Macro IIIntroduction

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Course information

• 5EN453, 2 Lectures (6 ECTS)• Lecturer: Pavel Potužák, Dpt. of Economics• Office hours: Thursday 13:15-15:15, NB343

• Website: http://keke.vse.cz/studium/materialy/5en453-macroeconomics-ii/

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Course information

• Textbook: David Romer (2006): Advanced Macroeconomics, 3rd edition (or higher)

• Download: kekebooks.vse.cz (psw: keke123)• Barro: Macroeconomics (1997,2008) (Optional)

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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.

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Course information

• 100 points altogether: 90-100 points … 1 75-89 points … 2 60-74 points … 3 50-59 … 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.

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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,  1842-1924" The Economic Journal, (Sept.,1924) 

Keynes(1936) as a father of Macroeconomics

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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?

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0

10,000

20,000

30,000

40,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

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

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Growth rates of real GDP, U.S. Growth rates of real GDP, U.S.

-4

-2

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005

Real GDP growth rate

Average growth

rate

Real GDP in the Czech Republic (in 2000 prices)

2100000

2300000

2500000

2700000

2900000

3100000

3300000

3500000

3700000

3900000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

mil. of CZK

Business Cycle in the Czech Republic

-8,0%

-6,0%

-4,0%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

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CR vs. EUGDP per head, EU27 = 100

73,275,1

7370,3 69,6 68,3

70,2 70,373,1 74,9 75,8 76,9

79,8 81 82,279,6

65

70

75

80

85

90

95

100

105

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU 27

The Czech Republic

15

16

17

24

25

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

time -The rate of growth of the capital stock is roughly

constant over long periods of time -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 time -The real wage grows over time

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The ratio of labor income to total income in the U.S.

0

0.2

0.4

0.6

0.8

1

1960 1970 1980 1990 2000

Labor’s share

of total income

Labor’s share of income is approximately constant over time.

(Hence, capital’s share is, too.)

Labor’s share of income is approximately constant over time.

(Hence, capital’s share is, too.)

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