Macroeconomics- Everything You Need to Know

Hello economics students, I'm Jacob Clifford, welcome to ac/dc econ, so in this quick video I'm going to cover

everything

you

need

for an introductory

macroeconomics

class or an AP

macroeconomics

class. I'm going to go super fast, but keep in mind that this is not designed to reteach you all the concepts, it's designed to help you prepare right before you enter the big AP exam, your big finale. Plus, it's a great way to review what you

know

and what you don't

know

by watching the entire class again. Spot the things you

need

to go back to if you've been watching my videos you know I sell something called the ultimate review package it has a ton of practice questions and access to hidden videos to help you learn economics these summary videos that cover

everything

with greater detail than this video I'm making right now.

I was going to make this video available only to people who bought the package, but then I thought, you know I can trust people, man, if you like my videos, if these videos help you learn. economy, please go get the package. I'm going to make this video available to everyone, but if you like my stuff, please support my channel and help me continue making great economics videos, okay, let's start now, whether or not you are enrolled in a microeconomics class or macroeconomics class, everything starts the same for a basic introductory economics course, the idea of ​​scarcity begins, ideas of scarcity, we have unlimited wants and limited resources, you also learn the idea of ​​opportunity costs, that is the idea that everything has a cost . no matter what you are producing, you must give up something to produce or any decision you make has a cost now those concepts come together with the production possibilities curve, it is the first graph you learn in economics, it shows the different combinations of producing two different goods that use all of your resources, so any point on the curve is efficient since you are using all of your resources to the maximum, any point inside the curve is inefficient and a point here outside the curve is impossible given your resources current and there are two different shapes, you must remember if it is a straight line, production possibilities curve, that means that there are constant opportunity costs, which means that the resources to produce the different products are very similar, so similar resources if it is a straight line, if it is a ship contour concave with respect to the origin. that means that the resources are not very similar, so when more of one is produced to give more and more of the other, that is called the law of increasing opportunity cost.

Now this curve can change if you have more resources such as land, labor and capital, or less. resources or better technology that can shift the curve, another thing that shifts a curve is the train if another country trades with another country that can shift their production possibilities curve, but it shows how much they can consume and not produce, so in reality it does not change. how much you can but you can consume beyond your production possibilities curve and that brings us to the most difficult part of this unit, the idea of ​​comparative advantage, comparative advantage is the idea that the country should specialize in the product where it has a lower opportunity cost then if you are producing one thing and I am producing something else if I can produce a lower opportunity cost than you I should produce this you should present one thing and then we should trade now there are two different things I must remember advantage absolute and comparative and absolute Advantage is a joke, it's easy, just find out who produces more if that means they have an absolute advantage comparatively.

Advantage in comparison requires you to do some math or quick and dirty if you watched my unit summary video and it tells you who should specialize in what now. Another thing you have to learn is that you have terms of trade, which means how many units of one product should be exchanged for another product that would not benefit both countries. That's the idea of ​​terms of trade. In this unit you also get a base. overview of different economic systems such as the free market system, capitalism and the idea of ​​a command economy and a mixed economy, we will focus on capitalism in this class and for you to learn the circular flow model, the flow model circular shows you that there are businesses and individuals and government and how they interact with each other, just remember that businesses sell and buy two different things, they sell products and they buy resources, so there is a product market and a resource market and Individuals, you and I, buy products and sell our resources and the government does some things too, another thing you will learn here is some vocabulary like transfer payments, this is when the government pays people as welfare, but not It's to buy nothing, it's just to provide some public service and you also learn. the idea of ​​subsidies when the government provides money to businesses to produce more and we will also talk about the idea of ​​factor payments where individuals sell their resources and businesses pay factor payments to those individuals.

