Fundamental Economic Analysis

Introduction to Macroeconomics - Part 2 (2018)



This eCourse consists of three modules. Module 1 introduces the concept of the balance of payments. Beginning by looking at the sub-components of this statement – the current and capital and financial accounts – then it moves on to explain how transactions are recorded in the balance of payments, and why it must always balance. The module concludes by looking at the politically-charged issue of funding balance of payments deficits.

Module 2 describes the fundamentals of fiscal policy, the overall stance of which can be described by a government’s budget deficit policy. It covers the calculation of the budget deficit, and analyzes the role played by automatic fiscal stabilizers in addition to discretionary fiscal policy. The module also looks at how fiscal policy has fallen out of favor in recent years, with the economics mainstream promoting activist monetary policy as a more effective stabilization tool.

Module 3 examines the relationship among monetary policy, interest rates, inflation, and economic activity, and the ability of central banks to influence the money supply in today’s market. It then looks at how central banks use the money supply transmission mechanism to control inflation.


On completion of this course, 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
- Recognize the relationship between interest rates and the demand for money
- Identify the techniques used by central banks in implementing monetary policy
- Recognize how changes in interest rates feed through the transmission mechanism


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: Monetary Policy
Topic 1: Fundamentals of Monetary Policy
Topic 2: Implementation of Monetary Policy
Topic 3: Monetary Policy and The Economy


SFC:3.00, PWMA:3.00