International Money and Business Lectures
1. GDP
GDP = C + I + G + X – M
C: X and I:
- Purchasing power - World trade
- Consumer confidence - Competitive position
- Interest
- Capital
I: Three macro- economic goals:
- Sales expectations
Price stability
- Capacity utilization rate
Low unemployment
- Interest
Sustainable economic growth
- Profit
Potential GDP = full capacity economy, using all resources (full employment)
Aggregate Supply and Aggregate Demand (macroeconomic price equilibrium)
If Prices go up;
- we can’t buy as much as before, Decr in Demand
- importing goods
- turns interest rates up
What causes a shift in AD?
- increase in purchases of the country's exports
by people in other countries
- decrease in imports from other countries
- increase in transfer payments from the
government to the people
- decrease in taxes
These events would shift the aggregate demand
curve to the right. As a result, the price level
would go up. In addition if the time frame of analysis is the short run, so the aggregate supply curve
is upward sloping rather than vertical, real output would go up; but in the long run with aggregate
supply vertical at full employment, real output would remain unchanged.
What causes a shift in AS?
- Any result in effecting production costs.
- taxes, subsidies, labour costs, raw materials
, Recessionary gap Labour price will fall to new equilibrium
- real GDP Q* < potential GDP
- surplus of labour
Inflationary Gap Labour price will rise to new equilibrium
- real GDP Q* > potential GDP
- Labour shortage
Business Cycle
The recurring and fluctuating levels of economic activity that an economy experiences over a long
period of time. Consumer- producer confidence, bond stock prices are leading indicators,
1. GDP
GDP = C + I + G + X – M
C: X and I:
- Purchasing power - World trade
- Consumer confidence - Competitive position
- Interest
- Capital
I: Three macro- economic goals:
- Sales expectations
Price stability
- Capacity utilization rate
Low unemployment
- Interest
Sustainable economic growth
- Profit
Potential GDP = full capacity economy, using all resources (full employment)
Aggregate Supply and Aggregate Demand (macroeconomic price equilibrium)
If Prices go up;
- we can’t buy as much as before, Decr in Demand
- importing goods
- turns interest rates up
What causes a shift in AD?
- increase in purchases of the country's exports
by people in other countries
- decrease in imports from other countries
- increase in transfer payments from the
government to the people
- decrease in taxes
These events would shift the aggregate demand
curve to the right. As a result, the price level
would go up. In addition if the time frame of analysis is the short run, so the aggregate supply curve
is upward sloping rather than vertical, real output would go up; but in the long run with aggregate
supply vertical at full employment, real output would remain unchanged.
What causes a shift in AS?
- Any result in effecting production costs.
- taxes, subsidies, labour costs, raw materials
, Recessionary gap Labour price will fall to new equilibrium
- real GDP Q* < potential GDP
- surplus of labour
Inflationary Gap Labour price will rise to new equilibrium
- real GDP Q* > potential GDP
- Labour shortage
Business Cycle
The recurring and fluctuating levels of economic activity that an economy experiences over a long
period of time. Consumer- producer confidence, bond stock prices are leading indicators,
