Macroeconomics Lecture 12 Revision

Topic 1: Measuring a nation’s income GDP: definition and measurement GDP growth rate Nominal vs. real GDP GDP deflator Is GDP a perfect measure of eco. Well- being?

Topic 2: Production and growth Macroeconomics Lecture 5 Topic 2: Production and growth Productivity is a determinant of a country’s standard of living Determinants of productivity Growth rate of productivity The rule of 70 The catch up effect How public policies influence eco. Growth?

Topic 3: Unemployment Definition Different types of unemployment Macroeconomics Lecture 5 Topic 3: Unemployment Definition Different types of unemployment How to measure it? Policies and unemployment (minimum wage, efficiency wage, unemployment insurance, union collective bargaining, etc.) The loss of income is devastating for those who bear it. Employment benefits create a safety net but don’t fully replace lost wages, and not everyone receives benefits. Prolonged unemployment permanently damages a person’s job prospects by destroying human capital.

Topic 4: Saving, Investment and the financial system Bonds vs. stocks The financial system Saving equation Market for loanable fund Government policies and their impact on the market for loanable fund

Topic 5: The monetary system Money function and measurement Central bank: functions and tools Money creation and the money multiplier

Topic 6: Money growth and inflation Inflation: definition and measurement CPI vs. GDP deflator Classical theory of inflation and quantity theory of money Fisher effect Costs of inflation

Topic 7: AD, AS and the Phillips curve Economic fluctuation AD: why it slopes downward? Determinants? AS short run vs. AS long run AS: determinants? Short run equilibrium vs. long run equil. How does the economy adjust back to long run equilibrium after a AD or AS shock? Phillips curve short run vs. long run

Topic 8: Monetary and fiscal policy The unemployment rate U/E rate = Unemployed / Labour force The labor-force participation rate (LFPR) LFPR = Labour force / Adult population

Topic 8: Monetary and fiscal policy (a) The Money Market (b) The Aggregate-Demand Curve Interest Rate Money supply, MS1 1. When the CB increases the money supply… MS2 Price Level Y2 AD2 3. …which increases the quantity of goods and services demanded at a given price level. P r1 r2 2. …the equilibrium interest rate falls… Aggregate demand, AD1 Quantity of Money Y1 Quantity of Output

Fiscal policy: Multiplier vs. crowding out effect (a) The Money Market (b) The Shift in Aggregate Demand Interest Rate AD3 4. …which in turn partly offsets the initial increase in aggregate demand. Price Level 1. When an increase in government purchases increases aggregate demand… AD2 $20 billion Money supply MD2 2. …the increase in spending increases money demand… 3. …which increases the equilibrium interest rate… r2 r1 Money demand, MD1 Aggregate demand, AD1 Quantity of Money Quantity fixed by the Fed Quantity of Output

Topic 9: International trade Macroeconomics Lecture 5 Topic 9: International trade Absolute advantage Comparative advantage Term of trade Gains from trade Trade policies: Tariff and quota Labour Force = 54.3 Adult population: 69.7 Unemployment rate: 1.93 Labour force participation rate: 77.9

Figure 6 The Effects of a Tariff Price of Steel A Domestic demand Domestic supply Deadweight Loss B Price with tariff C G D F Q S E Q D Tariff Price without tariff World Q S Q D Imports with tariff price Quantity Imports without tariff of Steel Copyright © 2004 South-Western

Topic 10: Open-economy Macroeconomics Net export: factors that affect NX NCO: Factors that affect NCO The relationship between NX and NCO Saving and investment in a open economy Real vs. nominal exchange rate and impact on NX

FINAL EXAM 40 MCQs: 40 marks Cover all topics 2 short answers: Topic 1-6 (20 marks) 2 problems/long answers: Topic 7-9 (40 marks)