\documentclass[11pt]{article}
\usepackage{mathnotes}
\discipline{UCLA-ALIGNED COURSE FIELD NOTES}
\course{ECON 2}{Principles of Economics: Macroeconomics}{National income, growth, inflation, unemployment, policy, trade, and the open economy}

\begin{document}
\makemathcover
\coursefrontmatter{
\begin{curriculumtable}
\unitline{1}{Measuring output, income, and prices}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{2}{Long-run growth and productivity}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{3}{Unemployment, inflation, and labor markets}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{4}{Aggregate demand and aggregate supply}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{5}{Money, banking, and the financial system}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{6}{Monetary policy and transmission}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{7}{Fiscal policy, deficits, and public debt}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{8}{Trade, exchange rates, and international accounts}{Reconstruct the model, work an application, test its assumptions, and explain the result in ordinary language.}
\unitline{9}{Integration studio}{Combine several chapters in one case, preserve their assumptions, and reconcile the result across representations.}
\unitline{10}{Cumulative review}{Retrieve the full course map from memory and solve mixed problems without chapter labels.}
\end{curriculumtable}
}{\curriculumsource{https://catalog.registrar.ucla.edu/course/2025/ECON2?year=2025}}

\section{Measuring output, income, and prices}

\begin{idea}
GDP measures final domestic production and can be computed by expenditure, income, or value added. Real GDP removes price change; price indexes, inflation, and per-capita measures answer different questions and omit important welfare dimensions.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: GDP measures final domestic production and can be computed by expenditure, income, or value added. Real GDP removes price change; price indexes, inflation, and per-capita measures answer different questions and omit important welfare dimensions. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of measuring output, income, and prices. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach measuring output, income, and prices on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from the course foundations to long-run growth and productivity. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} GDP measures final domestic production and can be computed by expenditure, income, or value added.
  \item \textbf{What moves.} Real GDP removes price change; price indexes, inflation, and per-capita measures answer different questions and omit important welfare dimensions.
  \item \textbf{What keeps the answer honest.} The model becomes useful only when I can apply measuring output, income, and prices to an unfamiliar case and defend the assumptions.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
I ask what a statistic counts, what it leaves out, and whether the comparison is nominal, real, total, or per person.
\end{studenttake}

\begin{plainbox}
GDP measures final domestic production and can be computed by expenditure, income, or value added.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} Nominal GDP rises 8 percent while the GDP deflator rises 3 percent. Approximate real growth.

\textbf{Walkthrough.} Real growth is approximately 5 percent; exactly, divide 1.08 by 1.03 and subtract one, giving about 4.85 percent.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} Nominal GDP rises 8 percent while the GDP deflator rises 3 percent. Approximate real growth.

\textbf{Solution.} Real growth is approximately 5 percent; exactly, divide 1.08 by 1.03 and subtract one, giving about 4.85 percent.

\medskip
\textbf{Practice 2.} Explain measuring output, income, and prices to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct measuring output, income, and prices from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a measuring output, income, and prices problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Long-run growth and productivity}

\begin{idea}
Living standards depend on output per person, driven by physical and human capital, technology, institutions, and resource allocation. Diminishing returns limit capital deepening, while innovation and productivity sustain long-run growth.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Living standards depend on output per person, driven by physical and human capital, technology, institutions, and resource allocation. Diminishing returns limit capital deepening, while innovation and productivity sustain long-run growth. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of long-run growth and productivity. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach long-run growth and productivity on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from measuring output, income, and prices to unemployment, inflation, and labor markets. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Living standards depend on output per person, driven by physical and human capital, technology, institutions, and resource allocation.
  \item \textbf{What moves.} Diminishing returns limit capital deepening, while innovation and productivity sustain long-run growth.
  \item \textbf{What keeps the answer honest.} The model becomes useful only when I can apply long-run growth and productivity to an unfamiliar case and defend the assumptions.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
My shorthand for this chapter is: my shorthand for this chapter is: compounding makes a small persistent growth-rate difference more important than one dramatic quarter.
\end{studenttake}

\begin{plainbox}
Living standards depend on output per person, driven by physical and human capital, technology, institutions, and resource allocation.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} Use the rule of 70 for a country growing 2 percent annually.

