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The textbook and the online video lectures are written by different authors and sometimes (often?) different economic authors use different terminology or different approaches to discuss the same concept. This webpage will help you see the connections between our textbook and the online video lectures.

Also, this webpage will allow me to add some of my own comments and explanations. All of my comments begin with "ME".

You should refer to this page when watching the videos. Don't forget the quizzes (Thinkwell Exercises), transcripts, and lecture notes that accompany most of the video lectures. These can be very helpful.

Notes from the Video Lectures


  • 1a - Introduction to the Course
  • 1b - What is Economics and the 5Es
  • 1c - Production Possibilities (PPC) and BCA
  • 2a - Economic Systems and Globalization
  • 2b - Role of Government and Government Finance
  • 3a - Demand
  • 3b - Supply
  • 3c - Market Equilibrium and Efficiency
  • 20a -Why we Trade: Comparative Advantage
  • 20b - International Trade


  • 12a - Introduction to Macroeconomics and AD
  • 12b - AS and Equilibrium: Using AD/AS
  • 12c - AS/AD in the Long Run
  • 9a - Unemployment (UE)
  • 9b - Inflation (IN)
  • 7a - Measuring the Economy: GDP
  • 8a - Economic Growth (EG)
  • 22Wa - Economic Growth in the LDCs



  • 14a - Money, Money Market, and the Fed
  • 15a - How Banks Create Money
  • 16a - Monetary Policy (MP)
  • 16b - Other Monetary Policy Issues


  • 10a - The Spending Multiplier
  • 13a - Fiscal Policy
  • 13b - Other FP Issues and the Public Debt


LESSON 1a - Introduction to the Course

1.1.1 (6:35) Scarcity - Defining Economics

1.1.2 (13:20) What Economists Do





1.1.3 (11:21) Microeconomics and Macroeconomics



1.2.1 (9:50) Using Graphs to Understand Direct Relationships

1.2.2 (9:57) Plotting A Linear Relationship Between Two Variables

1.2.3 (8:42) Changing the Intercept of a Linear Function

1.2.4 (7:28) Understanding the Slope of a Linear Function


How to Multiply and Divide Fractions in Algebra for Dummies (YouTube fordummies 1:50)

Simple Equations (11:06)

Solving One-Step Equations (1:54)

Solving One-Step Equations 2 (2:23)

Solving Ax + B = C (8:41)

Area and Perimeter (12:20)






LESSON 1b - The 5Es of Economics


LESSON 1c -Production Possibilities (PPC) and Benefit Cost Analysis (BCA)


1.4.1 (24:46) Understanding the Concept of Production Possibilities Frontiers - 1c




1.4.2 (10:10) Understanding How a Change in Technology or Resources Affects the PPC - 1c


MAKING CHOICES: THE ECONOMIC WAY OF THINKING -- BENEFIT-COST ANALYSIS (also called Marginal Analysis or Cost-Benefit Analysis)

Thinking at the Margin (LearnLiberty 4:32) - 1c

Incentives and Marginal Analysis (MrHurdleHistory 8:54) - 1c


LESSON 2a - Economic Systems and Globalization (Structural Adjustment)



1.1.4 (10:50) An Overview of Economic Systems - 2a

Power of the Market (LibertyPen 1:14) - 2a

1.1.5 Case Study: The Work of Adam Smith 8:57




17.5.1 Centrally Planned Economies 10:57


17.5.2 Policies to Change to Market Systems 11:18


17.5.3 Comparative Economic Performance 12:16

  • Forced the movement from a decentralized economy to a centrally planned economy in Russia in the early 20th century
    • they nationalized capital -- the government took over businesses
    • goal was to increase the standard of living
  • With no motivational incentives to produce high quality goods, production slowed considerably
    • in the 1950s and 60s the economy of the Soviet Union grew at a rate of 5% - 6% -- about the same or faster than other countries with market economies
    • but in the 1970s this rate slowed to about 2% - 3%, in the 1980s 1% - 2%, and in the 1990s there was a recession (decline)
  • Why?

