Introduction to Macroeconomics - Part 2

Introduction to Macroeconomics - Part 2


This tutorial introduces the concept of the balance of payments and explains how transactions are recorded in the balance of payments. We consider the issue of funding balance of payments deficits. This tutorial describes the fundamentals of fiscal policy. It covers the calculation of the budget deficit, and analyses the role played by automatic fiscal stabilisers in addition to discretionary fiscal policy. The tutorial also looks at how fiscal policy has fallen out of favour in recent years, with the economics mainstream promoting activist monetary policy as a more effective stabilisation tool. This tutorial explains the fundamentals of monetary policy, the instruments used by central banks to implement it, and how it effects the entire economy.


On completion of this tutorial, you will be able to:
- List the sub-components of the balance of payments and the various debit and credit entries in these accounts
- Describe how the overall balance of payments is recorded
- Outline the basic function of fiscal policy and the difference between induced and discretionary changes in the budget deficit
- Describe the theoretical effect of both automatic fiscal stabilisers and discretionary fiscal policy on GDP
- Explain how the budget deficit is financed and the impact on interest rates
- Cite the reasons why monetary policy is considered to be a better economic stabilisation tool than fiscal policy
- Explain how the interaction of money demand and money supply leads to the determination of the equilibrium interest rate
- Describe the workings of the different instruments that central banks use to implement monetary policy
- Recognise how a decision by the central bank changes interest rates and affects inflation


Module 1: Macroeconomics - Balance of Payments
Topic 1: Fundamentals of the Balance of Payments
Topic 2: The Balancing Act

Module 2: Macroeconomics - Fiscal Policy
Topic 1: Fundamentals of Fiscal Policy
Topic 2: Fiscal Policy & GDP
Topic 3: Effectiveness of Fiscal Policy
Topic 4: Financing the Budget Deficit

Module 3: Macroeconomics - Monetary Policy
Topic 1: Fundamentals of Monetary Policy
Topic 2: Implementation of Monetary Policy
Topic 3: Monetary Policy & The Economy


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Non-Member: HK$1110
Staff of Corporate Member: HK$780