MACROECONOMICS - Nguyen Thuy Dung

Nội dung text: MACROECONOMICS - Nguyen Thuy Dung

1. MACROECONOMICS Lecturer: MSc. Nguyen Thuy Dung www.hutech.edu.vn/quocte
2. SYLLABUS ❑Course objectives: Students are aimed to (a) understand how to evaluate macroeconomic conditions such as unemployment, inflation, and growth (b) understand how monetary policy and fiscal policy can be used to influence short-run macroeconomic conditions (c) understand media accounts of macroeconomic events Institute of International Education SYLLABUS
3. SYLLABUS ❑Student tasks: ▪Class attendance: ▪Actively participate in-class activity ▪Complete all homework (if any) and other tasks ▪Don’t have private conversation or arrive at class late Institute of International Education SYLLABUS
4. COURSE GRADE ▪Mid term test: 30% including multiple choice and short-answer questions, individual. ▪Final exam: 70% - Final Examination Mode: Essay - Duration: 90 minutes - Students are NOT allowed to use materials Institute of International Education COURSE GRADE
5. BOOKS AND READING ▪Mankiw, N. G., (2015) Principles of Economics – 7th edition, CENGAGE Learning. ▪Mankiw, N. G., (2009) Macroeconomics – 7th edition ▪Lecturer’s contact: Email: nguyendung3691@gmail.com Institute of International Education BOOKS & READINGS
6. FYI: HOW TO READ YOUR TEXTBOOK 1.Read before class. 2.Summarize, don’t highlight. 3.Test yourself. Try “Quick Quiz” that follows each section 4.Do not skip real world examples. Institute of International Education BOOKS & READINGS
7. In microeconomics, households choose their purchases to maximize their level of satisfaction, “their utility”, and firms make production decisions to maximize their profits Macroeconomic events arise from the interaction of many households and firms. Therefore, when we study macroeconomics, we must consider microeconomic foundations. Institute of International Education
8. TOPIC CONTENTS 01 02 03 INTRODUCTION TO MACROECONOMIC MONEY AND PRICES MACROECONOMIC IN THE LONG-RUN IN THE LONG-RUN POLICY ISSUES AND DATA 04 05 OPEN ECONOMIES SHORT-RUN ECONOMIC FLUCTUATIONS Institute of International Education CONTENTS
9. INTRODUCTION TO MACROECONOMIC POLICY ISSUES AND DATA Topics to be discussed 1.1 The science of Macroeconomics 1.2 The data of Macroeconomics Institute of International Education
10. 1.1 The Science of Macroeconomics This section introduces you to: ▪ the issues macroeconomists study ▪ the tools macroeconomists use ▪ some important concepts in macroeconomic analysis Institute of International Education
11. Important issues in macroeconomics Macroeconomics, the study of the economy as a whole, addresses many topical issues: ▪ Why have some countries experienced rapid growth in incomes over the past century while others stay in poverty? ▪ Why do some countries have high rates of inflation while others maintain stable prices? ▪ Why do all countries experience recessions and depressions? Can the government do anything? ▪ . Institute of International Education
12. U.S. Real GDP per capita Real GDP measures the total income of everyone in the economy Institute of International Education
13. U.S. Inflation rate (% per year) The inflation rate measures the percentage change in the average level of prices from the year before. Institute of International Education
14. U.S. Unemployment rate (% labor force) The unemployment rate measures the percentage of people in the labor force who do not have jobs. Institute of International Education
15. Economic models are simplified versions of a more complex reality ▪ irrelevant details are dispensed. are used to ▪ show relationships between variables ▪ explain the economy’s behavior ▪ devise policies to improve economic performance Institute of International Education
16. Endogenous vs. exogenous variables ▪ Endogenous variables are those which the model tries to explain. ▪ Exogenous variables are those variables that a model takes as given. Exogenous MODEL Endogenous variables variables Institute of International Education
17. Functions to Express Relationships Among Variables ▪ General functional notation shows only that the variables are related. Qd = D(P,Y ) Q d = quantity of pizzas that buyers demand P = price of pizza Y = aggregate income ▪ A specificA list functionalof the form shows the precise quantitativevariables relationship. d ▪ Example:that affect Q D(P,Y ) = 60 – 10P + 2Y Institute of International Education
18. The Model of Supply and Demand Demand equation: Supply equation: Q d = D (P,Y ) Q s = S (P, Pm) Economist assumes that price of pizza adjusts until Q d equal Q s Q d = Q s Price Supply P* E It describes the relationship between buyers and sellers in the market. Demand The point of intersection is called an equilibrium. Q* Quantity Supply-and-demand diagram Institute of International Education