  • government took too many resources -- 15% of GDP used for national defense vs. 6% in the US
  • lack of incentives for workers ;ME: the "incentive problem" from the textbook
  • misallocation of resources caused shortages; ME: the coordination problem from the textbook
  • Soviet technology was a decade behind because there was no profit motive to encourage investment in new technology
  • A two-class society developed
  • ME: see the textbook for
    • the incentive problem
    • the coordination problem

  • Mikhail Gorbachev ws the eighth and last leader of the Soviet Union
  • In the late 1980s, through Mikhail Gorbachev's ideals of glasnost and perestroika, the Soviet Union began its transformation in response to the failed planned economy
  • Resources were privatized - private ownership would serve as an incentive to achieve efficiency (ME: invisible hand)
  • Government printed rubles (money) causing inflation
  • prices of goods and services were deregulated and allowed to be set by supply and demand (ME: chapter 3)
  • Problems:
    • Russia did not have the financial institutions that established free market economies did; little protection of property rights
    • organized crime rose in the early 1990s ; a mafia arose
    • Economic growth slowed



Why Venezuela is in crisis CNN Money 1:49

Optional: Economic Systems and Macroeconomics: Crash Course Economics #3 10:18

Optional: Globalization and Trade and Poverty: Crash Course Economics #16 9:01


Lesson 2b Role of Government and Government Finance

Role of Government in a Mixed Economy (YouTube - Daniel Mares) 15:53

Where do your tax dollars go? (YouTube - Test Tube News) 3:44

When is a Potato Chip Not Just a Potato Chip (YouTube-LearnLiberty 4:46)

Public Goods and Asteroid Protection (MRUniversity) 2:30

A Deeper Look at Public Goods (MRUniversity) 7:55

8.2.2 Analyzing the Tax System (8:19)

OPTIONAL: Tax Brackets and Progressive Taxation Khan Academy (4:14)


Lesson 3a - Demand

2.1.1 (11:58) Understanding the Determinants of Demand - 3a

2.1.2 (11:54) Understanding the Basics of Demand - 3a


2.1.3 (8:13) Analyzing Shifts in the Demand Curve - 3a


2.1.4 (10:43) Changing Other Demand Variables - 3a


2.1.5 (9:16) Deriving a Market Demand Curve - 3a



Lesson 3b - Supply


2.2.1 (6:00) Understanding the Determinants of Supply - 3b


2.2.2 (9:49) Deriving a Supply Curve - 3b


2.2.3 (6:52) Understanding a change in Supply versus a Change in Quantity Supplied - 3b

  • what happens if the price of resources used to produce the good (inputs) increase?
    • profit will go down
    • and businesses will produce less
  • on the supply schedule we will see a smaller quantity supplied AT EVERY PRICE;
    • so on the supply schedule we will see lower quantities supplied; at each price the quantity supplied is lower; there is a new supply schedule
  • Graphing a change in supply
    • so if the price of inputs goes up, this will cause the supply curve to shift (move) to the left
      • so on the supply curve there is a new supply curve further to the the left; the supply has DECREASES (shifted to the left)


2.2.4 (8:47) Analyzing Changes in Other Supply Variables - 3b


2.2.5 (7:16) Deriving a Market Supply Curve from Individual Supply Curves - 3b



Lesson 3c - Market Equilibrium and Efficiency

2.3.1 (11:04) Determining a Competitive Equilibrium - 3c


2.3.2 (7:02) Defining Comparative Statics - 3c



2.3.3 (13:04) Classifying Comparative Statics (should be 3.4-2, but the link works) - 3c

  • Pe would cause an increase in demand today
  • Psub would cause an increase in demand
  • Pcomplement would cause an increase in demand
  • I would cause an increase in demand for a normal good
  • I would cause an increase in demand for an inferior good
  • Npot would cause an increase in demand
  • Tastes turning favorable for a product would cause an increase in demand

  • Pe would cause a decrease in demand today
  • Psub would cause a decrease in demand
  • Pcomplement would cause a decrease in demand
  • I would cause a decrease in demand for a normal good
  • I would cause a decrease in demand for an inferior good
  • Npot would cause a decrease in demand
  • Tastes turning against a product would cause a decrease in demand

