Macroeconomics looks for answers to the following questions: Is the total level of economic activity rising or falling? Is the rate of inflation increasing or decreasing? What is happening to the unemployment rate? These are questions that deal with aggregates, or totals, in the economy; they are problems of macroeconomics.

• Unit 1.2 Economic Growth
• Unit 1.3 Inflation and Deflation
• Unit 1.5 Phillips Curve: a Trade-off between Inflation and Unemployment
• Unit 1.6 Price Indexes
• Unit 2.1 The Components of GDP
• Unit 2.2 Measuring Total Income
• Unit 3.2 AD-AS model: The Long Run and the Short Run
• Unit 3.3 Recessionary and Inflationary Gaps. Long-Run Macroeconomic Equilibrium
• Unit 3.4 Gaps and Public Policy
• Unit 4.1 Functions and Types of Money
• Unit 4.2 The Banking System and the Central Bank
• Unit 4.3 Money Creation and a Deposit Multiplier
• Chapter 5. Financial Markets and the Economy 63
  • Unit 5.1 The Bond Market and Macroeconomic Performance
  • Unit 5.2 Foreign Exchange Markets
  • Unit 5.3 Demand, Supply, and Equilibrium in the Money Market
• Chapter 6 Central Bank and Monetary Policy 74
  • Unit 6.1 Monetary Policy
  • Unit 6.2 Problems of Monetary Policy
  • Unit 6.3 Monetary Policy and the Equation of Exchange
  • Unit 7.2 The Use of Fiscal Policy to Stabilize the Economy
• Chapter 8. Consumption and the Aggregate Expenditures Model 89
  • Unit 9.1 The Role and Nature of Investment
  • Unit 9.3 Investment and the Economy
• Chapter 10. Net Exports and International Finance 112
  • Unit 10.1 The International Sector: An Introduction
  • Unit 10.2 International Finance
  • Unit 10.3 The Balance of Payments
  • Microeconomics and Macroeconomics
  • Phases of the Business Cycle
• There are various theories explaining the causes of the business cycle. Internal (or endogenous) theories consider it to be self-generating, regular, and indefinitely repeating. A peak is reached when (or just before) people begin to consume less, for...
  • Investment is closely linked to consumption, and only takes place when demand and output are growing. Consequently, as soon as demand stops growing at the same rate, even at a very high level, investment will drop, probably leading to a downturn. Anot...
  • External (or exogenous) theories, on the contrary, look for causes outside economic activity: scientific advances, natural disasters, elections or political shocks, demographic changes, and so on. Joseph Schumpeter believed that the business cycle is ...
• Unit 1.2 Economic Growth
  • Learning objectives
  • Defining Economic Growth
  • Growth in Output per Capita
  • Unit 1.3 Inflation and Deflation
  • Learning objectives
  • Define inflation and deflation. Explain how their rates are determined.
  • Explain what a price index is and outline the general steps in computing a price index.
  • Describe and compare different price indexes.
  • Explain how to convert nominal values to real values and explain why it is useful to make this calculation.
  • Draw a Phillips curve and describe the relationship between inflation and unemployment that it expresses.
  • Measuring Unemployment
  • Types of Unemployment
  • Frictional Unemployment
  • Structural Unemployment
  • Cyclical Unemployment
  • Unit 1.5 Phillips Curve: a Trade-off between Inflation and Unemployment
  • Learning objectives
  • Draw a Phillips curve and describe the relationship between inflation and unemployment that it expresses.
  • Unit 1.6 Price Indexes
  • Learning objectives
  • Explain what a price index is and outline the general steps in computing a price index.
  • Describe and compare different price indexes.
  • Explain how to convert nominal values to real values and explain why it is useful to make this calculation.
  • Draw a Phillips curve and describe the relationship between inflation and unemployment that it expresses.
  • Price Indexes
  • The Consumer Price Index (CPI)
  • The Implicit Price Deflator
  • Computing the Rate of Inflation or Deflation
• 2. The unemployment rate is:
• a) the sum of the levels of frictional and structural unemployment;
• b) ratio of the unemployed to the labour force;
• c) the share of the unemployed that corresponds to the appropriate level of employment.
• 3. For health reasons, the engineer moved to another city and did not work for a month and a half because of the move. This should be taken into account in the calculation of:
• a) both frictional and structural unemployment;
• b) cyclical unemployment;
• c) frictional unemployment;
• d) structural unemployment.