19. Example: The market for pizza The demand curve shows the P S relationship between quantity demanded and price, other things equal. E equilibrium price D The supply curve shows the relationship between quantity Q supplied and price, other things equilibrium equal. quantity At the equilibrium price, consumers choose to buy the amount of pizza that pizzerias choose to produce. Institute of International Education
20. Changes in Equilibrium 1) The effects of an increase in income demand equation: A shift in Demand QDPYd = ( , ) P Price of pizza S An increase in income increases the quantity of pizza consumers P2 demand at each price P1 D2 D1 which increases Q Q Q the equilibrium price 1 2 Quantity and quantity. of pizza Institute of International Education
21. Changes in Equilibrium 2) The effects of increasing in flour price supply equation: A shift in Supply Q s = S (P, Pm) P S Price 2 of pizza S1 An increase in Pm reduces the quantity of pizza producers supply P2 at each price P1 D which increases the market price and Q Q2 Q1 reduces the quantity. Quantity of pizza Institute of International Education
22. The use of multiple models ▪ No single model can address all the issues we care about. ▪ e.g., our supply-demand model of the pizza market ▪ can tell us how a fall in aggregate income affects price & quantity of pizza. ▪ cannot tell us why aggregate income falls. Institute of International Education
23. The use of multiple models ▪ So we will learn different models for studying different issues (e.g., unemployment, inflation, long-run growth). ▪ For each new model, you should keep track of ▪ its assumptions ▪ which variables are endogenous, which are exogenous ▪ the questions it can help us understand, and those it cannot Institute of International Education
24. Prices: flexible vs. sticky ▪ To answer most questions, economists use market-clearing models ▪ Market clearing: An assumption that prices are flexible, adjust to equate supply and demand. ▪ In the short run, many prices are sticky – adjust slowly in response to changes in supply or demand. For example, ▪ many labor contracts fix wage for a year or longer. ▪ many magazine publishers change prices only once every 3-4 years. Institute of International Education
25. Prices: flexible vs. sticky ▪ After all, prices adjust to changes in supply and demand. ▪ Long run: Price flexible is a good assumption, markets clear. ▪ Short run: Prices are sticky, then demand won’t always equal supply. This helps explain: ▪ unemployment (excess supply of labor) ▪ why firms cannot always sell all the goods they produce Institute of International Education
26. 1.2 The Data of Macroeconomics Gross Domestic Product Consumer Price Index Unemployment rate ➔ Rather than telling us about a particular household, firm, or a market these statistics tell us something about the entire economy. Institute of International Education
27. Measuring a Nation’s Income Gross Domestic Product (GDP) ▪ When judging whether the economy is doing well or poorly, it is natural to look at the total income that everyone in the economy is earning. ▪ GDP tells us the nation’s total income and total expenditure on its output of goods & services. Institute of International Education
28. Income, Expenditure and the Circular Flow Total income of everyone in the economy There are 2 ways of viewing GDP Total expenditure on the economy’s output of goods and services Income $ Labor Households Firms Goods Expenditure $ For an economy as a whole, income must equal expenditure Institute of International Education
29. Gross domestic product (GDP) is the market value of all final goods & services produced within a country in a given period of time. Goods are valued at their market prices, so: ▪ All goods measured in the same units (e.g., dollars in the U.S.) ▪ Things that don’t have market value are excluded, (e.g., housework you do for yourself.) Institute of International Education 29
30. Using market prices Suppose that the economy produces four apples and three oranges. How can we compute GDP? $0.50 $1.00 GDP = (Price of apples Quantity of apples) + (Price of oranges Quantity of oranges) = ($0.50 4) + ($1.00 3) = $5.00 Multiply each good by its price and then add them all together Institute of International Education
31. E.g.: McDonalds buy meat at $0.5 and Gross domestic product (GDP) is ▪ the market value of all final goods & services produced within a country in a given period of time. ▪ Final goods: intended for the end user ▪ Intermediate goods: used as components or ingredients in the production of other goods GDP only includes the value of final goods. In other way, GDP is also the total value added of all firms in the economy Institute of International Education 31
32. Exercise: Value added of a firm Assume that these are the only transactions in the economy ▪ A farmer grows a bushel of wheat and sells it to a miller for $1.00. ▪ The miller turns the wheat into flour and sells it to a baker for $3.00. ▪ The baker uses the flour to make a loaf of bread and sells it to an engineer for $6.00. ▪ The engineer eats the bread. Compute value added at each stage of production and GDP Institute of International Education 32
