Macro II Introduction

2 Course information 5EN453, 2 Lectures (6 ECTS) Lecturer: Pavel Potužák, Dpt. of Economics Office hours: Thursday 13:15-15:15, NB343 Website: 3-macroeconomics-ii/

3 Course information Textbook: David Romer (2006): Advanced Macroeconomics, 3rd edition (or higher) Download: kekebooks.vse.cz (psw: keke123) Barro: Macroeconomics (1997,2008) (Optional)

4 Course information Distribution of points:  40 Points for Midterm in the 8th week (12th for ill students, or in Exam period in case of even longer illness):  It covers 1st part of the semester. (Solow, Ramsey)  40 Points for Final test in the Exam period:  It covers 2nd part of the semester (from Diamond to NKE).  20 points for 5 Problem sets (HW).Each for 4 p.

5 Course information 100 points altogether:  points … 1  points … 2  points … 3  … 4+ implies 2nd attempt. Comprehensive test covering the whole semester for 100 p. (Then you need at least 60 points to pass.)  0-49 … 4 (Failed)  No Selective Excuse („Omluveno“) in this Course (only General,i.e. all (or majority of) courses), since there will be a wide range of terms in the Exam period.

6 The Science of Macroeconomics Master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature of his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.” J. M. Keynes "Alfred Marshall, " The Economic Journal, (Sept.,1924)  Keynes(1936) as a father of Macroeconomics

7 The Science of Macroeconomics Macroeconomics, the study of the economy as a whole, attempts to answer questions like:  Why have some countries experienced rapid growth in incomes while others stagnated in poverty?  Why do some countries have high rates of inflation while others maintain stable prices?  Why do all countries experience recessions and depressions and (how) can (and should?) government policy reduce the frequency and severity of these episodes?

8 U.S. Real GDP per capita (2000 dollars) Great Depression World War II First oil price shock Second oil price shock long-run upward trend… 9/11/2001

9 Growth rates of real GDP, U.S Real GDP growth rate Average growth rate

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14 CR vs. EU GDP per head, EU27 = 100

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Kaldor's stylized facts -The rate of growth of output per worker is roughly constant over long periods of time, and its growth rate does not seem to diminish The shares of national income received by labor and capital are roughly constant over long periods of timenational income -The rate of growth of the capital stock is roughly constant over long periods of timecapital stock -The capital/output ratio is roughly constant over long periods of time -The rate of return on investment is roughly constant over long periods of timeinvestment -The real wage grows over time

27 The ratio of labor income to total income in the U.S. Labor’s share of total income Labor’s share of income is approximately constant over time. (Hence, capital’s share is, too.)

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