• 4. Natalia quit her job as a sales assistant and spent 3 weeks to find a new job as a manager. During the search for Natalia’s work it should be taken into account in the calculation of:
• a) both frictional and structural unemployment;
• b) cyclical unemployment;
• c) frictional unemployment;
• d) structural unemployment.
• 5. The construction of power plants using oil as a source of energy was followed by the closure of a number of coal mines and the mass dismissal of miners. This contributed to an increase in:
• a) both frictional and cyclical unemployment;
• b) cyclical unemployment;
• c) frictional unemployment;
• d) structural unemployment.
  • 4. Compute real values using price indexes. Suppose your uncle started college in 1998 and had a job busing dishes that paid $5 per hour. In 2008 you had the same job; it paid $6 per hour. Which job paid more?
  • Unit 2.1 The Components of GDP
  • GDP is the total value of all final goods and services produced during a particular period valued at prices in that period. We can divide the goods and services produced during any period into four broad components, based on who buys them. These compo...
  • 1.Personal Consumption
  • 2. Private Investment
  • 3.Government Purchases
  • 4.Net Exports
  • Final Goods and Value Added
  • GNP: An Alternative Measure of Output
  • Unit 2.2 Measuring Total Income
  • Learning objectives
  • The Components of GDI
  • 1. Employee Compensation
  • 2. Profits
  • 3. Rental Income
  • 4. Net Interest
  • 5. Depreciation
  • 6. Indirect Taxes
  • Table GDP and GDI, 2008
  • Tracing Income from the Economy to Households
• 1. Gross domestic product (GDP) is:
• a) the sum of all goods and services produced;
• b) the sum of all goods and services sold;
• c) the amount of all finished goods and services;
• d) the market value of all final goods and services.
• 2. Nominal GNP is the value of goods and services, measured:
• a) at current prices;
• b) in real prices;
• c) in the prices of the base period;
• d) in the prices of the previous period.
• 3. GNP Deflator:
• a) is equal to the ratio of nominal GNP to real GNP;
• b) is equal to the ratio of real GNP to nominal GNP;
• c) decreases as inflation accelerates;
• 4. A Russian citizen temporarily works in the USA in an American private firm. His income is included:
• a) in the USA’s GNP and GDP;
• b) in Russia's GDP and USA’s GDP;
• c) in Russia's GNP and the USA’s GDP;
• g) in Russia’s GNP and the USA’s GDP.
• 5. If real GDP fell by 6% and the population declined by 3% in the same year:
• a) real GDP per capita decreased;
• b) real GDP per capita increased and nominal GDP decreased;
• c) nominal GDP has not changed;
• d) prices fell by 3%.
• 6. The British company’s production of sneakers in Russia:
• a) increases both GDP and GNP;
• b) increase the UK’s GDP;
• c) increases the UK’s GNP;
• d) will not increase either of them.
• 7. The purchase of a new house by a family will affect the size of:
• a) net exports;
• b) public expenditure;
• c) private investment;
• d) expenses for the purchase of consumer durable goods.
  • 8. What is not used in determining national income (NI)?
  • a) corporate profits;
  • b) transfer payments;
  • c) rental income;
  • d) salary.
  • 9. What is personal disposable income:
  • a) accrued wages;
  • b) total income received (wages and other income));
  • c) real income;
  • d) total income received less tax and non-tax mandatory payments.
  • 10. To move from gross national product (GNP) to net national product (NNP), you must:
  • a) add to net investment expenses;
  • b) deduct net investment from GNP;
  • c) deduct depreciation of fixed assets from GNP;
  • d) add depreciation to GNP.
• Chapter 3. Aggregate Demand and Aggregate Supply
  • The Slope of the AD Curve
  • Figure Aggregate Demand
  • Changes in Aggregate Demand
  • Aggregate demand shifters:
  • Changes in Consumption
  • Changes in Investment
  • Changes in Government Purchases
  • Changes in Net Exports
  • 1) Consumption
  • a) Consumer confidence
  • 2) Investment
  • 3) Government Purchases
  • 4) Net Exports
  • The Multiplier
  • Key concepts
  • Unit 3.2 AD-AS model: The Long Run and the Short Run
  • Learning objective
  • The Long Run and the potential level of output
  • Long-Run Aggregate Supply
  • Equilibrium Levels of Price and Output in the Long Run
  • The Short Run
  • Short-Run Aggregate Supply SRAS
  • Is it possible to expand output above potential?
