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Macroeconomics

Macroeconomics. Revision. Lecture 3 Economic Growth. Definition & diagram to illustrate Factors contributing to economic growth Effects of economic growth. Lecture 4 Saving Investment. Relationship between saving and investment S = I Components of saving S = (Y – T – C) + (T – G)

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Macroeconomics

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  1. Macroeconomics Revision

  2. Lecture 3Economic Growth • Definition & diagram to illustrate • Factors contributing to economic growth • Effects of economic growth

  3. Lecture 4Saving Investment • Relationship between saving and investment S = I • Components of saving S = (Y – T – C) + (T – G) Private Saving = Y - T - C Public Saving = T - G

  4. The supply of money A fixed quantity independent of the interest rate, controlled by Central Bank Lecture 4Money Market r MS • The demand for money Amount of money people want to hold. The influences on holding money: • The price level • The interest rate • Real GDP • Financial innovations. • Taste r MD Quantity of Money

  5. Lecture 5Unemployment • Definition • Types of unemployment: • Cyclical (Demand-deficient) unemployment • Non-cyclical unemployment (e.g Frictional, structural & seasonal) • Causes of unemployment: Minimum-wage laws, Unions, Efficiency wages & Job search • Unemployment rate • Labour force participation rate

  6. Lecture 6Tools of Monetary Control • Open-market operation • Changing the reserve requirement • Changing the discount rate

  7. Lecture 7Inflation • Definition • Types of inflation • Causes of inflation • Quantity theory of money M x V = P x Y

  8. Lecture 8Economic Fluctuations • Definition & diagram to illustrate • Causes of economic fluctuations • Problems caused by economic fluctuations

  9. Lecture 8Long Run & Short Run • Long run: The sufficient time for all prices factors of production to adjust. • Potential GDP • Natural rate of unemployment • Short run: Price of G&S changes but prices of factors of production do not change

  10. Aggregate demand Personal Consumption Private Investment Government Purchases Net Export Downward sloping curve Wealth effects Interest effect Exchange rate effect Determinants of AD: Price level Expectations Fiscal & monetary policy The world economy Aggregate Supply LRAS: Vertical at potential GDP. Independence of price. Determinants: Change in resources and technology. SRAS: Upward sloping curve Misperceptions Sticky price Sticky wage Lecture 8AD & AS

  11. Consumption expenditure (C) Factors that affect C Disposable income Expected future income Wealth Interest rates Investment (I) Factors that affect I: Real interest rate Profit expectations Government expenditure (G) Autonomous/ constant. Net Export (NX=X-M) X: Expenditure by foreigners on local made G&S. M: Expenditure by residents on foreign G&S. NX: influenced by + Real GDP in the country and the rest of the world. + Price comparison +Foreign exchange rate. Lecture 8Components of AD

  12. Lecture 9Monetary & Fiscal Policy • Definition & tools • Types • When to use the policy • How to use the policy • What to do if use the policy • Strength of each policy in economic management

  13. Fiscal policy Government Spending and Taxation Tools: G and T If T>G: Budget surplus If G>T: Budget deficit. Types: expansionary: increase G or/ and decrease T contractionary: decrease G and/ or increase T Monetary policy MS and interest rate Tools for monetary policy Reserve requirement Open market operation. Discount rate Types: expansionary: increase MS contractionary: decrease MS Lecture 9Monetary & Fiscal Policy

  14. Tight monetary policy Problem: inflation Remedy: induce a contraction in the supply of money, and therefore spending, by increasing the interest rate Means: Sell bonds in the open market Easy monetary policy Problem: unemployment and deflation Remedy: induce an expansion in the supply of money, and therefore spending, by reducing the interest rate Means: Buy bonds in the open market Summary of Monetary Policy

  15. Expansionary F. policy Problem: unemployment and deflation Remedy: induce an expansion in aggregate demand(AD) by pursuing a budget deficit Government Action - increase G - decrease T, or - a combination of both Contractionary F. policy Problem: demand-pull inflation Remedy: induce a contraction in the AD by pursuing a budget surplus Government Action - increase T - decrease G, or - a combination of both Summary of Fiscal Policy

  16. Lecture 10Open Economy • BOT and influencing factors • NFI and influencing factors • Relationship between NX/BOT and NFI. • Saving & investment in open economy. • Nominal and real exchange rate.

  17. Lecture 11International Trade • Absolute and comparative advantages • Basis for international trade • Arguments for and against trade restrictions

  18. Final Examination180 minutes • Multiple choices: 20Qs - 40 marks • Short answers: 4Qs - 20 marks • Problems & Applications: 5Qs - 40 marks

  19. Final ExaminationMultiple Choices • Calculation Questions: 10Qs • GDP deflator • Inflation rate from CPI • Nominal and real interest rate (Fisher effect) • Unemployment rate • Labour force participation rate • Money multiplier • Money supply from money multiplier • Multiplier • Real exchange rate • Theoretical Questions: 10Qs • Lecture 1, 2, 3, 5, 7, 8, 9, 10 & 11

  20. Final ExaminationMultiple Choices • Calculation Questions: 10Qs • GDP deflator = Yn/Yr x 100 • Inflation rate (Year n) from CPI Лn = (CPIn –CPIn-1)/CPIn-1 • Nominal and real interest rate: in = ir +Л • Unemployment rate %UE = Unemployed /Labour Force x 100 • Labour force participation rate LFPR = Labour Force/Adult Population

  21. Final ExaminationMultiple Choices • Calculation Questions: 10Qs • Money multiplier MM = 1/r • Money supply from money multiplier MS = D x MM • Multiplier M = 1/(1 – MPC) • Real exchange rate Er = En x (PD/PF)

  22. Final ExaminationShort Answers • Monetary tools • Monetary and fiscal policy to deal with boom and recession Lecture 9 – summary table • NFI and influencing factors Lecture 10 • Saving and investment in close and open economy Lecture 4 & 10 • Effects of changes in real exchange rate on BOT Lecture 10

  23. Final ExaminationProblems and Applications • Effects of events on AD & AS + diagram Question 3 & 10 page 364-365 • Quantity theory of money Problem 2 - Tutorial 7 • Effects of events on MS, MD and interest rate and AD (+ diagrams) Problem 1 & 2 - page 390 • Effects of changes in T and G Problem 8 – page 391 • Basis for international trade Tutorial 10 - Problem 1 - Tutorial 11 (+ diagrams)

  24. Final ExaminationProblems and Applications • Stock market in Vietnam - achievements, problems and suggested solutions • Bond market in Vietnam - achievements, problems and suggested solutions • WTO joining - opportunities and challenges for Vietnam • Inflation control in Vietnam in the last quarter of 2007 and first quarter of 2008

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