Macroeconomics – Digital resource book
macroeconomics
UNIT 1: foundations of macroeconomics
Foreword by Brad Cartwright .....................................................................................................................................1 foundations of macroeconomics: Key Terms and Concepts .....................................................................2 Lesson 1: Introduction and Overview of Macroeconomic.........................................................................................3-14 Lesson 2: Real World Issue -Why does economic activity vary over time and why does this matter?.................15-18 Lesson 3: Introduction to Foundations of Macroeconomics....................................................................................19-23 Lesson 4: The Circular Flow of Income Model...........................................................................................................24-25 Lesson 5: Gross Domestic Product and Friends.........................................................................................................26-32 Lesson 6: How is National Income Measured? .........................................................................................................33-37 Lesson 7: Gross Domestic Product (GDP) vs. Gross National Product (GNP)...........................................................38-40 Lesson 8: Gross National Income (GNI) vs. Net National Income (NNI)....................................................................41-42 Lesson 9: Nominal GDP vs. Real GDP...........................................................................................................................43-44 Lesson 10: GDP per Capita............................................................................................................................................45-46 Lesson 11: Green GDP.....................................................................................................................................................47-48 Lesson 12: Why are National Income Statistics Gathered?............ ............................................................................49-50 Lesson 13: Limitations on National Income Statistics..................................................................................................51-55 Lesson 14: The Business Cycle.......................................................................................................................................56-59 Review Questions.........................................................................................................................................................60 IB Exam Practice Questions...................................................................................................................................61
macroeconomics UNIT 2: aggregate demand & aggregate supply aggregate demand & Aggregate supply: Key Terms and Concepts .........................................................62 Lesson 1: Aggregate Demand: The Components of AD...............................................................................................63-68 Lesson 2: Aggregate Demand and Fiscal Policy...........................................................................................................69-71 Lesson 3: Aggregate Demand and Monetary Policy....................................................................................................72-74 Lesson 4: Introduction to Aggregate Supply.................................................................................................................75-78 Lesson 5: The Short-Run Aggregate Supply Curve (SRAS)............................................................................................79-83 Lesson 6: The Long-Run Aggregate Supply Curve (LRAS).............................................................................................83-87 Lesson 7: The Long-Run: Neoclassical View...................................................................................................................88-91 Lesson 8: The Long-Run: Keynesian View......................................................................................................................92-95 Lesson 9: Interventionist Supply-Side Policies.............................................................................................................96-100 Lesson 10: Market Based Supply-Side Policies...........................................................................................................101-107 Review Questions........................................................................................................................................................108 IB Exam Practice Questions..................................................................................................................................109
macroeconomics UNIT 3: macroeconomic equilibrium macroeconomic equilibrium: Key Terms and Concepts ....................................................................................110 Lesson 1: The Neoclassical Macroeconomic Diagram: "The Rule of 10"....................................................................111-113 Lesson 2: The Keynesian Macroeconomic Diagram: "The Rule of 9"........................................................................114-116 Lesson 3: Understanding Keynesian Logic: A Silly but Useful Metaphor...................................................................117-141 Lesson 4: The Neoclassical Perspective on Macroeconomics....................................................................................142-148 Lesson 5: The Keynesian Perspective on Macroeconomics........................................................................................149-153 Review Questions...........................................................................................................................................................154 IB Exam Practice Questions....................................................................................................................................155
macroeconomics UNIT 4: macroeconomic objective - Low unemployment low unemployment: Key Terms and Concepts .........................................................................................................156 Lesson 1: The Labor Market Diagram............................................................................................................................157-159 Lesson 2: Types of Unemployment..............................................................................................................................160-163 Lesson 3: Distribution and Costs of Unemployment..................................................................................................164-166 Lesson 4: Expressing Demand-Deficient (Cyclical) Unemployment on a Diagram....................................................167-170 Lesson 5: Government Solutions to Unemployment..................................................................................................171-174 Lesson 6: Demand-Side or Supply-side Solutions for Unemployment?.....................................................................175-177 Lesson 7: Crowding-Out (HL Topic only)......................................................................................................................178-181 .Review Questions..........................................................................................................................................................182 IB Exam Practice Questions....................................................................................................................................183
macroeconomics UNIT 5: macroeconomic objective – Low & Stable rate of inflation low and stable rate of inflation: Key Terms and Concepts .....................................................................184 Lesson 1: Degrees of Inflation..................................................................................................................................185-186 Lesson 2: Costs of Inflation.....................................................................................................................................187-188 Lesson 3: Deflation..................................................................................................................................................189-193 Lesson 4: Measuring Inflation.................................................................................................................................194-198 Lesson 5: Issues with Measuring Inflation..............................................................................................................199-200 Lesson 6: Demand-Pull Inflation.............................................................................................................................201-203 Lesson 7: Cost-Push Inflation..................................................................................................................................204-206 Lesson 8: Inflationary Spiral....................................................................................................................................207-208 Lesson 9: Government Solutions to Reducing Inflation........................................................................................209-214 Review Questions.....................................................................................................................................................215 IB Exam Practice Questions...............................................................................................................................216
