ECB1MACR
Macroeconomics, A
European Perspective
Summary
Tygo Fijn 6928889
,Contents
Introduction, key concepts and Okun’s law ............................................................................................ 3
Chapter 13 – Economic Fluctuations and Unemployment 13.1 – 13.4 ............................................... 3
Economic fluctuations and multipliers .................................................................................................... 5
Chapter 13 – Economic Fluctuations and Unemployment 13.5 – 13.7 ............................................... 5
Chapter 14 – Unemployment and Fiscal Policy 14.1 – 14.5,14.8 ....................................................... 8
Fiscal policy, wage and price setting ..................................................................................................... 12
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.1 - 9.4.............................. 12
Chapter 13 – Economic Fluctuations and Unemployment 13.8 ........................................................ 13
Chapter 14 – Unemployment and Fiscal Policy 14.6 - 14.8 .............................................................. 13
Wage and price setting, Phillips curve .................................................................................................. 15
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.5 – 9.7 ............................. 15
Chapter 15 – Inflation, Unemployment, and Monetary Policy 15.1 – 15.3, 15.5 – 15.7 .................. 17
Money, wealth, banking system, monetary policy ................................................................................ 21
Chapter 10 – Banks, Money, and the Credit Market 10.1 – 10.3, 10.8 – 10.13 ................................ 21
Chapter 15 – Inflation, Unemployment, and Monetary Policy 15.8 – 15.11, 15.13 ......................... 24
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.2 – 17.3
........................................................................................................................................................... 26
Complete micromodel – Article Lukkezen, Kool and Jacobs (2016) ................................................... 27
Chapter 1 ........................................................................................................................................... 27
Chapter 2 ........................................................................................................................................... 27
Chapter 3 ........................................................................................................................................... 28
Chapter 4 ........................................................................................................................................... 29
Creative destruction and inequality, 1945-2007 .................................................................................... 30
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.8 – 9.10 ........................... 30
Chapter 10 – Banks, Money, and the Credit Market 10.13 ............................................................... 31
Chapter 16 – Technological Progress, Employment, and Living Standard in the Long Run 16.1 –
16.6, 16.12 ......................................................................................................................................... 32
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.4 – 17.7
........................................................................................................................................................... 36
Institutions and bubbles, 2007-2010...................................................................................................... 38
Chapter 11 – Rent-seeking, Price-setting and Market Dynamics 11.7-11.8 ..................................... 38
Chapter 12 – Markets, Efficiency, and Public Policy 12.7................................................................ 40
Chapter 16 – Technological Progress, Employment, and Living Standard in the Long Run 16.7 –
16.10 .................................................................................................................................................. 41
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.8 –
17.11 .................................................................................................................................................. 42
1
, Lu and Teulings (2016): Secular stagnation, bubbles, fiscal policy, and the introduction of the pill 45
The Eurocrisis and optimal currency area theory .................................................................................. 47
Chapter 14 – Unemployment and Fiscal Policy 14.5, 14.9 ............................................................... 47
Holinski et al. (2012) ......................................................................................................................... 47
Baldwin & Giavazzi (2015) .............................................................................................................. 48
2
, Introduction, key concepts and Okun’s law
Chapter 13 – Economic Fluctuations and Unemployment 13.1 – 13.4
Recession A period when output is declining. It is over once the economy begins to grow again. Or a
period when the level of output is below its normal level, even if the economy is growing. It is not
over until output has grown enough to get back to normal (this level is subjective).
Business cycle: Alternating periods of faster and slower (or even negative) growth rates. The economy
goes from boom to recession and back to boom.
Okun’s law: The relationship between output and unemployment fluctuations. Rate of growth in GDP
negatively correlated with the rate of unemployment.
Okun’s coefficient: Change in unemployment rate in % predicted to be associated with 1% change in
the growth rate of GDP.
A fall in output growth → Rise in unemployment rate → fall in wellbeing.
A rise in output growth → Fall in unemployment rate → Rise in wellbeing.