Unit one lays the foundation for everything you do. We'll do it later, you'll start with supply and demand. Remember that man is a curve with a downward slope that shows you the man you love. When the price goes up, people buy less and all that. When the price goes down, people buy more. That's the idea: price and quantity demanded. there is also a lot of supply when the price goes up people produce more the price goes down people produce less correct the price goes up the quantity the supply goes up the price goes down the customer's supply goes down now together they formed the equilibrium keep in mind that if the price goes up no there is change the price does not shift the curve, it simply moves along the curve it creates scarcity when the price is low or a surplus of the price is higher.

You must also understand that there are real individual changes, so only four things will happen: The man can go up. he can go down, so pi can go up or a bid can go down and you just watch how the graph is drawn, the graph tells you exactly how the price happens in quantity every time. Now, in microeconomics class, you have a lot more detail about the supply and demand graph. and ceilings and floors and all kinds of crazy stuff, but you don't need to understand those concepts for most macroeconomics classes, just understand where equilibrium comes from, what happens when demand shifts to the right or to the left, when supply shifts left or right, and understanding the idea of ​​shortage and surplus, that's usually enough and you add to that concept when you learn of a large demand for agar supply later in unit 3 in general .

I give the unit one five out of ten difficulties, not because it is very difficult because there are many things that you have. a hedging production possibilities curve, supply and demand, understand all these different graphs and it will lay the foundation for everything you do in the rest of the course, here we go, now we're going to jump into full macroeconomics, we talk about macro measures in units. two were talking about the three objectives of every economy, no matter what type of economy it is, they have three objectives that they want to grow over time, they want to produce more things, they want to keep unemployment low, like limit unemployment, they want to limit inflation or at least keep the prices stable, that's what you do in the student, you cover each of these concepts, how these different things are measured and one of the problems with those measurements and then we go ahead and apply those things in later units so that start with the idea of ​​growth, growth is the idea that the economy expands over time and the most important concept probably in the entire course is GDP, the gross domestic product, it is the dollar value of all final goods produced in a year on the border of a country, so anything produced in your own country now should also understand the idea of ​​GDP per capita, which is GDP divided by population, and be good at making changes percentages, so if I say that the GDP in one year is this amount in the GDP of another year, they are different amounts.

You should be able to calculate the percentage change in GDP and when it comes to GDP it is important to know that it is not included in GDP and the first is intermediate goods, these are goods that are used in the production of a final good, so We only count the final good, not the things that were used to produce it, so we count the final laptop, not the computer chip that the laptop producer bought from another company, so intermediate goods don't count either. We count non-production transactions. These are situations where the newest producer stocks and bonds don't count in GDP because we have to count things that are goods and services provided in that year, nothing old, nothing counted in previous years that doesn't count towards GDP and the latter is a non-market transaction, so they are illegal goods. or illegal work, those do not count in GDP, there are two ways to calculate GDP, although the most important for our purposes is usually the expenditure approach, but there is also the income approach, the expenditure approach adds all the expenditure in all goods and services. in the economy and that tells you how much we produce in a given year.

The income approach adds up all the income earned from producing those final goods and services, so it should actually be the same number. There are two different ways to calculate it, but give us the most important equations, remember that GDP is equal to C plus I plus G + xn, the super important concept, remember that business spending is investment, it is not stocks and bonds, Stocks and bonds don't count towards GDP, government spending, the government can buy things and other countries can buy things. Now for net exports, remember exports: imports are net exports in three United States, they are actually a negative number and the income approach also has its own equation, which is made up of income, wage, interest and profits , so if you add all that up, you add up what's called The factor payments then they should add up to the GDP of the things we produce in a year.

Another concept you will see is the idea of ​​nominal and real GDP. Remember that nominal GDP does not adjust for inflation, so when we talk about the economy, we usually look at real GDP because that suggests inflation and shows us what we are really producing and a great way to show what the cycle is. economic the business cycle shows that there are four different phases in the business cycle when there is a peak and then when the economy is up there eventually over time the economy moves towards a recession and falls to a trough and then goes into expansion and again up the economy goes up and down over time and that tells you that there are only three places that the economy can be in any given period of time we can be at full employment this is the idea that the country is doing very well GP it's real GP is moving nice and steady we can have a recession right this is a gap without recession or the economy is not working Well we have very high unemployment and we have something called inflationary gap, when the economy is overheating and we have more and more inflation.