\textbf{Walkthrough.} Real output per person doubles in roughly 35 years because 70 divided by 2 is 35.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} Use the rule of 70 for a country growing 2 percent annually.

\textbf{Solution.} Real output per person doubles in roughly 35 years because 70 divided by 2 is 35.

\medskip
\textbf{Practice 2.} Explain long-run growth and productivity to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct long-run growth and productivity from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a long-run growth and productivity problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Unemployment, inflation, and labor markets}

\begin{idea}
Unemployment data classify employment, active search, and labor-force participation. Inflation redistributes purchasing power and complicates contracts; expected and unexpected inflation have different effects. The Phillips relationship is conditional, not permanent.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Unemployment data classify employment, active search, and labor-force participation. Inflation redistributes purchasing power and complicates contracts; expected and unexpected inflation have different effects. The Phillips relationship is conditional, not permanent. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of unemployment, inflation, and labor markets. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach unemployment, inflation, and labor markets on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from long-run growth and productivity to aggregate demand and aggregate supply. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Unemployment data classify employment, active search, and labor-force participation.
  \item \textbf{What moves.} Inflation redistributes purchasing power and complicates contracts; expected and unexpected inflation have different effects.
  \item \textbf{What keeps the answer honest.} The Phillips relationship is conditional, not permanent.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
I never read a falling unemployment rate without also checking participation.
\end{studenttake}

\begin{plainbox}
Unemployment data classify employment, active search, and labor-force participation.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} Employment is 90, unemployment is 10, and 20 adults are outside the labor force. Find unemployment and participation rates.

\textbf{Walkthrough.} Labor force is 100, so unemployment is 10 percent. Adult population is 120, so participation is 100 divided by 120, or 83.3 percent.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} Employment is 90, unemployment is 10, and 20 adults are outside the labor force. Find unemployment and participation rates.

\textbf{Solution.} Labor force is 100, so unemployment is 10 percent. Adult population is 120, so participation is 100 divided by 120, or 83.3 percent.

\medskip
\textbf{Practice 2.} Explain unemployment, inflation, and labor markets to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct unemployment, inflation, and labor markets from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a unemployment, inflation, and labor markets problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Aggregate demand and aggregate supply}

\begin{idea}
Aggregate demand links the price level to planned spending; short-run aggregate supply reflects sticky prices and costs; long-run capacity depends on resources and technology. Demand and supply shocks differ in their output-inflation tradeoffs.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Aggregate demand links the price level to planned spending; short-run aggregate supply reflects sticky prices and costs; long-run capacity depends on resources and technology. Demand and supply shocks differ in their output-inflation tradeoffs. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of aggregate demand and aggregate supply. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach aggregate demand and aggregate supply on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from unemployment, inflation, and labor markets to money, banking, and the financial system. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Aggregate demand links the price level to planned spending; short-run aggregate supply reflects sticky prices and costs; long-run capacity depends on resources and technology.
  \item \textbf{What moves.} Demand and supply shocks differ in their output-inflation tradeoffs.
  \item \textbf{What keeps the answer honest.} The model becomes useful only when I can apply aggregate demand and aggregate supply to an unfamiliar case and defend the assumptions.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
I identify the shock before reaching for policy because a demand slump and an oil shock need different conversations.
\end{studenttake}

\begin{plainbox}
Aggregate demand links the price level to planned spending; short-run aggregate supply reflects sticky prices and costs; long-run capacity depends on resources and technology.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} What is the short-run effect of a negative demand shock?

\textbf{Walkthrough.} Aggregate demand shifts left, lowering output and the price level relative to baseline. Unemployment rises; adjustment and policy determine the path back toward potential.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} What is the short-run effect of a negative demand shock?