  • Reasons for Wage and Price Stickiness
  • Wage Stickiness
  • Price Stickiness
  • Unit 3.3 Recessionary and Inflationary Gaps and Long-Run Macroeconomic Equilibrium
  • Learning objectives
  • Explain and illustrate graphically recessionary and inflationary gaps.
  • Relate these gaps to what is happening in the labor market.
  • Recessionary and Inflationary Gaps
  • Figure A Recessionary Gap
  • Restoring Long-Run Macroeconomic Equilibrium
  • A Shift in Aggregate Demand: An Increase in Government Purchases
  • A Shift in Short-Run Aggregate Supply: An Increase in the Cost of Health Care
  • Unit 3.4 Gaps and Public Policy
  • Nonintervention or Expansionary Policy?
  • Nonintervention or Contractionary Policy?
  • Key concepts
  • Multiple Choice Test
• 1. The aggregate demand curve expresses the relationship between:
• a) price level and total cost of goods and services
• b) price level and GDP in real terms
• c) the price level that buyers recognize and the price level that satisfies sellers
• 2. The Keynesian part on the aggregate supply curve:
• a) has a positive slope
• b) has a negative slope
• c) is represented by a vertical line
• 6. The aggregate demand curve expresses the relationship between:
• a) price level and total cost of goods and services
• b) price level and GDP in real terms
• c) the price level that buyers recognize and the price level that satisfies sellers
• Chapter 4. The Nature and Creation of Money
  • Unit 4.1 Functions and Types of Money
  • Learning objectives
  • The Functions of Money
  • A Medium of Exchange
  • A Unit of Account
  • A Store of Value
  • Types of Money
  • Measuring Money
    • Note!
  • Key concepts
  • Unit 4.2 The Banking System
  • Banks and Other Financial Intermediaries
  • The Regulation of Banks
  • Deposit Insurance
  • Regulation to Prevent Bank Failure
  • Bank Finance and a Reserve System
  • Table A Simplified Balance Sheet
  • The Central Bank
  • Functions of the central banks
  • The third main task is commercial banking supervision. The purpose is to make sure that the commercial banks have enough liquidity and are solvent. If banks have enough liquidity they avoid a bank run, or bank failure. In this way, central banks try t...
  • The forth main task of a central bank is to act as a lender of last resort. In case one of the commercial banks has problems with liquidity and the people who put money in the bank need to get their money back. It is a case when the central bank will ...
  • Unit 4.3 Money Creation and a Deposit Multiplier
  • Table A Balance Sheet for Bank A
  • The Deposit Multiplier
  • Central banks act as a bank for other banks and for the government. It also regulates banks, sets monetary policy, and maintains the stability of the financial system.
• 1. The money supply is shown on the graph as:
• a) a horizontal line;
• b) a dashed line;
• c) a curve with a negative slope;
• d) a vertical line.
• 2. The term ‘discount rate’ means:
• a) the level of price reduction for the Central Bank when it buys government securities;
• b) the percentage at which the Central Bank provides loans to commercial banks;
• c) the degree of pressure exerted by the Central Bank on commercial banks to reduce the volume of loans issued by them;
• d) the impact of the Central Bank on the growth of money supply and GNP.
• 3. Which of the Central Bank operations increases the amount of money in circulation?
• a) the Central Bank increases the mandatory reserve ratio;
• b) the Central Bank transfers government bonds to the population and banks;
• c) the Central Bank raises the interest rate at which it lends to banks;
• d) the Central Bank buys government bonds on the open market.
• 4. The velocity of money circulation is equal to:
• a) the amount of bank loans issued divided by their number of borrowers;
• b) price index adjusted for real gross domestic product;
• c) the average number of payments in which each monetary unit participates during a year;
• d) the average number of transfers of non-cash money per year per commercial bank.
• 5. Which of the following are money today and which are not? Explain your reasoning in terms of the functions of money.
• Gold
• A Van Gogh’s painting
• A 1-ruble coin
• 1. The nominal GDP is 5,000 money units, one monetary unit makes an average of 2.5 turns per year, and the speculative demand for money is 400 money units. What is the total demand for money?