You will see those concepts also later and that leads to the second objective of each economy to limit unemployment unemployment is the idea people who are looking for work and cannot find it and who are in the labor force remember that it is not by population but by number of people who are not working and actively looking divided by the labor force multiplied by 100 gives you the percentage, that percentage of people who are unemployed in the economy, there is also the labor force participation rate and you understand that the idea of Labor force is the group of people who can, are able and are willing to work over the age of 16, not be institutionalized, not be in prison. and at this point you must learn that there are three types of unemployment: there is frictional when people are between jobs and are looking for jobs; they are structural when people are replaced by robots or they don't have the skills that people really want or employers want their skills to become obsolete and there is cyclical unemployment when there is a recession that has subsided and people have lost their jobs because no one buys products, so people don't need resources, they don't need workers.

So at any time in the economy, whether good or bad, there will always be two types of unemployment, frictional and structural, and that is the goal, remember that the goal is not to have 0% unemployment, the goal is to have only frictional and structural unemployment, so in the United States that's You know, five percent unemployment, what's called the natural rate of unemployment. It is perfectly fantastic to have only frictional and structural unemployment. If the economy does poorly, we have a recessionary gap when we also have cyclical unemployment and of course the unemployment rate also has some criticisms.

Keep in mind that sometimes people are not counted when they should be, they areYou call them discouraged workers, they are people who stopped looking for work and are not counted in the labor force, they are not considered unemployed, but in real life they are like they wish they had a job but they stopped looking? We stop searching. You're not part of the labor force, so that makes the unemployment rate seem lower than it really should be and there's also this idea that part-time workers, pipeline workers are counted as fully employed, so someone might be upset and sad that they are not working full time but by the numbers they are still considered fully employed and again the unemployment rate figure is perfect, it doesn't really show what is happening in all. situations in the economy and there is one more objective of every economy: to keep prices stable to limit crazy inflation.

Remember that inflation is the idea that money loses its purchasing power, so more money is required to buy the same amount of goods as before, when there is more inflation, we have inflation, there is also deflation when prices are falling and this inflation wins the economy or sorry when inflation rates really fall, so inflation rates rise for a long time and inflation rates rise less and less. That's called inflation. You should understand the idea of ​​nominal and real salary if you know, let's say your boss gave you a five percent raise, yeah, great, my nominal salary increase, my nominal salary went up five percent, but if you have an inflation of ten percent, in real life your real salary fell. by five percent, so you have to understand the idea that you know the nominal is just looking at the regular numbers and then the actual adjustment for inflation.

It's the same with interest rates, if inflation rises, that will decrease the real interest rate. That's the idea. of you know unexpected inflation that hurts lenders unexpected inflation hurts lenders helps borrowers another country that we have to understand is the idea of ​​CPI is the Consumer Price Index is the best and most popular way in which we do it we show as a measure, you know, prices change Time and inflation is basically a market basket that we can analyze and there is an equation: you must know the market basket of the year that you are looking for, the value of the goods that we analyze and track the market basket divided by those same goods and The same things in a base year, so what was the value?

It's the price of all those things in the base year multiplied by 100 and a number comes up and that number tells you how the prices have changed since the base year, so if you see 120 prices. went up 20% from the base here, if you see 200, prices are up 100% from the base year, you see 95, that means prices fell 5% from the base year, probably one of the most difficult concepts in this unit is the idea of ​​Deflator conceptually the deflator is really easy it's like the CPI except it looks at everything so instead of just consumer goods it looks at, you know, steel and concrete and other things that consumers don't really They buy, but the companies would buy, the government buys and watches. the prices of everything in the economy so the deflator deflates nominal GDP the equations here the GDP deflator is nominal GDP divided by real GDP multiplied by 100 again it is a number it is an index number that indicates how prices changed relative to some background This year you're definitely going to want to do some math and practice the deflator a little bit and the last concept you're going to learn in this unit is the causes of inflation.

