Introduction to Macroeconomics

PURPOSE
The purpose of this module is to provide students with entry level foundational economics. This will help them understand the forces within the economy, for example, demand and supply, and it will also prepare them for entry into second year economics if they are so inclined.

LEARNING OUTCOMES

• Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate income.
• Explain how GDP is measured and calculate the GDP deflator.
• Calculate the economic growth rate and identify sources of economic growth
• Describe the trends and fluctuations in economic growth and the benefits and costs thereof.
• Describe the trends and fluctuations in inflation and explain why inflation is a problem.
• Define the unemployment rate, the labour force participation rate, the employment-to-population ratio and aggregate hours.
• Describe sources of unemployment, its duration, and how it fluctuates over the business cycle.
• Explain how we measure the price level and inflation rate using the CPI.
• Explain the purpose of the classical model.
• Describe the relationship between the qty of labour employed and real GDP.
• Explain what determines the full employment level of employment and real wage rate and potential GDP.
• Explain what determines unemployment and when the economy is at full employment.
• Explain how borrowing and lending decisions interact to determine the real interest rate, savings and investment.
• Define money and describe its functions.
• Explain how the banking system creates money.
• Explain what determines the demand for money, the supply of money and the nominal interest rate.
• Explain how the quantity of money influences the price level and the inflation rate in the long run.
• Distinguish between the macroeconomic long run and short run.
• Explain what determines aggregate supply.
• Explain what determines aggregate demand.
• Explain how real GDP and the price level are determined and how changes in aggregate supply and aggregate demand bring economic growth, inflation and the business cycle.
• Explain how aggregate expenditure plans are determined when the price level is fixed.
• Explain how real GDP is determined when the price level is fixed.
• Explain the expenditure multiplier when the price level is fixed.
• Describe and define the foreign exchange rate within the foreign exchange market, and distinguish between the nominal and real exchange rates.
• Explain long-run trends in the exchange rate.
• Describe the balance of payments accounts and explain the causes of an international deficit.
• Describe the alternative exchange rate policies and explain their long run affects.
• Explain the supply-side effects of changes in fiscal policy on the level of employment and potential GDP.
• Explain the effects of government deficits on the level of investment, savings and economic growth.
• Describe the objectives of SA monetary policy and the framework for setting and achieving these objectives.
• Explain the transmission mechanism through which the Reserve Bank influences the inflation rate (price level) and real GDP, through changes in the money supply.
• Explain comparative advantage and explain why all countries can gain from international trade.
• Explain why international trade restrictions reduce the volume of imports and exports and reduce our consumption possibilities.
• Explain the arguments that are used to justify international trade restrictions and show how they are flawed.
• Explain why we have international trade restrictions.

CORE CONTENT

• GDP and Economic Growth.
• Macroeconomic Basics.
• Monitoring Jobs and the Price Level.
• At Full Employment: The Classical Model.
• Money.
• Aggregate Demand and Aggregate Supply.
• Expenditure Multipliers.
• The Exchange Rate and Balance of Payments.
• Fiscal Policy.
• Monetary Policy.
• International Trade.