  • Pe would cause an increase in supply today
  • Pog would cause an increase in supply
  • Pres would cause an increase in supply
  • an improvement in Tech would cause an increase in supply
  • Tax would cause an increase in supply
  • Subsidy would cause an increase in supply
  • Nprod would cause an increase in supply

  • Pe would cause a decrease in supply today
  • Pog would cause a decrease in supply
  • Pres would cause a decrease in supply
  • a reversion to a worse Tech would cause a decrease in supply
  • Tax would cause a decrease in supply
  • Subsidy would cause a decrease in supply
  • Nprod would cause a decrease in supply


Supply, Demand, and Economic Efficiency - 3c

EC Efficiency and Equilibrium in Competitive Markets (11:48) - 3c
Free at:
uses benefit cost analysis


Lesson 20a -Why we Trade: Comparative Advantage


1.5.1 (22:40) Defining Comparative Advantage with the Production Possibilities Curve - 2a

1.5.2 (6:46) Understanding Why Specialization Increases Total Output - 2a


1.5.3 (25:35) Analyzing International Trade Using Comparative Advantage - 2a


1.5.4 Outsourcing 8:54

17.4.3 Hot Topic: Winners and Losers in NAFTA 4:20

Lesson 20b - International Trade and Exchange Rates


17.1.1 Determining the Difference between a Closed Economy and an Open Econonmy 8:55

17.4.2 Trade Policy 7:17

MJM 35 Why do Countries Restrict Trade? (8:34)

MJM 36 Types of Trade Restrictions (9:43)

  • ME: Here are the trade nrestrictions discussed in the textbook:
  • a. tariffs
    1) revenue tariffs
    2) protective tariffs
    b. import quotas
    c. nontariff barriers
    d. voluntary export restrictions
    e. export subsidies ( a barrier to trade?)

  • Tariff: a tax on imported goods
    • Effects: who wins with a tariff
      • the domestic industry
      • domestic workers
      • government gets tariff revenue
    • Effects: who loses:
      • domestic consumers have higher prices
      • domestic consumers have a smaller quantity than under free trade
      • the foreign producer and their workers

  • Quota: a limit on the quantity or value that can be imported
    • Effects: who wins?
    • domestic producers
    • domestic workers
    • Effect: who loses?
    • domestic consumer
    • foreign producers




  • ME: though the video says that tariffs and quotas have the same effect, our textbook says that because our government gets revenue with a tariff this might enable them to cut other taxes. Also, Quotas tend to be more restrictive. If there is an increase in demand or if the producer (exporter) can cut costs enough, exports can still increase with a tariff.

Other videos

17.1.2 Understanding Exports in an Open Economy 5:22

17.3.1 Nominal Exchange Rates 11:32


17.3.4 Determination of Exchange Rates 12:31

17.3.5 Floating and Fixed Systems 13:18


LESSON12a - Introduction to Macroeconomics and AD


11.1.1 The Business Cycle Recessions, Depressions, and Booms 2:59

ME: the most recent recession, called The Great Recession, began in Dec 2007 and ended June 2009

10.1.2 The Circular Flow Model 9:38

ME: "factors" means "resources"


Spending must equal income


14.1.1 Deriving the Aggregate Demand Curve 7:26


14.1.2 Movement along the Aggregate Demand Curve 9:15 [DESCRIBE the shape of the AD curve]

14.1.3 Shifts in Aggregate Demand 6:03

The SHAPE of the AD curve:

SHIFTING the AD curve

ME: Notice how he shifts the curve LEFT and RIGHT.

ME: see the determinants in the Yellow Pages


LESSON 12b - Aggregate Supply (AS) and Equilibrium in the Macro-Economy (UE, IN, and EG)


14.2.1 The Short-Run Aggregate Supply Curve 9:03

14.2.2 The Labor Market 7:20


14.3.2 Equilibrium in the Short Run 12:10


14.3.7 Hot Topic: Oil Shocks 4:52


LESSON 12c - Stabilization Policies and AS/AD in the Long Run


14.2.3 The Long-Run Aggregate Supply Curve 11:17


  • ME: An increase in the LRAS is economic growth, but which kind? Achieving our potential or Increasing our potential?
    • It is INCREASING our potential
    • What causes this type of economic growth?
      • more resources
      • beter resources
      • better technology

14.3.3 Equilibrium in the Long Run 7:32

14.3.4 Expectations in the Long Run and the Short Run 14:36


14.3.5 Long-Run Macroeconomic Equilibrium 16:55

14.4.1 The Phillips Curve: Definitions and the Historical Record 13:38


  • ME: In the figure above Professor Tomlinson's "underlieing rate of inflation" at 5% sure seems high to me. He did record these videos in 2004 so maybe that is why he chose 5%.