Inflation occurs for three reasons. The first is when a government just prints too much money and you learn something called the quantity theory of money, it's an identity that shows you multiplied by V equals P multiplied by and now what does that mean and is there an amount of money in supply? monetary? V is the velocity of money, it is how much time the money is spent on how many multiplied by the money spent and the Reis pence in a given period of time P are the prices of everything and Y is the amount of things we are actually producing , then P multiplied by y is the nominal GDP, so this has this Kennedy says the amount of money that is out there, how many times people spend that money over and over again is equal to the nominal GDP.

Now it's important because it shows that when the money supply increases and the velocity stays the same and why output stays the same, you have an equivalent change in prices. So if I know that the money supply increases by ten percent, the price will increase by exactly ten percent and the other two causes of inflation are actually super simple. The first are called demand attraction. This is the idea that demand increases. People want to buy a There are many more things in your country and people raise the price, so demand raises prices. The other is called cost escalation.

Cost drives the idea that there are some resource costs or you know we run out of some key resource to produce things that cost. the production costs of rice, so now it costs more to produce things, so we produce less things, which causes prices to go up, so either demand goes up, people want more things, or we can't produce as much. thing, either thing causes prices to rise, causes general inflation, unit two is not that difficult. I give it four out of ten difficulties, but the concepts that you really have to know, you have to understand the types of unemployment, GDP, I mean, they are huge concepts that if you don't understand them, you won't.

I'm going to get future concepts now in unit three this where the going gets tough is a drive bear there are so many things you have to learn start with the idea of ​​great demand aggregate demand is everything people want to buy the economy at different price levels and it has a kind of curve downward-sloping demand curve, like a market demand curve, except now, instead of price, it is price level, it is the price level and the quantity demanded of everything that everyone buys, now it slopes downward by three reasons. The first thing I need to understand are the three reasons: the wealth effect, the idea that when the price level rises, assets and popular banks are worth less at this time, I can't buy as much as before and therefore when the price level rises, people buy less things and the opposite, the price level falls, people buy more things, there is also the interest rate effect when inflation occurs, interest rates tend to rise and, Therefore, people would borrow less again.

These are the reasons why a large demand curve slopes downward. The last reason is because the foreign trade effect is the idea that when the price level goes up, people in other countries don't want to buy your stuff and therefore some of it goes back down, just like the curve. market demand, the aggregate human curve can shift and increase to the right, decrease to the left and the shifters are really simple, anything that changes what people want to buy, so if other countries or if there is more investment or if there is more consumer spending, any of those things can shift aggregate demand to the right or to the right.

On the left there is also an aggregate supply curve that slopes upward in the short run, meaning that when the price level rises, producers want to produce more things, but there is also a long-run graph. This is the idea that you know that in the long run the exact same amount will be produced, that is the idea of ​​full employment GDP and long run aggregate supply shows that there is no relationship between the price level and real GDP what we are producing in the long term, in other words, when prices will eventually fall. up or down and we will continue to produce the same things we did before in the long term, now both the short term aggregate supply and the long term technological supply can shift the short term, of course, it shifts to the right if it is an increase to the left of this decrease is anything that affects the producers here, so the price of resources can make this technology can do this some kind of government regulations, taxes or subsidies that affect a lot of producers that could generate the short maximum supply curve.

This is by far the most important chart needed. being able to draw showing full employment showing a recessionary gap is showing an inflationary gap this shows the same concept we saw in the last unit on the business cycle another key concept to keep in mind is the idea of ​​stagflation when agricultural supply shifts to the left the price level goes up the quantity goes down and this is the worst case scenario: we have inflation and low production, which is bad now, another thing you have to be able to do here is show what happens in the long run, in other words , when there is an event.