33. Gross domestic product (GDP) is the market value of all final goods & services produced within a country in a given period of time. GDP includes ▪ tangible goods (like DVDs, mountain bikes, beer) ▪ and intangible services (dry cleaning, concerts, cell phone service). Institute of International Education 34
34. Gross domestic product (GDP) is the market value of all final goods & services produced within a country in a given period of time. GDP includes currently produced goods, not goods produced in the past. Institute of International Education 35
35. Gross domestic product (GDP) is the market value of all final goods & services produced within a country in a given period of time. GDP measures the value of production that occurs within a country’s borders, whether done by its own citizens or by foreigners located there. Institute of International Education 37
36. Gross domestic product (GDP) is the market value of all final goods & services produced within a country in a given period of time. Usually a year or a quarter (3 months) Institute of International Education 38
37. The Components of GDP ▪ GDP includes all of these various forms of spending on domestically produced goods and services ▪ Four components: ▪Consumption (C) ▪Government Purchases (G) ▪Investment (I) ▪Net Exports (NX) ▪ These components add up to GDP (denoted Y): Y = C + I + G + NX Institute of International Education 40
38. Consumption (C) ▪ is total spending by households on good & services, with the exception of purchases of new housing ✓ durable goods last a long time ex: cars, home appliances ✓ nondurable goods last only a short time ex: food, clothing ✓ services work done for consumers ex: dry cleaning, hair cut Institute of International Education 41
39. Investment (I) ▪ is total spending on goods that will be used in the future to produce more goods & services. ▪ includes spending on ▪ capital equipment (e.g., machines, tools) ▪ structures (factories, office buildings, houses) ▪ inventories (goods produced but not yet sold) Note: “Investment” does not mean the purchase of financial assets like stocks and bonds. Institute of International Education 42
40. Government Purchases (G) ▪ is all spending on the goods & services by local, state, and federal governments. ▪ Including salaries of government workers, military equipment, highways, ▪ G excludes transfer payments to individual, such as Social Security or welfare. They are not purchases of goods & services. Institute of International Education 43
41. Net Exports (NX) ▪ is are the value of goods and services sold to other countries (exports) minus the value of goods and services that foreigners sell us (imports). ▪ Imports are the portions of C, I, and G that are spent on goods & services produced abroad. ▪ Adding up all the components of GDP gives: Y = C + I + G + NX Institute of International Education 44
42. Components of U.S. GDP in 2014 Source: Bureau of Economic Analysis Institute of International Education 45
43. GDP and its components In each of the following cases, determine how much GDP and each of its components is affected (if at all). A. Debbie spends $200 to buy her husband dinner at the finest restaurant in Boston. B. Sarah spends $40,000 car from Range Rover, the imported British carmaker. C. Jane spends $1200 on a computer to use in her editing business. She got last year’s model on sale for a great price from a local manufacturer. D. General Motors builds $500 million worth of cars, but consumers only buy $470 million worth of them. Institute of International Education 46
44. Real versus Nominal GDP ▪ GDP measures the total spending on goods and services in all markets in the economy. ▪ Nominal GDP values output using current prices. It is not corrected for inflation. ▪ Real GDP values output using the prices of a base year (constant prices). Real GDP is corrected for inflation Institute of International Education 49
45. EXAMPLE: Pizza Coconut year P Q P Q 2015 $10 400 $2.00 1000 2016 $11 500 $2.50 1100 2017 $12 600 $3.00 1200 Compute nominal GDP in each year: multiply Ps & Qs from same year 2015: $10 x 400 + $2 x 1000 = $6,000 2016: $11 x 500 + $2.50 x 1100 = $8,250 2017: $12 x 600 + $3 x 1200 = $10,800 Institute of International Education 50
46. EXAMPLE: Pizza Coconut year P Q P Q 2005 $10 400 $2.00 1000 2006 $11 500 $2.50 1100 2007 $12 600 $3.00 1200 Compute real GDP in each year, using 2005 as the base year: 2005: $10 x 400 + $2 x 1000 = $6,000 2006: $10 x 500 + $2 x 1100 = $7,200 2007: $10 x 600 + $2 x 1200 = $8,400 Institute of International Education 51
47. EXAMPLE: Nominal Real year GDP GDP 2015 $6000 $6000 37.5% 20.0% 2016 $8250 $7200 2017 $10,800 30.9% $8400 16.7% ▪ The change in nominal GDP reflects both prices and quantities. ▪ The change in real GDP is the amount that GDP would change if prices were constant. (i.e., if zero inflation). Hence, real GDP is corrected for inflation. Institute of International Education 52