14.4.2 Expectations and the Phillips Curve 9:15



LESSON 9a - Unemployment (UE)


11.2.1 Measuring the Labor Force and Unemployment 5:48

11.2.2 Types of Unemployment 4:18

The videos were made in about 2004. The figure above on the right shows more recent data inclucing the "Great Recession" of 2007-2009.



11.3.1 Understanding the Natural Rate of Unemployment 4:05

ME: The natural rate of UE is about 5%, but it has changed over time

ME: 5% unemployment then is called Full Employment, or the "Full Employment Rate of UE" or the "Natural Rate of unemployment".

ME: Changes in the full employment rate of unemployment

  • 1960's: 4%
  • 1970's: 5%
  • 1980's: 6%
  • 1990's: 5%
  • 2000s: maybe 6% (or more)
  • around 2015: 5% ?


LESSON 9b - Inflation (IN)


11.5.1 Inflation, Deflation, Stagflation, and Hyperinflation 4:54

ME: As you can see in the figure above on the right, in more recent years inflation has been around 2% or less. Also, notice how during most recessions (the shaded bars) the rate of inflation falls EXCEPT during the stagflation of the 1970s and early 1980s.


10.3.1 Changes in the Cost of Living and the CPI 4:47



10.3.2 Calculating the Rate of Inflation 7:33

ME: Please pay close attentin to the CPI and how tocalculate the rate of inflation with the CPI. We will not spend much time with the GDP deflator.



10.3.3 Comparing the CPI and the GDP Deflator 6:02



11.5.2 Inflation and Purchasing Power 7:45



11.5.3 Short-Run Causes: Demand-Pull and Cost-Push Inflation 9:59



11.5.5 The Costs of Inflation 9:23


11.5.6 Case Study: Behavior during Hyperinflation 6:14


LESSON 7a - Measuring the Economy: GDP


10.1.1 REVIEW (1d) The Production Possibilities Frontier: Macroeconomic Applications 18:18

10.1.2 REVIEW (2a) The Circular Flow Model 9:38

10.1.3 Real GDP 12:01

10.1.4 The BEA Procedure for Calculating Real GDP 8:15


10.1.5 Limitations of GDP and Alternative Indexes 4:51

ME: From our textbook: Problems with using GDP to Measure the Standard of Living:
  1. non-market transactions are not included in GDP
  2. leisure increases the standard of living but it isn't counted
  3. improved product quality often isn't accounted for in GDP
  4. GDP does not account for the composition of output
  5. GDP does not account for the distribution of output
  6. increases in GDP may harm the environment and decrease the standard of living
  7. the underground economy produces goods and services but they are not included in GDP
  8. GDP does not account for a possible future decline in output due to resource depletion.
  9. Noneconomic Sources of Well-Being like courtesy, crime reduction, etc., are not covered in GDP.
  10. We must use per capita GDP to compare the living standards of different countries.



10.2.1 The Expenditures Approach 4:54


10.2.2 The Income Approach 7:02

ME: This video is far too complicated which Professor Tomlinson admits Here is what you need to bwable to calculate:
Required Formulas:
  • GDP = C + Ig + G + Xn
  • NI = wages + rents + interest + corporate profits + proprietor's income
  • NDP = C + In + G + Xn = GDP - depreciation
  • NDP = GDP - depreciation
  • In = Ig - depreciation
  • Xn = X - M
  • real GDP = (nominal GDP / price index) x 100

ME: You have probably noticed already that Professor Tomlinson uses the letter "Y" to stand for "GDP"

ME: I like to say that

  • NI = Income EARNED by the four factors of production (labor, entrpreneurs, land, and captital)
  • PI = Income RECEIVED (unfortunately Prof. tomlinson uses income "received" for NI)
  • DI = SPENDABLE income