That happens, how do you go from the short term to the long term if consumers want more things? Agata's man goes up, that leads to an inflationary gap, but in the long run wages will rise, the cost of business will rise and the short night supply will come back to the left and return us to the long run. The same goes for the recessionary gap. Suppose the economy is at full employment. If consumption goes down, people buy fewer things. We end up with a recessionary gap. And what if salaries? They are flexible, which is arguable if wages are flexible, eventually resource prices will fall, wages will fall, and then costs will fall for firms, so that firms can produce more.

The Eiger supply shifts the right boom back to the long run that is creating the long run aggregate supply. Curve that long-term adjustment is different from economic growth Economic growth is the idea that GDP increases in the long term, in other words, when there is an increase in investment, there will be more capital, so a large Demand will shift to the right and since more things can be produced, the black supply shortage would shift to the right and Agra's long run supply would also shift to the right and you have seen this before with the curve of production possibilities, the production possibilities curve that shifts to the right is like the long-run production possibilities curve. the aggregate supply curve shifts to the right, we can produce more things that we couldn't produce before, that is economic growth, before you get too excited, you can draw the concepts on a graph, note that there is another graph if the bills show a recessionary gap, an inflationary gap at full employment is called a phillips curve the phillips curve shows the relationship between inflation and unemployment in the short run there is a downward sloping relationship in other words a negative relationship between these two things either you get high inflation or you know high unemployment but you usually don't have them at the same time and in the long run it is vertical, there is no relationship between inflation and unemployment in the long run, so with these two graphs you should be able to show when the economy is at full employment and when there is inflation. gap when you have a recessionary gap or when there is a shift in the short-run supply curve and how that shifts these short-run Phillips curves.

The next thing you will learn in this unit is the idea of ​​fiscal policy, which is change. in public spending and taxes when the economy is doing badly, how do we fix the expansion of the economy? Aerated fiscal policy is when we increase public spending or cut taxes and there is a contractionary fiscal policy in which taxes are increased or public spending is decreased and we are the latter concepts. What you're going to see is the spending multiplier, the spending multipliers, the idea that when people spend that it becomes someone else's income and then people save a portion of that and spend the rest and that's the expense becomes someone else's as the income keeps happening over and over again.

Understand the idea of ​​the marginal propensity to consume, which shows how much new income people consume and then there's a lot to say what's the flip side of how much new income people save. The multiplier of simple expenditure on the marginal propensity to save is gained. means this is if an initial change in spending occurs it will be multiplied by this amount and the total change in spending after people spend saves Benna except what happens over and over again there is also a tax multiplier which is one less than the expense. multiplier and then the math is not very difficult, it's just some practice to get comfortable with the last thing in this unit is the idea of ​​debts, the problems of fiscal policy, increasing government spending and reducing taxes seems like a good idea , but You will have to spend in deficit, that is, spend more than you take in in tax revenue, so the government will spend more than it takes in and tax revenue means that they have to go into debt or have a deficit for that given year.

Now the debt is the accumulation of alldeficits, the deficit is the amount that they are overspending in that given year and you have to understand this idea of ​​crowding out when the government takes a lot of loans that increase interest rates and somehow crowd out investors. and consumers take out loans and buy more things now I'm going to give this unit eight out of ten difficulties because it has a lot of key grass, a lot of key concepts maybe slow down, we talk about the multiplier, but none of that is like super impossible, difficult, but there's a lot going on, it's most of a macroeconomics class, okay, here we go, we're talking about money.