• 2. The real volume of production is worth 28 million units, and the rate of circulation of a monetary unit is 7. What will the real money value in the economy?
• 3. What will be the total increase in the money supply in the country, if the required reserve ratio is 10% and the initial increase in deposits amounted to $ 200 million?
• 4. Bank deposits increased by 200 million rubles, and the required reserve ratio is 20%. What is the potential increase in money supply?
• Chapter 5. Financial Markets and the Economy
  • Unit 5.1 The Bond Market and Macroeconomic Performance
  • Unit 5.2 Foreign Exchange Markets
  • The Exchange Rate
  • Determining Exchange Rates
  • Figure Determining an Exchange Rate
  • The supply curve for dollars emerges from a similar process. When people and firms in the United States purchase goods, services, or assets in foreign countries, they must purchase the currency of those countries first. They supply dollars in exchange...
  • Exchange Rates and Macroeconomic Performance
  • Figure Shifts in Demand and Supply for Dollars on the Foreign Exchange Market
  • The higher exchange rate makes U.S. goods and services more expensive to foreigners, so it reduces exports. It makes foreign goods cheaper for U.S. buyers, so it increases imports. Net exports thus fall, reducing aggregate demand. Panel (c) shows that...
  • Key concepts
  • A bond represents a borrower’s debt; bond prices are determined by demand and supply.
  • The interest rate on a bond is negatively related to the price of the bond. As the price of a bond increases, the interest rate falls.
  • An increase in the interest rate tends to decrease the quantity of investment demanded and, hence, to decrease aggregate demand. A decrease in the interest rate increases the quantity of investment demanded and aggregate demand.
  • The demand for dollars on foreign exchange markets represents foreign demand for U.S. goods, services, and assets. The supply of dollars on foreign exchange markets represents U.S. demand for foreign goods, services, and assets. The demand for and the...
  • A rise in U.S. interest rates will increase the demand for dollars and decrease the supply of dollars on foreign exchange markets. As a result, the exchange rate will increase and aggregate demand will decrease. A fall in U.S. interest rates will have...
  • Unit 5.3 Demand, Supply, and Equilibrium in the Money Market
  • Learning objectives
  • Explain the motives for holding money and relate them to the interest rate that could be earned from holding alternative assets, such as bonds.
  • Draw a money demand curve and explain how changes in other variables may lead to shifts in the money demand curve.
  • Illustrate and explain the notion of equilibrium in the money market.
  • Use graphs to explain how changes in money demand or money supply are related to changes in the bond market, in interest rates, in aggregate demand, and in real GDP and the price level.
  • The Demand for Money
  • Motives for Holding Money
  • The Demand Curve for Money
  • Figure The Demand Curve for Money
  • Other Determinants of the Demand for Money
  • 1) Real GDP
  • 2) The Price Level
  • 3) Expectations
  • 4) Transfer Costs
  • 5) Preferences
  • Figure An Increase in Money Demand
  • The Supply of Money
  • Figure The Supply Curve of Money
  • Equilibrium in the Market for Money
  • Figure Money Market Equilibrium
  • Effects of Changes in the Money Market
  • Changes in Money Demand
  • Figure A Decrease in the Demand for Money
  • Changes in the Money Supply
  • Figure An Increase in the Money Supply
  • Key concepts
  • People hold money in order to buy goods and services (transactions demand), to have it available for contingencies (precautionary demand), and in order to avoid possible drops in the value of other assets such as bonds (speculative demand).
  • The higher the interest rate, the lower the quantities of money demanded for transactions, for precautionary, and for speculative purposes. The lower the interest rate, the higher the quantities of money demanded for these purposes.
  • The demand for money will change as a result of a change in real GDP, the price level, transfer costs, expectations, or preferences.
  • We assume that the supply of money is determined by the central banks. The supply curve for money is thus a vertical line. Money market equilibrium occurs at the interest rate at which the quantity of money demanded equals the quantity of money supplied.
  • All other things unchanged, a shift in money demand or supply will lead to a change in the equilibrium interest rate and therefore to changes in the level of real GDP and the price level
• Chapter 6. The Central Bank and Monetary Policy
  • Unit 6.1 Monetary Policy
  • Discuss the central bank’s primary and secondary goals pursuing a monetary policy.