\textbf{Solution.} Aggregate demand shifts left, lowering output and the price level relative to baseline. Unemployment rises; adjustment and policy determine the path back toward potential.

\medskip
\textbf{Practice 2.} Explain aggregate demand and aggregate supply to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct aggregate demand and aggregate supply from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a aggregate demand and aggregate supply problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Money, banking, and the financial system}

\begin{idea}
Money serves as medium, unit, and store. Banks transform maturities and create deposits through lending within capital, reserve, risk, and demand constraints. Interest rates connect saving, investment, asset prices, and intertemporal choice.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Money serves as medium, unit, and store. Banks transform maturities and create deposits through lending within capital, reserve, risk, and demand constraints. Interest rates connect saving, investment, asset prices, and intertemporal choice. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of money, banking, and the financial system. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach money, banking, and the financial system on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from aggregate demand and aggregate supply to monetary policy and transmission. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Money serves as medium, unit, and store.
  \item \textbf{What moves.} Banks transform maturities and create deposits through lending within capital, reserve, risk, and demand constraints.
  \item \textbf{What keeps the answer honest.} Interest rates connect saving, investment, asset prices, and intertemporal choice.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
My shorthand for this chapter is: my shorthand for this chapter is: the textbook money multiplier is a benchmark, not a promise that reserves mechanically force banks to lend.
\end{studenttake}

\begin{plainbox}
Money serves as medium, unit, and store.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} If nominal interest is 6 percent and expected inflation is 2 percent, approximate the real rate.

\textbf{Walkthrough.} The Fisher approximation gives a 4 percent real interest rate; exact calculation is slightly below 4 percent.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} If nominal interest is 6 percent and expected inflation is 2 percent, approximate the real rate.

\textbf{Solution.} The Fisher approximation gives a 4 percent real interest rate; exact calculation is slightly below 4 percent.

\medskip
\textbf{Practice 2.} Explain money, banking, and the financial system to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct money, banking, and the financial system from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a money, banking, and the financial system problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Monetary policy and transmission}

\begin{idea}
A central bank influences short-term financial conditions through its operating framework, communication, asset holdings, and lender-of-last-resort role. Policy transmits through rates, credit, exchange rates, expectations, wealth, and risk taking with lags and uncertainty.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: A central bank influences short-term financial conditions through its operating framework, communication, asset holdings, and lender-of-last-resort role. Policy transmits through rates, credit, exchange rates, expectations, wealth, and risk taking with lags and uncertainty. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of monetary policy and transmission. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach monetary policy and transmission on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from money, banking, and the financial system to fiscal policy, deficits, and public debt. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} A central bank influences short-term financial conditions through its operating framework, communication, asset holdings, and lender-of-last-resort role.
  \item \textbf{What moves.} Policy transmits through rates, credit, exchange rates, expectations, wealth, and risk taking with lags and uncertainty.
  \item \textbf{What keeps the answer honest.} The model becomes useful only when I can apply monetary policy and transmission to an unfamiliar case and defend the assumptions.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
I trace the entire transmission chain instead of saying 'rates down, economy up.'
\end{studenttake}

\begin{plainbox}
A central bank influences short-term financial conditions through its operating framework, communication, asset holdings, and lender-of-last-resort role.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} How can a policy-rate increase reduce inflation?

\textbf{Walkthrough.} Higher borrowing costs and tighter credit reduce interest-sensitive demand, can strengthen the currency, and temper expectations. Weaker aggregate demand eases price pressure, though timing and supply conditions matter.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} How can a policy-rate increase reduce inflation?

\textbf{Solution.} Higher borrowing costs and tighter credit reduce interest-sensitive demand, can strengthen the currency, and temper expectations. Weaker aggregate demand eases price pressure, though timing and supply conditions matter.

