices for improving and maintaining a nation's standard of living and level of economic and societal well-being. Historical and contemporary perspectives on the role of government policy surrounds questions of who gains and loses within a small set of key interdependent players. These beneficiaries include households, consumers, savers, firm owners, investors, government officials, and global trading partners.

        Consider how microeconomists and macroeconomists analyze price fluctuations. In microeconomics we focus on how supply and demand determine prices in a given market. In macroeconomics we focus on changes in the price level across all markets. Microeconomics studies firm profit maximization, output optimization, consumer utility maximization, and consumption optimization. Macroeconomics studies economic growth, price stability, and full employment.

        Macroeconomic performance relies on measures of economic activity, such as variables and data at the national level, within a specific period of time. Macroeconomics analyzes aggregate measures, such as national income, national output, unemployment and inflation rates, and business cycle fluctuations. In this course we prompt you to think about the national and global issues we face, consider competing views, and draw conclusions from various perspectives, tools, and alternatives.

      • Unit 1: Overview of Economics

        The study of microeconomics focuses on exchanges among consumers and firms that are in the market to purchase goods and services. In contrast, macroeconomics focuses on exchanges that take place across all of the markets within a country. We take the interrelated actions of consumers, businesses, government agencies, financial intermediaries, and global trading partners into account, as they exchange resources, goods, and services, and facilitate currency and quantity flows. Microeconomics studies how to achieve profit maximization, while macroeconomics studies how to achieve economic stability and growth on a national level.

        Completing this unit should take you approximately 17 hours.

        Upon successful completion of this unit, you will be able to:

        • identify the determinants of demand and supply;
        • describe how changes in demand and supply lead to changes in a market's equilibrium price and quantity;
        • distinguish microeconomics from macroeconomics; and
        • describe the circular flow model, identifying linkages between the markets for goods and resources as well as the exchanges between businesses and households.
      • Unit 2: Macroeconomics: Goals, Measures, and Challenges

        In macroeconomics we study the total output an economy generates. Economists use gross domestic product (GDP), the monetary value of all final goods and services produced within a country's borders in one year, to measure a country's total output. Macroeconomics tend to use real GDP, rather than nominal GDP, for their comparisons since real GDP removes the effect of inflation. Measuring growth in current dollars (which does not account for inflation), rather than constant dollars, might indicate a false sense of economic growth or decline.

        Governments focus on three key indicators of economic growth: an increase in real GDP over time, full employment, and price level stability. In unit 5, we explore how governments form, implement, and evaluate their fiscal and monetary policies to achieve these three goals. In this unit we uncover scenarios and philosophical debates about government's role in a market-based economy. We examine whether 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.

        Upon successful completion of this unit, you will be able to:

        • define nominal gross domestic product and real gross domestic product;
        • compare and contrast as well as discuss various measures of output and income;
        • distinguish between real and nominal values;
        • analyze the problems associated with using GDP as a measure of well-being;
        • identify the components of the expenditure and the income approaches to the measurement of GDP;
        • explain how consumer income relates to spending and saving;
        • describe the consumption and savings functions and the terms attached to their slopes;
        • define automatic stabilizers, and explain changes in government spending and taxing during a macroeconomic recession and expansion;
        • describe how savings and investment contribute to economic growth; and
        • define economic growth in terms of changes in the production possibilities curve and in real gross domestic product.
      • Unit 3: Unemployment and Inflation

        Most of us are familiar with unemployment and inflation: the unemployment rate reflects the number of people out of work who are actively seeking work; inflation indicates an overall rise in the price level of most, but not all, goods and services. In this unit we delve into these concepts and study their interrelationship.

        First, consider that inflation erodes the purchasing power of the dollar, or other currency unit (euro, rupee, naira, dinar, or pound). Macroeconomics helps us measure the effects inflation has on an economy and the standard of living when it distinguishes between nominal income (the dollar amount received), and real income (the amount of goods and services the income can buy).

        Secondly, consider the different types of employment. The labor force includes employed and unemployed workers, such as those who are able and willing to work, but not able to obtain employment. The labor force does not include full time students, nonworking spouses, and retirees who are not looking or unable to work. We examine three types of unemployment: frictional or temporary unemployment, structural unemployment which affects entire sectors of the economy, and cyclical unemployment which is caused by downturns in the economy.

        Let's consider a hypothetical event to show how unemployment and inflation levels are often interrelated. Suppose everyone who is looking for a job gets hired tomorrow and begins earning income. Unemployment levels fall. Our newly-employed group is flush with cash and wants to spend their income immediately. However, it would take some time for retail stores to make new products available to purchase to meet this demand. More money is available to purchase the limited number of goods available. Prices rise as retailers try to benefit from the rise in consumer demand. Inflation increases. Our scenario shows how employment and inflation levels often follow each other.

        Completing this unit should take you approximately 20 hours.

        Upon successful completion of this unit, you will be able to:

        • define unemployment rate;
        • calculate the unemployment rate;
        • identify and distinguish between the different forms of unemployment;
        • analyze the problems associated with the unemployment rate;
        • describe the three types of unemployment and factors that relate to them;
        • define inflation and deflation, and explain how each affects the price and economic growth of an economy;
        • define, interpret, and calculate inflation rate and the consumer price index;
        • describe the problems and biases associated with the consumer price index;
        • articulate sources of inflation, and explain how they can affect economic stability;
        • use the model of aggregate demand and aggregate supply to explain stagflation;
        • explain the relationship between inflation and unemployment;
        • describe and analyze the Classical as well as the Keynesian views on unemployment; and
        • discuss various explanations for wage and price stickiness.
      • Unit 4: Aggregate Economic Activities and Fluctuations

        In this unit we explore the forces affecting growth, inflation, and unemployment at the aggregate level, such as output, income, or the set of components within GDP.

