Dynamic economics
An online textbook with dynamic graphics for the introduction to economics

Prof. Dr. Christian Bauer

September 10, 2021
Chair of monetary economics (FB IV), Trier University, 54296 Trier
Tel. 0651-2012744, bauer@uni-trier.de

Despite the ongoing development of the project, errors cannot be completely avoided. For legal reasons I have to point out that no guarantee or warranty whatsoever is given for the content and use.

The following internet pages are the beginning of a long-term project. In this sense, they represent a publication. The use in teaching and instruction is explicitly permitted. I only ask for the adherence to the usual methods of citation.

The graphics are constructed as follows: All points marked by a cross can be moved with the mouse. Not filled circles on a line can be controlled via sliders. The graphic adapts automatically to the change of a point. Points represented by filled circles cannot be moved directly, but adapt to the changing graphic.

The names of variables and designations are not always consistent in the typically used literature. We therefore adapted common nomenclature from the standard literature.

Should you notice any mistakes (e.g. dead or incorrect links, spelling mistakes or inaccuracies in content), I would be very grateful for a remark. I also welcome constructive criticism regarding the presentation and practicability of the pages and the comprehensibility of the explanations. Finally, I am also grateful for suggestions to expand the project.

I would like to thank Horst Froeber and the company Macher Solutions for the creation of the web presence. The dynamic graphics are based on the free geometry software jsxgraph, which was developed at the Department of Mathematics and its Didactics by Prof. Baptist at the University of Bayreuth. I would like to thank especially the developers Apl. Prof. Dr. Alfred Wassermann, Dr. Matthias Ehmann and Dr. Carsten Miller for their support. I would also like to thank Michal Hoftich for help with the technical implementation with Latex and Mr. Janes Sass for numerous helpful comments and found mistakes. Special thanks go to Lexi Walter (LIRSWrite Publishing Services; editing and translation; Contact: lirs@disroot.org) for translating all the contents into English.

There are still some chapters and elements not translated, but we are working on it.


I  ISLM Modell
1 Money supply
2 The goods market: The IS equation
 2.1 Derivation of the IS curve
 2.2 The shift of the IS curve in a closed economy
3 The financial market: the LM curve
 3.1 Derivation of the LM curve
 3.2 The shift of the LM curve in a closed economy
4 The effect of political decisions in equilibrium
 4.1 Fiscal policy
 4.2 Monetary policy
 4.3 The combined use of monetary and fiscal policy
5 The ISLM model with expectations
 5.1 The IS curve with expectations
 5.2 Fiscal policy, monetary policy and the role of expectations and backloading
6 The ISLM model in the open economy
 6.1 Demand for domestic goods vs. domestic demand: DD and ZZ curve
 6.2 Trade balance: net exports
 6.3 The IS curve in the open economy: real depreciation and trade balance
7 Atypical monetary policy: liquidity trap and quantitative easing
 7.1 Liquidity trap
 7.2 Monetary policy in the crisis
II  ASAD Modell
8 GA-GN-Model (AS-AD-Model): Introduction
9 Gesamtwirtschaftliches Angebot GA (Aggregate Supply: AS)
10 Gesamtwirtschaftliche Nachfrage GN: (Aggregate Demand: AD)
11 The AS-AD model: shocks and economic policy reactions
III  Real Exchange Rates
12 Theory of Purchasing Power Parity
 12.1 Basic principles and preliminary remarks
  12.1.1 Foreign exchange market and nominal exchange rate
  12.1.2 Exchange rate policy
  12.1.3 Real exchange rate
 12.2 Purchasing Power Parity
 12.3 The Harrod-Balassa-Samuelson model
IV  Monetary Modell
13 Basic Principles and Assumptions
14 Equilibrium
15 Graphical presentation of the equilibrium
16 Relation of two countries
17 Monetary policy measures within the Monetary Model
18 Inflation abroad
19 Exogenous economic growth shock
20 Fixed exchange rates in the Monetary Model
 20.1 Monetary policy with fixed exchange rates
 20.2 Recession with fixed exchange rates
 20.3 Monetary policy of the anchor country: Imported inflation and "harmful" monetary policy
V  Mundell-Fleming Modell
21 The Mundell-Fleming model
 21.1 Basic principles and assumptions
  21.1.1 The Mundell-Fleming model
 21.2 The equilibrium and its graphical presentation
  21.2.1 The four-field-graphic
 21.3 Flexible exchange rates in the Mundell-Fleming model
  21.3.1 Monetary policy measures in the Mundell-Fleming model
  21.3.2 Fiscal policy
 21.4 Fixed exchange rates in the Mundell-Fleming model
  21.4.1 Monetary policy at fixed exchange rates
  21.4.2 Fiscal policy with fixed exchange rates


(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743
E-mail: Bauer@uni-trier.de
URL: https://www.cbauer.de