48. Nominal and Real GDP in the U.S., 1965-2007 Billions $12,000 $10,000 Real GDP $8,000 (base year 2000) $6,000 $4,000 Nominal $2,000 GDP $0 1965 1970 1975 1980 1985 1990 1995 2000 2005 Institute of International Education 53
49. GDP Deflator ▪ The GDP deflator is a measure of the overall level of prices. ▪ Definition: a price index used to adjust nominal GDP to find real GDP nominal GDP GDP deflator = 100 x real GDP ▪ One way to measure the economy’s inflation rate is to compute the percentage increase in the GDP deflator from one year to the next. Institute of International Education 54
50. GDP Deflator Nominal Real GDP year GDP GDP Deflator 2005 $6000 $6000 100.0 2006 $8250 $7200 114.6 2007 $10,800 $8400 128.6 Compute the GDP deflator in each year: 2005: 100 x (6000/6000) = 100.0 2006: 100 x (8250/7200) = 114.6 2007: 100 x (10,800/8400) = 128.6 Institute of International Education 55
51. Inflation rate ▪ The inflation rate is the percentage increase in the overall level of prices. ▪ Using the GDP deflator, the inflation rate between two consecutive years is computed as follows: Institute of International Education 56
52. GNP and GDP ▪ Gross National Product (GNP): Total income earned by the nation’s factors of production, regardless of where located. ▪ Gross Domestic Product (GDP): Total income earned by domestically-located factors of production, regardless of nationality. (GNP – GDP) = (factor payments from abroad) – (factor payments to abroad) Institute of International Education 57
53. GNP and GDP ▪ From the perspective of the U.S., factor payments from abroad includes things like • wages earned by U.S. citizens working abroad • profits earned by U.S.-owned businesses located abroad • income (interest, dividends, rent, etc) generated from the foreign assets owned by U.S. citizens ▪ Factor payments to abroad includes things like • wages earned by foreign workers in the U.S. • profits earned by foreign-owned businesses located in the U.S. • income that foreigners earn on U.S. assets Institute of International Education 58
54. (GNP – GDP) as a percentage of GDP selected countries, 2002 U.S.A. 1.0% Angola -13.6 ▪ Ex: In Canada, GNP Brazil -4.0 is 1.9% smaller than Canada -1.9 GDP. Hong Kong 2.2 ▪ Meaning: 1.9% of all Kazakhstan -4.2 the income generated Kuwait 9.5 in Canada is taken Mexico -1.9 away and paid to Philippines 6.7 foreigners. U.K. 1.6
55. Measuring the Cost of living Consumer Price Index (CPI) ▪ Is the most commonly used measure of the level of prices. ▪ The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer. ▪ Using a fixed basket of goods that are representative of what a typical consumer purchases each month Institute of International Education
56. How the CPI is Calculated Institute of International Education
57. How the CPI is Calculated Let’s consider a simple economy in which consumers buy only two goods: hot dogs and hamburgers Step 1: Basket = 4 hot dogs, 2 hamburgers Step 2: Find the Price of each good in each year Institute of International Education
58. How the CPI is Calculated Step 3: Compute the basket’s cost Step 4: Base year is 2013, then CPI each year is Institute of International Education
59. Inflation rate Step 5: Compute the inflation rate Inflation rate measures the percentage change in the price index from the preceding period ▪ If the result > 0: the rate of inflation over that period. ▪ If the result < 0: the rate of deflation over that period Institute of International Education
60. CPI Components by BLS Institute of International Education
61. CPI versus GDP Deflator ▪Goods & services bought by firms or government: – included in GDP deflator (if produced domestically) – excluded from CPI ▪Prices of imported consumer goods: – included in CPI – excluded from GDP deflator ▪The basket of goods: – CPI: fixed – GDP deflator: changes every year Institute of International Education
62. CPI biases ▪ Substitution bias - When prices change substantially, consumers tend to substitute lower-priced alternatives. ▪ New product bias - CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods ▪ Quality bias - Quality of goods & services changes will change the value of the dollar, but are often not fully measured. Institute of International Education
63. ▪ Macroeconomics is the study of the economy as a whole, including ▪ growth in incomes, ▪ changes in the overall level of prices, ▪ the unemployment rate. ▪ Macroeconomists attempt to explain the economy and to devise policies to improve its performance. Institute of International Education
64. ▪ Economists use different models to examine different issues. ▪ Models with flexible prices describe the economy in the long run; models with sticky prices describe the economy in the short run. ▪ Macroeconomic events and performance arise from many microeconomic transactions, so macroeconomics uses many of the tools of microeconomics. Institute of International Education