Post on 02-Jun-2018
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MACROECONOMICSL PhngThoQunh
FACULTY OF INTERNATIONAL ECONOMICS
Mobile: 0987027398
Email: phuongthaoquynhle@yahoo.com.vn
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UNIT ASSESSMENT
Note: Presentation is elective, + 0.5 to 1 point to mid-termexam for doing presentation
Participation 10%
Mid-term exam 30% Multiple choices +short answer
Final exam 60% Theory + exercises
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TEXTBOOKS
Macroeconomics, Gregory Mankiw, 2009
Macroeconomics, Paul Krugman, 2012
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LECTURE1: OVERVIEWOF
MACROECONOMICS
I. Overview of economics
The word economycomes from
a Greek word for one who
manages a household.
A household and an economy
face many decis ions:
- Who will work?- What goods and how many
of them should be
produced?
- What resources should be
used in production?- At what price should the
goods be sold?
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SOCIETYANDSCARCERESOURCES
Society and Scarce Resources.
- Scarcity. . . means that society has
limited resources and therefore:
-The management of societys
resources is important because
resources are scarce cannot produce
all the goods and services people wish
to have.
Economicsis the study of how society manages its scarce resources.
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TEN PRINCIPLES OF ECONOMICS
1. People face trade-offs: To get one thing, we usually have to
give up another thing
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PEOPLE FACE TRADE - OFFS
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TEN LESSONS FROM ECONOMICS
4. People respond to incentives. Eg: the increase in gas price
5. Trade can make everyone better off
6. Markets are usually a good way to organise economic activity:
Firms decide who to hire and what to produce.
Households decide what to buy and who to work for.
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TEN LESSONS FROM ECONOMICS
7. Government can sometimes improve market outcomes
8. A country standard of living depends on its productivity9. Prices rise when government prints too much money
10. In short-run, society faces the trade off between inflation and
unemployment
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POSITIVEANDNORMATIVEECONOMICS
Posi t ive economics is the branch of economics that
concerns the description and explanation of economic
phenomena. It concerns what "is", "was", or "will be.
Normat ive econom ics (as opposed to positive economics)makes prescriptions about the way the economy should work.
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POSITIVEORNORMATIVEECONOMICS?
1. The government should invest in infrastructure for
better economic growth.
2. Inflation reduces the real income.
3. The interest rate should be decreased to stimulateaggregate demand.
4. Recession leads to higher unemployment rate.
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MICROECONOMICSANDMACROECONOMICS
Microeconomics: is the study of how individual households
and firms make decisions and how they interact with one
another in markets.
Interaction between individual buyers and sellers
The factors that influence the choices made by buyers and
sellers in individual markets (e.g. coffee industry).
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MICROECONOMICSANDMACROECONOMICS
Macroeconomics:
Macroeconomics is the study of the economy as a whole
(the aggregate economy).
Examine economy-wide phenomena: unemployment,national income, rate of growth, gross domestic product,
inflation and price levels.
Its goal is to explain the economic changes that affect
many households, firms, and markets at once.
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MICROECONOMICSANDMACROECONOMICS
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MACROECONOMICSISRELATEDTOPOLITICAL?
Macroeconomics is inherently political because it raises
questions about the appropriate role of government.
a. Conservative (or classical) economics: Adam Smith with
The invisible hand:1) Primary value: individual freedom
2) Markets almost always work well
3) Government intervention into the
economy usually counterproductive
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MACROECONOMICSISRELATEDTOPOLITICAL?
b. Liberal (or Keynesian) economics (The visible hand)
1) Primary value: social well-being
2) The market system can fail, sometimes catastrophically
3) Government intervention & economic management are
needed to promote stability & growth
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MACRO-ECONOMICSYSTEM
P.A.Samuelson: Inputs, outputs and black box
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MACRO-ECONOMICSYSTEM
1. Inputs of macroeconomic system:
- Exogenous factors: the factors that affect the operation of
one country economy but the government can not control.
Weather War
Population Technology
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2. BLACKBOXOFMACROECONOMICSYSTEM
AD- AS MODEL
Black box includes 2 forces: aggregate supply (AS) and
aggregate demand (AD)
A t D d AD
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Aggregate Demand- AD
Aggregate demand (AD) is the total demand for final goods andservices in the economy at a given time and price level. It
specifies the amounts of goods and services that will be
purchased at all possible price levels.
AD determ inants:- Price : PAD
- Income: IncomeAD
- Population: Pop AD
- Expectation
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AGGREGATESUPPLYAS
Determinants o f AS:
Price: PAS
Production costs (P of inputs): PC AS
Y*- Potential Yield: Y*AS
(Y* is the maximium yield an economy can produce at full
employment)
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AS CURVE
Long run AS (LRAS): The LRAS is shown as perfectly
vertical, reflecting economists' belief that changes in
aggregate demand (AD) have an only temporary change on
the economy's total output.
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AS CURVE
Short run aggregate supply (SRAS): SRAS slopes
upward, which shows a positive correlation
between price level and output.
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3. OUTPUTSOFMACRO-ECONOMICSYSTEM
Outputs of macroeconomic system include the variables
measuring the results of economic activities: yield (GDP),
employment, price, inflation, import-export, etc.
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MACROECONOMICGOALSANDPOLICIES
1. Macroeconomic goals:
- General goals: stability, growth and equality
- Specif ic goals: high yield, high economic growth, moreemployment creation, moderate inflation, foreign exchange
stability, equality in distribution etc.
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2. MACROECONOMICPOLICIES
Fiscal policy
Monetary policy
Incomes policy
Foreign trade policy)
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FISCALPOLICY
Fiscal policy refers to the use of taxation and government
spending to influence economic activity.
Instruments: government spending (G) v taxation (T).
- G: (for education, military, etc): G increases => AD and Y rise
- T: T increases => disposable income reduces => consumption
goes down => AD and Y goes down
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MONETARYPOLICY
Monetary policy is the process by which the monetary
authority of a country controls the supply of money, often
targeting a rate of interest for the purpose of promoting
economic growth and stability.
The official goals: relatively stable prices and low
unemployment.
Instruments: money supply (MS) and rate of interest (i).
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MONETARYPOLICY
MS: is the total amount of monetary assets available in an
economy at a specific time.
MSprivate investmentAD and Y
Interest rate:- low iinvestment increasesAD and Y
- high iinvestment reducesAD and Y decrease
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INCOMEPOLICY
Incomes policies in economics are economy-wide wage and
price controls, most commonly instituted as a response to
inflation.
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FOREIGNTRADEPOLICY
Goals: stabilize foreign exchange rate, low trade deficit
Tools: taxations, trade barriers, foreign exchange policies etc.