It begins by talking about what money is, it is a medium of exchange, and why it is better than barter. system, then you talk about commodity money and fiat money. Commodity money has some kind of intrinsic value. Fiat money does not have it and the three functions of money are the medium of exchange. University account and a reserve of value. The next thing you talk about is money m1. supply, so we talk about money in this class, we are not just talking about money, currency and cash, we are talking about money in people's checking accounts, so demand deposits also comprise the idea of ​​fractional reserve banking, the idea that banks hold a portion of reserves and lend out the rest, the money that ends up being spent by someone that ends up in another bank and that other bank has a portion of that money in loans, the rest get the idea too of bank balance sheets The bank balance sheet shows the assets and liabilities of a given bank.

You should be able to use it to calculate the required reserves ratio. excess reserves. Required reserves is the amount of money a bank must hold by law. excess reserves there is no money they can lend if they wish. At this point, you will also learn about the money multiplier. We learned about the spending multiplier in unit 3. Now it's the same idea, except we're talking about spending and you know, consuming and saving. banks lend, so when a bank lends money, someone takes the money, spends it, ends up in another bank, that bank holds some of it and then lends the rest, that keeps happening over and over again, the money multiplier is here , one on top. the reserve requirement remember that the spending multiplier was one above the marginal think to save the money multiplier one above the reserve It requires the same concept, although the initial change in the money supply multiplied by the multiplier shows you the total change in the money supply.

The key chart in this unit is the money market chart. Shows the supply and demand of money. It has interest rates. Gets the amount of money. has a downward sloping demand for money, it happens for two reasons, transaction demand and asset demand, people need to know money to buy things and they need money or they like to have their assets and money instead of having their assets and bonds or Actions. or something that is not money, then there is a demand for money, the supply is vertical, it is set by the Federal Reserve and that comes together and sets the nominal interest rate.

Now the Federal Reserve can control that money supply, they could increase it, move it to the right and lower the interest rate or they can decrease it, move it to the left and they can increase the interest rate, that is called monetary policy. Remember that the Federal Reserve controls the money supply. If they increase the money supply, they lower interest rates, which would increase investment and consumer spending. People take out more loans. buying more things would increase the aggregate called expansionary monetary policy if the Fed were decreasing the money supply that would increase interest rates it would decrease investment it would decrease consumer spending people take out fewer loans because it is more expensive to repay the loan and that would decrease the greatest demand, that is called contractionary monetary policy, but understanding that is not enough, you have to understand how they change the money supply, there are three factors that change the reserve requirement, the discount rate and open market operations, the requirement reserve, the Federal Reserve can decide whether to increase or decrease the amount.

The discount rate that banks have to maintain is how much the Fed charges banks when they borrow money from the Fed and then open microtrades when the Fed buys or sells bonds. Here are the rules you'll need to pay attention to. It shows you what happens when the reserve requirement goes up or down the discount rate goes up or down and then the Fed buys or sells bonds to the money supply so make sure you memorize this, you should know this, there's monetary policy, Note that there is a difference between the discount rate is what the Federal Reserve charges banks and the federal funds rate is what banks charge each other, so if a bank needs money, it can go First, you can go to the people who know who you lent the money to and say: I'm going to need the money back. that is an option or they can go to another bank or they can go to the Federal Reserve, so when they go to the Federal Reserve that is a discount rate that is what they charge them, they go to another bank which is called the federal funds rate , the horrible names that need to be reversed, but remember that if the federal funds rate is what banks charge other banks, the next concept you need to understand is the idea of ​​loanable funds.

Loanable funds are another key graph that shows the demand and supply of loans. The demand for loans is by the borrowers, you, the people who want to borrow money, the supply is by the lenders, all the people who want to lend money and it gives them the real interest rate. Now this curve, of course, can change both supply and demand, for example, the government does a lot. of borrowing which increases the demand for loans because the Khmers say I want to borrow some of that and again the interest rates go down, then the graph shows the displacement concept that I talked about before, if government deficits double, they demand more money which increases demand for loans higher interest rates higher real estate means less investment and less consumption of things that people would choose loans for, so overall unit four is quite difficult.