\medskip
\textbf{Practice 2.} Explain monetary policy and transmission to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct monetary policy and transmission from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a monetary policy and transmission problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Fiscal policy, deficits, and public debt}

\begin{idea}
Taxes and spending affect demand, incentives, insurance, distribution, and public investment. Multipliers depend on slack, monetary response, openness, timing, and financing. Debt sustainability depends on primary balances, growth, interest rates, maturity, and credibility.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Taxes and spending affect demand, incentives, insurance, distribution, and public investment. Multipliers depend on slack, monetary response, openness, timing, and financing. Debt sustainability depends on primary balances, growth, interest rates, maturity, and credibility. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of fiscal policy, deficits, and public debt. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach fiscal policy, deficits, and public debt on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from monetary policy and transmission to trade, exchange rates, and international accounts. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Taxes and spending affect demand, incentives, insurance, distribution, and public investment.
  \item \textbf{What moves.} Multipliers depend on slack, monetary response, openness, timing, and financing.
  \item \textbf{What keeps the answer honest.} Debt sustainability depends on primary balances, growth, interest rates, maturity, and credibility.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
My shorthand for this chapter is: my shorthand for this chapter is: a deficit is a flow and debt is a stock; mixing them ruins the analysis immediately.
\end{studenttake}

\begin{plainbox}
Taxes and spending affect demand, incentives, insurance, distribution, and public investment.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} Government spending rises by 100 and the simple multiplier is 1.5. What is the model's output effect?

\textbf{Walkthrough.} The model predicts a 150 increase in output, but actual effects depend on crowding out, imports, capacity, policy response, and whether the spending arrives when intended.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} Government spending rises by 100 and the simple multiplier is 1.5. What is the model's output effect?

\textbf{Solution.} The model predicts a 150 increase in output, but actual effects depend on crowding out, imports, capacity, policy response, and whether the spending arrives when intended.

\medskip
\textbf{Practice 2.} Explain fiscal policy, deficits, and public debt to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct fiscal policy, deficits, and public debt from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a fiscal policy, deficits, and public debt problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section{Trade, exchange rates, and international accounts}

\begin{idea}
Comparative advantage supports gains from trade while adjustment costs and distribution remain real. The current and financial accounts record international transactions; exchange rates respond to relative returns, prices, policy, risk, and expectations.
\end{idea}
% MASTERCLASS EXPANSION
\subsection{Rebuild the chapter from first principles}
The claim I need to own is this: Comparative advantage supports gains from trade while adjustment costs and distribution remain real. The current and financial accounts record international transactions; exchange rates respond to relative returns, prices, policy, risk, and expectations. I do not count that as learned just because the sentence looks familiar. I should be able to name the objects, state what changes and what stays fixed, recover the rule from the definitions, and explain why the result is allowed.

\begin{move}
\textbf{My working sequence}
\begin{enumerate}
  \item \textbf{Translate.} Rewrite the prompt in the language of trade, exchange rates, and international accounts. List the known quantities, the unknown, the units or types, and any hidden constraint.
  \item \textbf{Choose.} State the theorem, model, algorithm, accounting rule, or physical law before substituting values. This is where I make the assumption visible.
  \item \textbf{Execute.} Work one justified step at a time and keep intermediate state readable enough that I can audit it later.
  \item \textbf{Verify.} Check a boundary case, sign, unit, invariant, order of magnitude, or alternative derivation. Then translate the result back into an ordinary sentence.
\end{enumerate}
\end{move}

\subsection{Details I would refuse to skip}
\begin{itemize}
  \item \textbf{Definitions:} I should be able to define every technical noun in the chapter without using that same noun in the definition.
  \item \textbf{Assumptions:} I write the condition that makes the method legal beside the method itself. A correct procedure under the wrong assumptions is still a wrong answer.
  \item \textbf{Representation:} I move freely among words, equations or code, a diagram, and a small numerical example. If one representation disagrees with another, that disagreement is useful evidence.
  \item \textbf{Failure modes:} I keep the nearest counterexample in mind: the boundary where the rule changes, the invariant breaks, or the model stops matching reality.
  \item \textbf{Communication:} My final answer names what the result means and what it does not establish. I do not let notation do the explanatory work for me.
\end{itemize}

\begin{sanitybox}
\textbf{Closed-note check.} Can I teach trade, exchange rates, and international accounts on a blank page, derive or reconstruct its main rule, work a fresh example, and diagnose a deliberately broken solution? If I can only recognize the finished work, I am not done.
\end{sanitybox}

