Tag: macroeconomics

Costs of Inflation: Financial Intermediation Failure

Costs of Inflation: Financial Intermediation Failure

♪ [music] ♪ [Alex] In our earlier video on the cost of inflation, we discussed how unexpected inflation — it makes price signals noisier. And it encourages mistakes from price confusion and money illusion. Another cost of inflation is that it makes long-term contracting riskier. Suppose that a bank lends $100 at an interest rate …

The Money Multiplier

The Money Multiplier

♪ [music] ♪ [Alex] Now that we know how money is defined, we’ll learn how banks can affect the supply of money through fractional reserve banking. Let’s imagine that you graduate from college and your grandma gives you $1,000 in cash — that she’s been saving under her mattress since the 1970s. And you deposit …

What Is the Factor Income Approach?

What Is the Factor Income Approach?

♪ [music] ♪ – [woman] What is the “factor income approach”? It describes one approach to calculating GDP through income. Also known as the “income approach,” the factor income approach measures GDP by adding up employee compensation, rent, interest, and profit. Now this may seem a little bit odd. Didn’t we define GDP as the …

Game of Theories: Real Business Cycle

Game of Theories: Real Business Cycle

♪ [music] ♪ – [Tyler] Real business-cycle theory is about negative supply shocks. That word “real” in the name — don’t contrast it with the word “phony,” but rather contrast it with “monetary.” Real business cycles are not about monetary policy — mostly they’re about negative supply shocks. Now, the nice thing about real business-cycle …

Geography and Economic Growth

Geography and Economic Growth

Think about some of the biggest and most prosperous cities you’ve been to. What do many of them have in common? Water. They sit on a major coast or on a major river. This map shows GDP density – how much GDP is produced per square kilometer. You can see that the coasts of the …

Growth Rates Are Crucial

Growth Rates Are Crucial

♪ [music] ♪ [Alex] In our last video, we covered the surprisingly large differences in living standards between countries. But how did we get to where we are? How did these differences come about? Now we’re going to dive into growth rates, and we’re going to see how they affect prosperity. So this graph shows …

Puzzle of Growth: Rich Countries and Poor Countries

Puzzle of Growth: Rich Countries and Poor Countries

[Alex] We now return to the core question of this part of the course. Why are some countries rich and other countries poor? I’m going to lay out various pieces of the puzzle keeping in mind that it’s it’s a complex question with many factors at play which are still being debated. Let’s start with …