macroeconomics UNIT 6: macroeconomic objective – economic growth economic growth: Key Terms and Concepts .......................................................................................................217 Lesson 1: Showing Economic Growth on a Diagram...............................................................................................218-220 Lesson 2: Positive and Negative Impact on Economic Growth.............................................................................221-225 Review Questions.....................................................................................................................................................226 IB Exam Practice Questions..............................................................................................................................227
macroeconomics UNIT 7: macroeconomic objective – Economics of inequality and poverty equity in the distribution of income: Key Terms and Concepts ..............................................................228 Lesson 1: Equity vs. Equality.....................................................................................................................................229-230 Lesson 2: Absolute Poverty vs. Relative Poverty....................................................................................................231-234 Lesson 3: The Lorenz Curve....................................................................................................................................235-238 Lesson 4: The Gini Coefficient.................................................................................................................................239-241 Lesson 5: Taxes and Equity in the Distribution of Income.....................................................................................242-245 Lesson 6: Transfer Payments...................................................................................................................................246-248 Lesson 7: Evaluation of Equity of Distribution of Income Policies........................................................................249-250 Review Questions.....................................................................................................................................................251 IB Exam Practice Questions...............................................................................................................................252
macroeconomics UNIT 8: demand management policies – fiscal policy Fiscal policies: Key Terms and Concepts ......................................................................................................................253 real world issue: How Do Governments Manage Their Economy And How Effective Are Their Policies? ....254-257 Lesson 1: The Government Budget...............................................................................................................................258-261 Lesson 2: Expansionary Fiscal Policy............................................................................................................................262-268 Lesson 3: Contractionary Fiscal Policy.........................................................................................................................269-271 Lesson 4: Automatic Stabilizers....................................................................................................................................272-274 Lesson 5: Supply-Side Impact of Fiscal Policy..............................................................................................................275-276 Lesson 6: Evaluating Fiscal Policy.................................................................................................................................277-279 Review Questions...........................................................................................................................................................280
macroeconomics UNIT 9: demand management policies – monetary policy monetary policy: Key Terms and Concepts ................................................................................................................281 Lesson 1: The Money Supply.........................................................................................................................................282-284 Lesson 2: The Money Market Diagram........................................................................................................................285-286 Lesson 3: The Demand for Money and Interest Rates...............................................................................................287-290 Lesson 4: The Supply for Money and Interest Rates..................................................................................................291-294 Lesson 4: Monetary Policy and Aggregate Demand...................................................................................................295-296 Lesson 5: Expansionary Monetary Policy....................................................................................................................297-299 Lesson 6: Contractionary Monetary Policy.................................................................................................................299-300 Lesson 7: Fractional Banking.......................................................................................................................................301-303 Lesson 8: Tools of Monetary Policy.............................................................................................................................304-306 Lesson 6: Evaluating Monetary Policy.........................................................................................................................307-309 Review Questions...........................................................................................................................................................310
macroeconomics
UNIT 10: Supply-side management policies Supply-side policies:: Key Terms and Concepts ............................................................................................................311 Lesson 1: Interventionist Supply-Side Policies..............................................................................................................312-313 Lesson 2: Market Based Supply-Side Policies..............................................................................................................314-316 Review Questions...........................................................................................................................................................317 sources................................................................................................................................................................................318
- SAMPLE LESSON -
components of aggregate demand understanding what they are
components of AD AD = C + I + G + (X – M) C = Consumption the total spending by households on goods and services
I = Investment the investments firms make in new capital or that households make in real estate and homes
G = Government spending the spending government does on public goods
(X – M) = Exports minus imports the spending of foreigners on goods produced by our country (exports) minus the spending domestic consumers make on goods produced abroad (imports)
source: jocelyn blink
components of aggregate demand (AD) AD = C + I + G + (X – M)
C
I
G
X-M
changes in aggregate demand (AD) AD = C + I + G + (X – M)
AD2 AD3
changes in components of AD AD = C + I + G + (X – M)
• changes in consumption – – – – –
changes in income changes in interest rates changes in wealth expectations and consumer confidence household indebtedness
• changes in investment – – – –
interest rates level of national income technological changes expectations and business confidence source: jocelyn blink
- SAMPLE LESSON -
deflation understanding the impact of deflation
deflation
• definition: deflation is defined as a persistent fall in the average level of prices in the economy • there are two broad explanations for a fall in the price level and economists have used these two categorize “good deflation” and “bad deflation” • “good deflation”—supply side – good deflation comes about from improvements in the supply-side of the economy and/or increased productivity
LRAS
LRAS
source: jocelyn blink
deflation “bad deflation”— demand-side deflation
LRAS
source: jocelyn blink
costs of deflation • deflation is a huge problem, because there is no government tool that can fix it – unemployment • aggregate demand dropping will cause increased unemployment
– investment • investment is difficult because of continually dropping average price levels
– costs to debtors • the cost of borrowing grows continually
source: jocelyn blink
Sources I am grateful for the work of my fellow IB Economics teachers Jocelyn Blink, Ian Dorton, Ellie Tragekes, and Jason Welker. Though they may not know it, each of them have accompanied me through my teaching of IB Economics over the years.
Thank you!
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