        Aggregate demand is the total amount of goods and services people want to purchase. It measures what people want to buy, 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 we studied in microeconomics, firms achieve equilibrium when they produce the quantity of goods and services consumers want to buy—at a macro level equilibrium is the point where aggregate supply equals aggregate demand. In this unit we examine shifts in aggregate supply and aggregate demand, and the short-term and long-term effects for the entire economy.

        Completing this unit should take you approximately 27 hours.

        Upon successful completion of this unit, you will be able to:

        • graphically represent and interpret a short-run aggregate supply curve, and explain why it slopes upward and factors leading to its shift outward or inward;
        • define aggregate demand, and identify the reasons for its negative slope;
        • explain the factors leading to a shift in the consumption function;
        • define short-run equilibrium and long-run equilibrium, and discuss how they differ;
        • describe the four phases of a business cycle, including references to income and real output;
        • graphically represent and interpret a long-run aggregate supply curve, and explain its connection to natural level of unemployment; and
        • describe how short-run equilibriums occur above and below the output level associated with the natural rate of unemployment.
      • Unit 5: Fiscal Policy

        Governments use various policies and tools to steer the macroeconomy toward three main goals: full employment, price stability, and economic growth. In the remaining three units, we explore the conflicts and complexities of these policies and tools. First, let's study fiscal policy, which involves taxing and spending policies, including the fiscal legislation Congress enacts in the United States and similar legislative bodies promote in other countries.

        Completing this unit should take you approximately 12 hours.

        Upon successful completion of this unit, you will be able to:

        • explain the effect of government spending, taxation, and budget deficits and surpluses on GDP;
        • explain how the various kinds of lags influence the effectiveness of discretionary fiscal policy;
        • explain how discretionary fiscal policy works and influences aggregate demand;
        • identify the major components of U.S. government spending and their sources;
        • define the terms budget surplus, budget deficit, and balanced budget; and
        • explain the difference between a budget deficit and the national debt.
      • Unit 6: Monetary Policy and Various Complexities behind Macroeconomic Policies

        Monetary policy includes the methods government agencies, such as the U.S. Federal Reserve, engage in to encourage banks, businesses, and individuals to change their interest rates, the supply of money, and the demand for money. Money serves as a medium of exchange, a store of value, and a unit of account. These three functions enable individuals to avoid a bartering system (we pay a business money for providing a service, rather than with a goat or loaf of bread). The ways we use to 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.

        Upon successful completion of this unit, you will be able to:

        • compare and contrast as well as discuss fiscal policy and monetary policy;
        • define the money multiplier, and explain the money creation process;
        • distinguish between the types of money (i.e., between commodity money and fiat money), identifying examples of each;
        • define money supply, and its related definitions (M1 and M2); draw and interpret a money demand curve, and explain how changes in other variables may lead to shifts in the money demand curve;
        • explain and illustrate the relationship between a change in demand for or supply of bonds and macroeconomic activity;
        • explain the functions of a bank, and describe a bank's balance sheet;
        • explain the primary functions of the Federal Reserve, and describe the three tools it can use as part of monetary policy;
        • explain how the bond market works, and discuss the relationship between bond prices and interest rates;
        • describe the relationships among changes in money demand or money supply, in the interest rate, in the prices of stocks and bonds, in aggregate demand, in real GDP, and in the price level;
        • identify and discuss domestic policies that contribute to economic growth;
        • explain the linkages among income, consumption, and net investment, relating them to economic growth;
        • describe how crowding out occurs and its connections to fiscal and monetary policies;
        • discuss the arguments for side supply approaches to economic growth separating macroeconomic and microeconomic variables;
        • summarize the bases of the philosophical differences between the Classics and Keynesians;
        • describe the key components of the monetarist perspective; and
        • explain why the Phillips curve is vertical in the long run.
      • Unit 7: International Trade

        Aside from the exchange of goods and services on a global level, trade among countries serves many functions. For example, it trading partners make a greater variety of goods available. In short, these gains from trade promote the concepts of specialization, comparative advantage, and export activities. Trade also facilitates movement and exchange of foreign currencies, such as when imports are paid for in the unit of the exporting country's currency.

        However, international trade can be an emotional and politically-charged issue, that cuts across microeconomics and macroeconomics. In this unit we examine trade from an economic, rather than political, perspective. We direct our attention to trade balances, exchange rates, and other aspects of a country's macroeconomic performance.

        Completing this unit should take you approximately 9 hours.

        Upon successful completion of this unit, you will be able to:

        • compare and contrast and discuss absolute advantage and comparative advantage;
        • explain how the foreign exchange market works, how it reflects changes in the demand for or the supply of a country's currency, and how it relates to a country's net exports;
        • identify tariffs and quotas in international trade and how they relate to net exports;
        • explain how comparative advantage relates to the gains from international trade; and
        • describe the role of international trade in the exchange of currencies.
      • Study Guide and Review Exercizes

        This study guide will help reinforce key concepts in each unit as you prepare to take the final exam. Each unit study guide aligns with the course learning outcomes and provides a summary of the core competencies and a list of vocabulary terms. Our study guides are not meant to replace the readings and videos that make up the course.

        The vocabulary lists include terms that may help you answer some of the review items, and terms you should be familiar with to successfully complete the final exam for the course.