I give it eight out of ten difficulties because it has some graphs and some calculus to bring together many different concepts, but it all talks about one big concept: monetary policy, if you understand that, you will be fine now, for the last unit we talked about international trade and currencies, the balance will begin. of payments this shows all the transactions between different countries it has two different accounts the current accounts and the financial account of which the current account is made up first the trade balance that is the first idea to understand exports and imports if you export more than If you import then you have a trade surplus, if you import more than you export you have a trade deficit, so the first part you need to understand is that the goods and services that are sold are sold and held in the current account, now Investment income is also counted in the checking account and also net transfers when a country you know provides aid to another country or remittances when a person in a country lives there, sends money to his or her family.

All of these things count in the checking account. The financial account. basically financial assets, it shows the inflows and outflows of money entering or leaving a country now, if the inflows to your country are greater than the outflows, that means you have a surplus in the financial account, if the outflows are greater than the tickets, then you have a deficit. in the financial account, now keep in mind that when a country has a deficit in the current account, that means that it has to have a surplus in the financial account, that is why it has the balance of payments, the next times you will learn is the great concept in this unit of foreign currency we talk about the relative value of currencies among themselves now the first thing I understand is the idea of ​​appreciation this is the idea that the currency of one country increases in value in relation to the currency of other countries and the opposite is the The idea of ​​depreciation now keep in mind the relationship between appreciation, depreciation and net exports, when your current country's currency appreciates, that will cause your net exports from that country to fall.

People may buy fewer things because it is more expensive to buy them when their currency depreciates. that will cause net exports to increase, so don't be confused, all depreciation is a bad thing, it's not, it's actually great if you're an exporter, it's bad if you're an importer, also understand that here is a graph that looks like this shows the supply and demand of dollars in relation to euros, so you will be able to draw the supply and demand. Note that demand is buy because we are looking at dollars here, demand is from Europeans and supply is from Americans.

Also understand that when there is a change in one market there is a change in the other corresponding market in other words this is the dollar man and the supply of dollars, there is also the supply and demand of euros and it is the exchange rate , so, for example, Europeans want to go on vacation. In the United States they need more US dollars, so the demand for dollars increases and the dollar will appreciate in relation to the euro, but at the same time the Europeans are going to supply more euros, which will cause the euro to depreciate, so that you take into account.

For any graph there is also a ghost graph that accompanies it and the rule is that when demand increases, the other country has to offer more of its own. There are also four currency exchangers, the first is the one we just made. and people's preferences prefer more things from a country, then they will demand more of that currency to be able to go buy it, which will make that currency appreciate, so the premise is really easy. Next is the income if a country is richer. they buy more things, including things from other countries, then there is inflation, so if the price level goes with my country, I don't want to buy more things in my country at this higher price, I prefer things from other countries and the last one is the interest rates, which becomes complicated.

Interest rates are now the opposite of what you normally thought about in units 3 and 4. Now we talk about interest rates. We are saying that interest is a good thing. In other words, interest rates. Higher interest rates will bring. in more entries into your country because other countries want to earn a higher rate of return keep in mind that two currencies cannot appreciate each other at the same time so the dollar cannot appreciate relative to the euro like the euro appreciates in relation The dollar one goes up and the other has to go down. The last thing here is the idea of ​​floating and it is a fixed exchange rate.

Floating exchange rates allow supply and demand to set the exchange rate. A fixed exchange rate is when the country's government attempts to manipulate its currency to keep it fixed or pegged to another country's currency. Now unit 5 is super short and doesn't have a lot of graphics, but I give it a six out of ten for difficulty because it's so important to understand. how to get exchange rates and not make mistakes when analyzing two different countries and whether the currency appreciates or depreciates. Hey, thank you very much for watching this video. I wish you all the best of luck on the AP exam or Your Big Final Exam Hey, you're going to do great.

Thanks for watching Telex Time.