EconMovies- Episode 6: Back to the Future (Nominal vs. Real, Unemployment, Inflation) (6:29)


LESSON 8a - Economic Growth (EG)


16.1.2 The PPF, the AD/AS Model, and Long-Run Growth 7:44


16.1.3 The Production Function and Growth 6:49


16.1.4 The Definition of Productivity and Factors Affecting It 3:54


LESSON 22Wa - Growth in the Less Developed Countries



16.3.1 Growth in Emerging Economies 10:23


  • low incomes and poorly developed finanacial institutions cause low savings therefore there are few funds available for businesses and governments to borrow to make investments in capital and infrastructture
  • low savings = low investment
  • low investment = low productivity = low incomes

  • Ways to break the cycle
    • try to get people to save more by providing better financial institutions; even poor people can save if they have good banks, etc.
    • improving technology to improve productivity
    • government can play a role by:
      • improving finanacial institutions
      • stimulate demand to boost incomes and then savings
      • borrow from international institutions to improve infrastructure which will increase productivity
      • reduce population growth rates (often ineffective and controversial)
        • children are often seen as a type of social security - someone to care for you in old age
        • when economies grow, birth rates tend to decrease

  • China and India
    • together comrise 1/3 of the world's population
    • both have rapidly growing economies
    • but there are differences
      • China has been growing faster than India
      • China: manufacturing sector
      • India: services sector
    • China began earlier using newly developed supply chains basied on manufacturing and trasportation technologies
    • India's depended on communication technology that developed latter
    • China has had amazing increases in its standard of living
      • ME: China pulled 680m people out of misery in 1981-2010, and reduced its extreme-poverty rate from 84% in 1980 to 10% now
    • Challenges and Prospects
      • unemplouyment
      • problems transforming from agriculture to industry
      • political tensions and challeges from neighbors
      • pollution
      • health problems
      • future population growth




10.1.6 The Growth of China as a Superpower 2:14


16.3.2 Policies to Promote Growth 7:50


  • Government Policies
  • Breaking the Gycle
    • transition from agricultural evconomy to industrial economy
    • stimulate export demand
    • transtion from a centrally planned economy to a free market ecoamy
      • ME: NOTE - the video has this backwards on its outling under Tomlinson's picture
  • World Bank and the IMF
    • What are they?
    • Debate about whether they are effective

ME: From our textbook:
  • Positive Role of Government in Promoting Growth
    • Establishing the rule of law
    • Building infrastructure
    • Embracing globalization
    • Building human capital
    • Promoting entrepreneurship
    • Developing credit systems
    • Controlling population growth
    • Making peace with neighbors
  • Public Sector Problems
    • misadministration
    • corruption


Video: The video seems to look at older policies BEFORE the movement to Structutral Adjustment


16.2.2 Other Policies to Encourage Growth 10:40


16.3.3 Hot Topic: The Myth of Exploding Populations 8:00


Mlthus thought that since population grew geometrically and food production gre arithmatically eventi=ually popltion growth would overtake food production and there would be massive famine. See below on the graph at the right. When population is greater than food production famine will occur.




16.2.3 Hot Topic: Women's Roles in Rural Economic Growth 4:59






LESSON 14a - Money, Money Market, and the Fed


13.1.1 The Money Supply 8:10


13.4.2 Case Study: Cigarettes As Money 6:07

13.1.2 Determinants of Money Demand 9:00

ME:: our textbook says (p. 315) that we will keep it simple and ssume that the transactions demand for money only depends on nominal DP which is really ther same as real income and the price level. So, we will NOT say that the transactions demand for money is inversely related to the interest rate. in other words we will assume that the transactions demand for money is independent of interest rates (see graph above).

ME: Our textbook combins the precationary motive and the speculative motive into the "asset demand" for money. Although the video and textbook approaces money demand a bit differely, they got to the same result: a dowanrd sloping money menand (total money demand) curve.

ME: The video says that higher price levels or higher real income will increase money demand. Out textbook says that higher nominal income (nominal GDP) will increase money demand. these are really the same thing since: nominal income = real income times the price level.

13.1.3 The Money Market 10:02

The equilibrium interest rate is where the money demand curve crosses the money supply curve (see graphs below).