\subsection{How this chapter connects}
I read this chapter as the bridge from fiscal policy, deficits, and public debt to the cumulative course model. The earlier material supplies the language and constraints; this chapter adds a new reasoning move; the later material asks me to use that move without being told its name. That connection matters because exams and real projects mix chapters on purpose.


\subsection{The full working model}
\begin{itemize}
  \item \textbf{Core claim.} Comparative advantage supports gains from trade while adjustment costs and distribution remain real.
  \item \textbf{What moves.} The current and financial accounts record international transactions; exchange rates respond to relative returns, prices, policy, risk, and expectations.
  \item \textbf{What keeps the answer honest.} The model becomes useful only when I can apply trade, exchange rates, and international accounts to an unfamiliar case and defend the assumptions.
  \item \textbf{Mastery standard.} I can define the objects, rebuild the rule, work a fresh case, compare alternatives, and diagnose a broken solution without relying on recognition.
\end{itemize}

\begin{studenttake}
I can support aggregate gains from trade and still ask who bears the transition cost.
\end{studenttake}

\begin{plainbox}
Comparative advantage supports gains from trade while adjustment costs and distribution remain real.
\end{plainbox}

\begin{examplebox}
\textbf{Question.} A domestic currency appreciates. What happens to export and import prices, all else equal?

\textbf{Walkthrough.} Domestic exports become more expensive to foreigners and imports become cheaper to domestic buyers, tending to reduce net exports, though contracts and elasticities delay the response.
\end{examplebox}

\begin{warningbox}
The fastest way to get this chapter wrong is to use the visible procedure without naming its assumption, units, time period, reference group, or boundary. I put that condition beside the work and verify the result independently.
\end{warningbox}

\begin{chapterpractice}
\textbf{Practice 1.} A domestic currency appreciates. What happens to export and import prices, all else equal?

\textbf{Solution.} Domestic exports become more expensive to foreigners and imports become cheaper to domestic buyers, tending to reduce net exports, though contracts and elasticities delay the response.

\medskip
\textbf{Practice 2.} Explain trade, exchange rates, and international accounts to a classmate using one definition, one concrete example, one assumption, and one failure mode.

\textbf{Solution.} Begin with the core claim above, use the worked case as the concrete example, state the condition highlighted by the warning, and choose a failure where that condition does not hold. A complete explanation connects all four pieces instead of listing them.

\medskip
\textbf{Mastery practice A.} Reconstruct trade, exchange rates, and international accounts from a blank page. Include the central definition, the governing rule, one required assumption, and one boundary case.

\textbf{Solution.} Start from the blue idea box, but rewrite it in my own words. Identify the objects and state, name the rule before using it, copy the relevant assumption from the details audit, and choose a boundary where that assumption becomes equality or fails. A complete solution explains why each part belongs; a list of vocabulary is not enough.

\medskip
\textbf{Mastery practice B.} A classmate gets a polished-looking answer to a trade, exchange rates, and international accounts problem but never states a model or checks the result. Write the shortest useful review of that solution.

\textbf{Solution.} I would ask four concrete questions: What exactly are the inputs and desired output? Which rule licenses the main step? Which assumption could invalidate it? Which independent check supports the conclusion? If the answer cannot survive those four questions, I treat the numerical or verbal result as unverified.

\end{chapterpractice}

\section*{Cumulative study plan}
I use this packet in three passes. First I reconstruct each model and work its examples without looking. Second I mix chapters so the tool is no longer named for me. Third I explain a complete case aloud, including assumptions, units, uncertainty, failure modes, and what evidence would change my conclusion.

\end{document}