  • State and show graphically how expansionary and contractionary monetary policy can be used to close gaps.
  • Monetary Policy and Macroeconomic Variables
  • Expansionary Monetary Policy
  • Figure Expansionary Monetary Policy to Close a Recessionary Gap
  • Contractionary Monetary Policy
  • Figure A Contractionary Monetary Policy to Close an Inflationary Gap
  • Expansionary policy, such as a purchase of government bonds, tends to push bond prices up and interest rates down, increasing investment and aggregate demand.
  • Contractionary policy, such as a sale of government bonds, pushes bond prices down, interest rates up, investment down, and aggregate demand shifts to the left.
  • Unit 6.2 Problems of Monetary Policy
  • Explain the three kinds of lags that can influence the effectiveness of monetary policy.
  • Identify the macroeconomic targets at which the CB can aim in managing the economy, and discuss the difficulties inherent in using each of them as a target.
  • Discuss how each of the following influences a central bank’s ability to achieve its desired macroeconomic outcomes: political pressures and the degree of impact on the economy (including the situation of a liquidity trap).
  • Lags
  • Choosing Targets
  • Price Level or Expected Changes in the Price Level
  • A liquidity trap and quantitative easing
  • Figure A Liquidity Trap
  • To combat this “wait-and-see” mentality, the central bank, using a strategy referred to as quantitative easing, must convince the public that it will keep interest rates very low by providing substantial reserves for as long as is necessary to avoid d...
  • Macroeconomic policy makers must contend with recognition, implementation, and impact lags.
  • Potential targets for macroeconomic policy include interest rates, money growth rates, and the price level or expected rates of change in the price level.
  • Even if a central bank is structured to be independent of political pressure, its officers are likely to be affected by such pressure.
  • To counteract liquidity traps, central banks have used quantitative-easing.
  • Unit 6.3 Monetary Policy and the Equation of Exchange
  • Explain the meaning of the equation of exchange, MV = PY, and tell why it must hold true.
  • Discuss the usefulness of the quantity theory of money in explaining the behavior of nominal GDP and inflation in the long run.
  • Discuss why the quantity theory of money is less useful in analyzing the short run.
  • The Equation of Exchange
• 1. Expansionary monetary policy is:
• a) the policy of “expensive money”;
• b) policies aimed at balancing the revenues and expenditures of the state budget.
• 2. Contractionalry monetary policy is carried out;
• a) in a stable economic environment;
• b) in order to reduce inflation;
• Chapter 7. Government and Fiscal Policy
  • Unit 7.1 Introduction to Fiscal Policy
  • Understand the major components of government spending and sources of government revenues.
  • The government budget balance
  • The national debt
  • Unit 7.2 The Use of Fiscal Policy to Stabilize the Economy
  • Automatic Stabilizers
  • Discretionary Fiscal Policy Tools
  • Changes in Government Purchases
  • Changes in Income Taxes
  • Changes in Transfer Payments
• Multiple Choice Test
• 1. If a tax rate increases with an increase in incomes, such a tax is called:
• a) progressive;
• b) regressive;
• c) direct;
• 2. Which of the fiscal policies will contribute to the reduction of the budget deficit?
• (a) a reduction in taxes collected and transfer payments.
• b) an increase in the amount of taxes collected and a decrease in the amount of transfer payments.
• c) an increase in the interest rate and a reduction of reserve requirements;
• 3. The taxes are called regressive if the average tax rate:
• a) increases with income;
• b) does not change when income changes;
• 4. If the total revenues is 1,059 trillion rubles, and the expenses are 1,151 trillion rubles, then the country will experience:
• a) budget deficit, and a decrease in the exports;
• b) budget deficit and the growth in the public debt;
• c) budget surplus and the growth in the public debt;
• d) budget surplus and a decrease in the public debt.
• 5. Keynesianism as an economic theory states that:
• a) the market economy itself does not ensure the full use of its resources;
• b) the satisfaction of the needs of society in goods and services is a spontaneous process;
• c) the economy is more efficient if it is not regulated by the government;
• d) the private sector of the economy gives the greatest economic effect.