What then will change interest rates? Well. a change in money demand or a change in money supply will cause interese rates to change (see graphs below).

ME: We will pay most attention to changes in the money supply (MS)

REMEMBER: a change in the MS CAUSES a change in interest rates, NOT: a change in interest rates causing a change in the MS.

AC Money Market - Macro Review 3:24 [YouTube ACDCLeadership]  

13.3.1 The Federal Reserve System 8:13

ME: The current chair of the Fed is JJerome Powell who took office in February 2018.

ME Functions of the Fed from our textbook:

1. issue currency = Federal Reserve Notes
2. setting reserve requirements or reserve ratios (RR see chapter 16)
3. lending money to banks and thrifts (the discount rate -DR- is the interest rate banks are charged for borrowing from the Fed)
4. providing for check collection
5. acting as fiscal agent for the US government
6. supervising banks
7. controlling the money supply

ME: Currently the Fed owns about 14% of the US debt or about $2.5 trillion.


LESSON 15a - How Banks Create Money

13.4.1 How Goldsmiths Created Money 7:40

ME: Our textbook says that a dollar has value because of

  1. accepability
  2. legal tender
  3. relative scarcity


13.4.3 How Banks Create Money 12:09

Professor Tomlinson does this a little bit differently than we will and he makes either an error or an oversimplification, or he is doing something that we will do in chapter 16. Either way it cam be a little bit confusing. Still, I like how he goes thorugh the money multiplier process. It is just like I have been doing it (except for his one error).

He says: Change in MS = change in deposits x the money multiplier

We say: Change in MS = Initial excess reserves x Money Multiplier

If you look at the "notes" that are available on the Thinkwell video site (Click on "Chapter Checklist" or click HERE) the notes do it the way we do it


What the videos calls "Lendable Reserves" our textbook calls Excess Reserves (ER). (See his "notes")

Formulas from the yellow pages:

  • Total Reserves = Cash in vault + Deposits at Fed
  • Required Reserves = RR x Liabilities
  • Excess Reserves = Total Reserves - Required Reserves
  • Money Multiplier = 1 / RR

How banks create money and the money multiplier 4:12 YouTube ACDC Economics)


LESSON 16a - Monetary Policy (MP)

13.3.3 The Fed's Tools of Monetary Policy 9:46

Alan Greenspan was Chair of the Fereral Reserve board of Governors from 1987 to 2006. Janet L. Yellen took office as Chair of the Board of Governors of the Federal Reserve System on February 3, 2014, for a four-year term ending February 3, 2018. Dr. Yellen also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Prior to her appointment as Chair, Dr. Yellen served as Vice Chair of the Board of Governors, taking office in October 2010, when she simultaneously began a 14-year term as a member of the Board that will expire January 31, 2024.

When a bank makes a loan they create checking account deposits (also called "Demand Deposits"). These deposits are NEW MONEY. The Fed controlls how many loans (how much money) banks can create.

The Fed has three tools to control the MS.

Professor Tomlinson says that the Fed controlls the MS by controlling bank RESERVES. This, of course, is correct, but it is more correct to say that the fed controls the MS by controlling the EXCESS RESERVES of banks. This is how our textbook explains monetary policy.

13.4.4 How the Fed Changes the Money Supply 10:06

This video repeats part of the previous, but it is a good review, and more information is added.

15.4.3 Monetary Responses to Changes in the Economy 12:20

AC Macro 4.1- Money Market and FED Tools (Monetary Policy) 5:20 [YouTube ACDCLeadership]

AC Macro 4.9- Monetary Policy Practice 3:21 (recessionary gap) [YouTube ACDCLeadership]

AC Macro 4.10- Graphing Monetary Policy Practice (AP Macroeconomics) 2:44 (inflationary gap) [YouTube ACDCLeadership]

15.4.3 Monetary Responses to Changes in the Economy 12:20

OPTIONAL 13.3.4 Case Study: The Greenspan Era 3:16


LESSON 16b - Other Monetary Policy Issues

OPTIONAL 11.1.2 Theoretical Explanations for Cycles 10:09


11.5.4 The Quantity Theory of Money 11:58

What Professor Tomlinson calls the "Quantity Throey of Money", our textbook calls the "Equation of exchange"

What Professor Tomlinson calls Y (income) our textbook calls Q. Both mean the same thing: real GDP or output in the economy.

