Macroéconomie

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What Is a Price?

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Microeconomics - 2G03 - Chapter 1

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Chapter5- Trning Effects of Forces

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Macroeconomics

IS-LM part 1 (equations)

Money and inflation

Money growth and inflation

Classical theory of inflation

Classical Dichotomy of Money neutrality

Changes in Money supply do not affect real values

The effects of monetary injection = [expansionary fiscal policy] Buy-in gov. Bonds from public in open market operations

Adjustment period

Equilibrium B

Increase in Demand for money

Increase in Price Level

Increase in Demand G/S

Increase in Value of Money

Equilibriumm A

Increase in Price level

Decrease Value of Money

Increase in Money supply

Money supply, demand and equilibrium

Money demand: how much wealth people want to hold in liquid form

Money supply: Central banks

The level of prices and the value of money

Value of Money

amount of G/S you can exchange for money

Level of Pries

price of basket

value of money measured in G/S

The monetary system

The bank of England

European central banks and eurosystem

the role of central banks

the meaning of money

Money in the economy

the kinds of money

liquidity

the functions of money

Financial market: Saving and Investment

The market for Loanable Funds

Government budget deficit and surpluses

Restrictive monetary policy

increases GDP

increases investment

decreases equilibrium interest rates

shift supply curve right

increased of supply of L.F

Expansionary fiscal policy

Crowding out effect

decreases GDP

decreases investment

increases equilibrium interest rate

shifts curve left

decrease of supply of L.F

policy 2: investment incentives

raises quantity of loanable funds supplied

raises equilibrium interest rate

Shifts demand curve right

Tax credit

policy 1: saving incentives

increase in GDP

increase in investment

decrease in interest rate

supply curve shifts right

taxation incentives (consumption)

Supply and demand for loanable funds

Saving and Investment in the national income accounts

the meaning of saving and investment

investment

Saving

Identities

Investment function

Io+iB

interest rate

Sensivity of investment with respect to interest rate

autonomous investment

Keynesian consumption function

Co+CYˆd

Disposable income

Marginal propensity to consume

Autonomus consumption

Private and public Saving

(T-G)

(Y-T-C)

National saving

S= (Y-T-C)+(T-G)

S=I

Financial system

Financial institutions in the economy

Financial intermediaries

investment funds

ordinary people access to skill of professional

diversify

banks

interest rates

loans

deposits

financial markets

Stock market/equity/shares --> equity finance

Bond market --> debt finance

maturity

principal

coupon

bond yield

bond term

Supply and demand

How prices allocate ressources

Demand and supply together

Steps to analysing changes in E

How has it affected E values?

Shifts or moves?

Determinant?

Supply or demand or both?

Supply and demand: 3 curves

Big change in D small change in S

Big change in S small change in D

No change in E. prices

Demand: 1 curve

Supply: 1 curve

Algebra of Market equilibrium

elimination

substitution

S=D

Price as signals

Sellers

Buyers

Equilibrium

Law of Supply and Demand

Shortage

Surplus

Equilibrium quantities

equilibrium market prices

Supply

Supply curve S= f(....)

Number of seller

Technology

Natural/Social factors

Expectations

Input prices (prices factors of production

Profitability of other goods in production and prices of goods in joint supply

Market supply vs individual supply

supply schedule

law of supply

Quantity supplied

Demand

demand curve D= f(....)

shift

population

expectations

advertising

tates

Income

Inferior goods

Normal goods

complements

Substitututes

Movement

substitution effect

income effect

Market vs individual demand

demand schedual

quantity demanded

law of demand

Markets and competition

Assumption: competitive markets

Monopsony

monopolistically competitive

Oligopoly

Monopoly

competition perfect

free mobility of factors of production

free entry/exit

transparency of information

homogenous product

many B/S (ATOMICITY)

Economic agents are price takers

negligible influence in M.price

many B/S

markets

Measuring national income and inflation

Correcting economic variables for the effects of inflation

Real and nominal interets rates

Real interest rate (purchasing power)  = Nominal interest rate  (interests) – inflation rate

Indexation

money figures from different times

Amount in todays $ = amount in year T $ * (Price level Today/Price level in year T)

Inflation (<-- CPI)

RPI

HIPCP

- 4% income of households deriving ¾ of income from state benefits

House mortgage interest payments

Council taxes

different G/S

Problems in measuring the Cost of Living

relevance of the CPI

unmeasured quality change

Introduction of new goods

Substitution bias

CPI

Students in hostels, international

Compute inflation

CPIy2-CPIy1/CPIy1*100

choose base year and compute index

CPI year x/CPI base year *100

compute basket cost

P*Q

find prices of each G/S at each point in time

fix the basket

National income (GDP)

GDP and economic well being

International Differences in GDP and quality of life

high DGP = better quality of life

literacy

life expectancy at birth

limitations

distribution of income

quality of environment

activities outside markets

leisure

Real vs Nominal GDP

GDP deflator

Nominal GDP/Real GDP * 100

(not) corrected for effects of inflation

base year

quantity effect

price effect

Added values OR Y= C+I+G+NX

Net exports

Government Purchases

transfer payments

Investment

Consumption

Measurement of GDP

Definition GDP

In a given period of time

Within a country

Produces

Goods and Services

final

intermediate

all

market value

Economy's income and expenditure

Thinking Like and Economist

Why economists disagree

economists as decision makers

make decision or not

cost/benefit definition, compute and analyse

identifying issue

perception vs reality

differences in vlaues

differences in scientific jugement

Economists as Policy advisors (improve the world)

Normative analysis

positive analysis

Economists as scientists (explain the world)

Scientific methodology

Rationalism

Empiricism

deductive reasoning

inductive reasoning

Economic models

Circular flow diagram

input/output flow

money flow

2 economic agents

2 markets

Rationalist ≠ empiric economists

Understand reality

assumptions

Theories (scientific method)

verify or not theory

collect data

lab experiments

natural experiments

hypothesis = asummptions

intuition

mathematics

diagrams

graphs

exogenous

endogenous

Economic problem: What? How? To whom? 10 principles

How the economy works as a whole

Society face a short-term trade-off between inflation and unemployment

Business cycle

philips curve

Prices rise when the government prints too much money

Inflation

An economy's standard of living depends on its ability to produce goods and services

GDP per capita

but limitations

standard of living

Productivity

Microeconomics ≠ Macroeconomics

How people interact

Government can sometimes improve market outcomes

≠market failure

market power

externality

efficiency

equity

Markets are usually a good way to organise economy

Adam smith and the invisible hand

Market economy

Trade can make everyone better off

How people make decisions

People respond to incentives

change trade-off

perverse effect

Rational people think at the margin

Opportunity cost

People face trade-offs

unlimited wants and needs

Scarcity

Limited ressources

Capital

Labour

Land