Learning path
The economy behind your investments
How interest rates are set, what central banks and governments do in booms and recessions, and how exchange rates move, with each side of the policy debates credited to those who hold it.
16 lessons, about 83 minutes in all. Take them in order.
- Financial markets and intermediaries 5 min
How the financial system connects savers with borrowers through bonds, stocks, banks and funds, and the accounting that ties saving to investment.
- The market for loanable funds 5 min
A supply-and-demand model of saving and investment, used to see what saving incentives, investment incentives and budget deficits do.
- Banks and the money supply 5 min
How fractional-reserve banks create money, the money multiplier, leverage, and the tools a central bank uses to control the money supply.
- The quantity theory of money 5 min
Why prices rise when a central bank prints too much money, using the quantity equation, monetary neutrality and the Fisher effect.
- The aggregate-demand curve 5 min
The three facts about booms and recessions, and why the economy's total demand for goods falls as the price level rises.
- Monetary policy and aggregate demand 5 min
How the central bank moves interest rates and aggregate demand in the short run, using Keynes's theory of liquidity preference.
- Aggregate supply and the business cycle 5 min
Why aggregate supply is vertical in the long run but slopes upwards in the short run, and how shifts in demand and supply cause recessions and stagflation.
- Fiscal policy and the multiplier 5 min
How government spending and taxes shift aggregate demand, why the multiplier and crowding out pull in opposite directions, and the debate over active stabilisation policy.
- The Phillips curve 5 min
The short-run trade-off between inflation and unemployment, where it came from, and why Friedman and Phelps said it disappears in the long run.
- Expectations and the cost of lower inflation 5 min
Supply shocks, the sacrifice ratio, rational expectations and the Volcker disinflation: why bringing inflation down usually costs output.
- Rules or discretion 6 min
Three of Mankiw's six policy debates about stabilisation and monetary policy, with the case each side makes.
- Deficits and the case for balance 7 min
Mankiw's three fiscal debates: spending or tax cuts in recessions, balancing the budget, and taxing to encourage saving, with each side's case.
- Exchange rates and purchasing-power parity 5 min
Nominal and real exchange rates, appreciation and depreciation, and the theory of purchasing-power parity, with its limits.
- Exports, imports and capital flows 5 min
How an open economy trades goods and assets with the world, why net exports equal net capital outflow, and what that means for saving and investment.
- The market for foreign-currency exchange 5 min
Mankiw's model of an open economy: the market for loanable funds and the market for foreign-currency exchange, linked by net capital outflow.
- Policies and shocks in an open economy 5 min
What budget deficits, import quotas and capital flight do to interest rates, exchange rates and the trade balance in Mankiw's open-economy model.