15.5.1 New Keynesians versus Monetarists 11:23

"New Keynesians" are also called "Mainstream economists" in our textbook.

Video: MV = PY
Textbook: MV = PQ

They are the same thing.

15.5.2 New Classical Macroeconomics 8:31


15.5.3 Case Study: Policy in the Great Depression 8:22

Established in 1933 and repealed in 1999, the Glass-Steagall Act


15.4.5 Hot Topic: Should Monetary Policy Be Made by Rule or Discretion? 5:03


MJM 25 Macroeconomic Viewpoints 7:06 [YouTube mjmfoodie]


LESSON 10a - The Spending Multiplier

15.1.1 Recessions and Booms Unanticipated Changes in Aggregate Demand 12:04

Notice how Prof. Tomlinson discusses how the real GDP (Y) adjusts to the decrease in demand by using the factors that explain why the AD curve is downward sloping: (1) wealth effect, (2) interest rate effect, and (3) foreign purchases effect.


15.1.2 Recessions and Booms Unanticipated Changes in Aggregate Supply 15:43

Remember, these videos were made around 2004, so when Prof. Tomlinson says that this is what is happening today he means around 12004-2005. BUT, in 2015 I think the economy is similar to what it was then. so it applies to today as well.

EC Fiscal Policy – the Government Spending Multiplier 20:07

This video assumes that the price level is not changing. therefore any change in AD is an equal change in real GDP.

The speaker does mention the "complex multiplier" at the end of the video (although he does not use that term) when he mentions that their are other leakages fromthe economy besides just savings. Since there are more leakages the complex mutiplier will be smaller than the government spending (or simple multiplier).

Simple multiplier = government spending multiplier = 1/1-MPC = 1/MPS

Complex multiplier = 1/all marginal leakages = 1/MPS+MPM+MPT

MPS is the marginal propensity to save = the fraction of addition income that is saved

MPM is the marginal propensity to spend on imports = the fraction of additional income that is spent on imports

MPT is the marginal propensity to tax = the fraction of additional income that is used to pay taxes

AC Macro 3.9- Multiplier Effect, MPC, and MPS 2:17

AC Macro 3.10- Calculating the Multipliers 1:50

AC Macro 3.11 Multiplier and Spending Practice 2:02

Major error or oversimplification:

Mr. Clifford should have a horizontal AS curve when he is doing these problens. In our next lesson we will learn that the multiplier with increases in the price level is smaller than the simple muyltiplier.

As we learned in the 20 minute EconClassroom video above, the multiplier tells us how much the AD will shift. You can see on the graph below that Mr. Clifford shifted the AD curve a lot more than $40.

You only get the full effect of the multiplier if the price level stays constant (if the AS is horizontal. This is how he should have drawn the graphs. Now the AD curve shifts to the right by $40 billion and real GDP goes up by $40 billion because there is no change in the price level.

So, if there is an increase in the price level then the multiplier is smaller. So if we used Mr. Clifford's graph we woul have to increase government spending (G) by a lot more than
$20 billion (if MPC=0.5) or by a lot more than $8 billion if MPC is 0.8.




LESSON 13a - Fiscal Policy


15.2.1 Fiscal Policy Using the AD/AS Model 5:24

A good introduction to some of the issues that we will learn when we study fiscal policy.

EC Fiscal Policy – the Tax Multiplier 13:35

The tax multiplier will always be one less than the simple multiplier but negative. So, if MPC = 0.4 then MPS = o.6 amd the simple multiplier is 1/MPS = 1/0.6 = 1.67. The tax multiplier then is just 0.67 or one less than the simple multiplier.

Dr. Welker should have his AS curve horizontal since he ignores changes in the price level. He is assuming that the price level does not change. As you can see on his graph below on the left he actually increases AD by more than $500. He should have drawn his AS curve horizontal like the graph below on the right. He forgot that if the price level increases then the multiplier effect is smaller.