• Chapter 8. Consumption and the Aggregate Expenditures Model
  • Unit 8.1 Consumption function and saving function
  • Consumption and Disposable Personal Income
  • Other Determinants of Consumption - Shifters
  • Changes in Real Wealth
  • Changes in Expectations
  • Unit 8.2 The Aggregate Expenditures Model
  • The AE Model: A Simplified View
  • Autonomous and Induced Aggregate Expenditures
  • Autonomous and Induced Consumption
  • Plotting the Aggregate Expenditures Curve
  • Figure Plotting the Aggregate Expenditures Curve
  • The Slope of the Aggregate Expenditures Curve
  • Equilibrium in the Aggregate Expenditures Model
  • Figure Determining Equilibrium in the Aggregate Expenditures Model
  • Figure Adjusting to Equilibrium Real GDP
  • Changes in Aggregate Expenditures: The Multiplier
  • Computation of the Multiplier
  • The Aggregate Expenditures Model in a More Realistic Economy
  • Taxes and the Aggregate Expenditure Function
  • The Addition of Government Purchases and Net Exports
• 1. Consumption is:
• a) part of household income spent on the purchase of goods and services in the current period;
• b) part of the income intended for the purchase of goods and services in the future period;
• c) the balance of income accumulated in Bank accounts.
• 2. Savings are:
• a) all accumulated household assets and household savings;
• b) real cash balances of all market entities;
• c) part of income invested in securities;
• d) part of household income not spent in a given period of time.
• 3. Consumption and savings:
• a) in total are equal to the amount of income;
• b) are always more than income in the context of economic growth;
• c) are always less than income;
• 4. The marginal propensity to save (MPS):
• a) always less than 1;
• b) always equal to 0;
• c) equals 1.
• 5. What is the relationship between the MPC and MPS?
• a) their amount is equal to disposable income;
• b) the relationship between them characterizes the average propensity to consumption;
• c) their sum equals 1;
• d) their sum is 0.
• Chapter 9. Investment and Economic Activity
  • Unit 9.1 The Role and Nature of Investment
  • Learning objectives
  • Discuss the components of the investment spending category of GDP and distinguish between gross and net investment.
  • Components of Investment
  • Gross and Net Investment
  • The Volatility of Investment
  • Investment, Consumption, and Saving
  • Figure The Choice between Consumption and Investment
  • Interest Rates and Investment
  • Figure The Investment Demand Curve
  • Note!
  • Other Determinants of Investment Demand
  • 1) Expectations
  • 2) The Level of Economic Activity
  • 3) The Stock of Capital
  • 4) The Cost of Capital Goods
  • 5) Other Factor Costs
  • 6) Technological Change
  • 7) Public Policy
  • Key concepts
  • Unit 9.3 Investment and the Economy
  • Explain how investment affects aggregate demand.
  • Investment and Aggregate Demand
  • Investment and Economic Growth
• Multiple Choice Test
• Net investment is:
• a) non-production costs;
• b) money spent by the population;
• c) gross investments minus taxes;
• d) gross investment minus depreciation.
• Chapter 10. Net Exports and International Finance
  • Unit 10.1 The International Sector: An Introduction
  • Learning objectives
  • Discuss the main arguments economists make in support of free trade.
  • International Trade
  • Net Exports and the Economy
  • Determinants of Net Exports
  • 1. Income
  • 2. Relative Prices
  • 3. The Exchange Rate
  • 4. Trade Policies
  • 5. Preferences and Technology
  • 6. Net Exports and Aggregate Demand
  • Figure Changes in Net Exports and Aggregate Demand
  • Key concepts
  • Unit 10.2 International Finance
  • Define a country’s balance of payments, and explain what is included on the current and capital accounts.
  • Assuming that the market for a country’s currency is in equilibrium, explain why the current account balance will always be the negative of the capital account balance.
  • Accounting for International Payments
  • Figure A Change in the Exchange Rate Affected the U.S. Current and Capital Accounts in 1997 and 1998
  • Unit 10.3 The Balance of Payments
  • The current account
  • The capital account
  • The financial account
  • Direct investment.
  • Portfolio investment.
  • Other financial flows.
  • Flows to and from the reserves.
• Begg D., Vernasca G., Fischer S., Dornbusch R. Economics, 11th ed. – McGraw-Hill Education, 2014. – 1197 p.
• Mankiw N.G. Principles of Economics, 8th ed. – South-Western College Pub, 2017. – 836 p.