Macroeconomics

Macroeconomics: Aggregate Supply and Demand

Maybe you're familiar with supply and demand, but what is aggregate? It's just a fancy word to mean all or the whole situation. By calling it aggregate, it makes us economists sound smart! So, what is aggregate demand? Well, let's start with an example.

This allows farmers across the country to know to buy tons of chicken feed. That way, a multitude of farmers can provide an aggregate supply of chicken nuggets to meet our aggregate demand.

If a graph like Figure 1 below is spooky to you, don't worry, it doesn't bite. Let's break it down piece by piece. First, the aggregate demand starts at AD1. This line represents the demand for chicken nuggets at multiple price levels. Something changes in the economy that increases aggregate demand to AD2; let's say a new spicy sweet flavor sweeps the nation. This is met by a sharp increase in price (from P1 to P2) and supply (from Q1 to Q2), as shown on the long-run aggregate supply curve (LRAS). The conclusion, an increase in demand occurred, and it incentivized farmers to increase the supply; which typically costs suppliers more money, requiring them to raise the price as well.

Fig. 1 - AD-AS Model

Macroeconomics: International Trade

International trade is kind of like the 'Monopoly' game. Each player tends to engage in specialization in a select segment. Like in a monopoly game, one person typically collects all the railroads, another the orange properties, and so on. This is similar to international trade because each country tends to specialize in a specific industry and then exchange with other players for a price. Free trade occurs when participants make exchanges fairly.

Have you had or been the player who starts throwing pieces or flips the board? This happens in the international economy too. Trade relations can break down, and protectionism will make them weary of exchanging with other players. In the international economy, this occurs through trade wars and if countries are desperate enough for real wars.

Fig. 2 - Game of Monopoly

Macroeconomics: Fiscal Policy

Fiscal policy is actions taken by federal and state governments to accomplish varying means of making specific groups of citizens' lives better. Everyone in society wants to improve it. The trouble is deciding how and where to make improvements. What makes good fiscal policy is when it helps only me, and anything that doesn't is, therefore, a bad policy! Depending on whether you benefit directly or what the political forces tell you often decides good from bad policies. With a good fiscal policy, there are spillover benefits for everyone in a country. The problem is they are just in areas that are hard to notice.

The market is here to provide solutions to people's needs and problems, but not every solution gets the job done adequately. This is where government steps in to correct market failures, such as providing free public education and healthcare assistance. To do this, governments must rob their citizens of their hard-earned money and give it to, in some cases, people who desperately need healthcare. We'll discuss all these topics in more detail and with recent data points, like in the pie chart below which shows sources of the United States federal government tax revenue.

Fig. 3 - The United States Tax Revenue 2021. Source: Datalab¹

Macroeconomics: Monetary Policy

Have you ever heard about the mystical invisible hand that controls the market? Well, the witches and warlocks at the Federal Reserve (commonly referred to as "the Fed") use economic magic to keep the economy in balance. They have sworn a sacred oath to do their best for the long-run economy, even if its short-run effects appear bad. The economy is like an unstable tall tower, swaying from recession on one side to run-away inflation on the other.

The Fed can alter the amount of money flowing through an economy with of flick of its wand, manipulating interest rates, money supply, and the exchange rate. This is shown on the graph below where the market for loanable funds is at point A, and the money supply is represented by S1. The Fed deems it necessary to spur investment, so they work their money printing magic by buying bonds, increasing the total money available (from S₁ to S₂) in the economy.

Fig. 4 - Federal Reserve increases money supply to grow the economy

Macroeconomics: Unemployment

If you are reading this to prepare for your college classes, or if not, then this section may be crucial. Finding a job can be an excruciating nightmare full of misery. Why is it like this? Many factors affect the number of available jobs. Did you know that the minimum wage reduces the number of jobs available? Surely, now you'll be happy to work once the minimum wage is out of the way! While it's true the minimum wage restricts the number of available jobs, it doesn't mean the minimum wage should be removed. Did you know there are several types of unemployment, and not having a job doesn't actually make you unemployed? People who are not employed, nor seeking a job, are considering non-labor force participants. Ya hear that one, dad? Get off my back! I'm not unemployed; I'm a non-labor force participant.

Fig. 5 - USA Unemployment rate 2012-2021. Source: Bureau of Labor Statistics²

How can StudySmarter Support Me in Studying Macroeconomics?

StudySmarter can provide you with handcrafted explanations, flashcards, and practical exercises for hundreds of economic topics! We understand that not everyone learns in the same way and may require information in several forms. Maybe you are like me, who bangs their head into a desk hoping to knock some sense into that brain. Whether it's our examples that provide clarity on how a topic works or a deep dive that explores real-world macroeconomic scenarios, we have something for every learning style. Perhaps you are short on time or have trouble making yourself read? You can play our explanations through an audio reader while you walk to class! We are also in the process of making our flashcards accessible to persons with disabilities.

Macroeconomics Revision Guide

Our Macroeconomics Revision Guide will provide you with a multitude of study options to help you blow that test out of the water! The economics team here at StudySmarter vows to never give you a formula or graph without a clear and easy explanation of how it works! Only have a few minutes to study? Try flipping through some flashcards for 10 minutes! If a topic on the flashcard doesn't make sense, look it up in our handwritten explanations that are choc full of examples.

Macroeconomics Summaries

For nearly every macroeconomic topic you can think of, we have an in-depth explanation of the topic. This includes relevant definitions, simple breakdowns of complex graphs, and deep dives into interesting applications of the topic. Did you know that some explanations will also feature up-to-date policy and real-world applications of our topics? You will walk away with a simple and clear understanding of the topic and some useful facts about how they interact in our present day.

Macroeconomics Flashcards

If there was ever a cheat code for studying, it's flashcards. Our flashcards and even those made by yourself and other users will challenge you on concepts and definitions. Our test-prep-designed flashcards will engage you with challenging questions that require you to answer test equivalent questions. Our flashcards even have formulas and graphs to make sure those pesky GDP variables aren't forgotten.

Macroeconomics Study Groups

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