AC Macro 3.12 Multiplier and Taxes Practice 3:20

Again, Mr Clifford is ignoring the effects of an increase in the price level on the size of the multiplier.

EC Fiscal Policy – the Crowding-out Effect 14:05

The video discusses how the crowding out effect might be very great and actually cause the mutltiplier to be less than 1. In other words and increase in G of $100 billion will cause real GDP to increase by LESS THAN $100.

Our textbook says "An expansionary fiscal policy (deficit spending) may increase the interest rate and reduce investment spending, thereby weakening or canceling the stimulus of the expansionary policy."

In other words the multiplier will be less than the government spending multiplier, but there could still be a multiplier effect, only smaller.

More from the textbook not covered in the video:

"Economists vary in their opinions about the strength of the crowding-out effect. An important thing to keep in mind is that crowding out is likely to be less of a problem when the economy is in recession, because investment demand tends to be weak. Why? Because output purchases slow during recessions and therefore most businesses end up with substantial excess capacity. As a result, they do not have much incentive to add new machinery or build new factories. After all, why should they add capacity when some of the capacity they already have is lying idle?

With investment demand weak during a recession, the crowding-out effect is likely to be very small. Simply put, there is not much investment for the government to crowd out. Even if deficit spending does increase the interest rate, the effect on investment may be fully offset by the improved investment prospects that businesses expect from the fiscal stimulus.

By contrast, when the economy is operating at or near full capacity, investment demand is likely to be quite strong so that crowding out will probably be a much more serious problem. When the economy is booming, factories will be running at or near full capacity and firms will have high investment demand for two reasons. First, equipment running at full capacity wears out fast, so firms will be investing substantial amounts just to replace machinery and equipment that wears out and depreciates. Second, the economy is likely to be growing overall so that firms will be heavily investing to add to their production capacity to take advantage of the greater anticipated demand for their outputs."

15.2.3 Timing Problems and the AD/AS Model 6:58

Professor Tomlinson, for some stange reason, doesn't discuss the multiopliers in his fiscal policy videos. He should have mentioned that the Operational lag does not only include the time to complete the government spending programs (like building highways) but it also includes the time it takes ofr the multiplier to have its full effect. The road construction workers will spen mote at local bars. As a result, he local bar owners will see their incomes increase and they may buy more bar stools, The owners of the furniture company building the new stools wiill see their incomes increase and maybe buy a new car. Etc. All of this additional spending and production takes time. This time is called the operational lag of fiscal policy.

15.2.4 Automatic Stabilizers 8:40

When Prof. tomlinson says "automatic stabilzers", our textbook may say "built-in stabilizers".

Out textbook uses the word "recovery" where Prof. Tomlinmson uses the word "boom".


15.4.4 Monetary Policy: Accommodation 9:40

It is interesting that Prof. Tomlinson discusses accommodation by beginning at the full employment level of output and then increases AD. What if we were in a recession and the government uses expansionary FPO to increase AD. We said earlier that government borrowing will increase interest rates and cause crowding out of investment wich may reduce the size of the mulitplier and make fiscal policy less effective. MP accommodation will keep interest rates lower andreduce the amount of crowding out thereby increasing the size of the multiplier.


15.2.5 Hot Topic: The Political Business Cycle 3:35


15.3.2 Supply-Side Policy 5:26

Prof. Tomlinson draws the Laffer curve a bit diffeerently than does our textbook. He puts tax reveue on the vertical axis whereas our textbook puts tax revenue on the horizontal access.


LESSON 13b - Other Fiscal Policy Issues and Government Debt


15.5.3 Case Study: Policy in the Great Depression 8:22

15.3.1 New Keynesian and New Classical Approaches to Fiscal Policy 11:03

17.4.1 Government Budget Deficits and Trade 5:11

14.3.6 Case Study: The U.S. National Debt 8:00

The video says the national debt is $7.2 trillion but that ws in about 20014, currently it is about $17 trillion.

The video says the debt as a % of GDP is 64% but that ws in about 2004, currently it is about 100%.

NOTE: the video uses the TOTAL debt, not the PUBLIC debt.

Understanding the National Debt and Budget Deficit (6:33 YouTube vlogbrothers)

America's Debt Crisis Explained (5:05 youTube PragerU)