Aggregate output (GDP, domestic product): Total output of all producers in a country, from all
sections and regions.
National accounts: System used for measuring overall output and expenditure in a country. Can be
estimated in three ways:
• Spending: Total spending
• Production: Total production. Measured by the value added (output-input) by each industry.
• Income: Sum of all the incomes received, comprising wages, profits, the incomes of the self-
employed and taxes received by the government.
Relationship between spending, production
and incomes in the economy as a whole can be
represented as a circular flow:
GDP is defined to include exports and exclude imports:
• Value added of domestic production, or as expenditure on domestic production.
• As income due to domestic production.
•
Consumption and production of these services can be visualized using the circular flow model:
• Households pay taxes to the government
• Government uses these taxes to pay for the production of public services used by households
3
Macroeconomics, A
European Perspective
Summary
Tygo Fijn 6928889
,Contents
Introduction, key concepts and Okun’s law ............................................................................................ 3
Chapter 13 – Economic Fluctuations and Unemployment 13.1 – 13.4 ............................................... 3
Economic fluctuations and multipliers .................................................................................................... 5
Chapter 13 – Economic Fluctuations and Unemployment 13.5 – 13.7 ............................................... 5
Chapter 14 – Unemployment and Fiscal Policy 14.1 – 14.5,14.8 ....................................................... 8
Fiscal policy, wage and price setting ..................................................................................................... 12
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.1 - 9.4.............................. 12
Chapter 13 – Economic Fluctuations and Unemployment 13.8 ........................................................ 13
Chapter 14 – Unemployment and Fiscal Policy 14.6 - 14.8 .............................................................. 13
Wage and price setting, Phillips curve .................................................................................................. 15
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.5 – 9.7 ............................. 15
Chapter 15 – Inflation, Unemployment, and Monetary Policy 15.1 – 15.3, 15.5 – 15.7 .................. 17
Money, wealth, banking system, monetary policy ................................................................................ 21
Chapter 10 – Banks, Money, and the Credit Market 10.1 – 10.3, 10.8 – 10.13 ................................ 21
Chapter 15 – Inflation, Unemployment, and Monetary Policy 15.8 – 15.11, 15.13 ......................... 24
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.2 – 17.3
........................................................................................................................................................... 26
Complete micromodel – Article Lukkezen, Kool and Jacobs (2016) ................................................... 27
Chapter 1 ........................................................................................................................................... 27
Chapter 2 ........................................................................................................................................... 27
Chapter 3 ........................................................................................................................................... 28
Chapter 4 ........................................................................................................................................... 29
Creative destruction and inequality, 1945-2007 .................................................................................... 30
Chapter 9 – The Labour Market: Wages, Profits, And Unemployment 9.8 – 9.10 ........................... 30
Chapter 10 – Banks, Money, and the Credit Market 10.13 ............................................................... 31
Chapter 16 – Technological Progress, Employment, and Living Standard in the Long Run 16.1 –
16.6, 16.12 ......................................................................................................................................... 32
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.4 – 17.7
........................................................................................................................................................... 36
Institutions and bubbles, 2007-2010...................................................................................................... 38
Chapter 11 – Rent-seeking, Price-setting and Market Dynamics 11.7-11.8 ..................................... 38
Chapter 12 – Markets, Efficiency, and Public Policy 12.7................................................................ 40
Chapter 16 – Technological Progress, Employment, and Living Standard in the Long Run 16.7 –
16.10 .................................................................................................................................................. 41
Chapter 17 – Capstone: The Great Depression, Golden Age, and Global Financial Crisis 17.8 –
17.11 .................................................................................................................................................. 42
1
, Lu and Teulings (2016): Secular stagnation, bubbles, fiscal policy, and the introduction of the pill 45
The Eurocrisis and optimal currency area theory .................................................................................. 47
Chapter 14 – Unemployment and Fiscal Policy 14.5, 14.9 ............................................................... 47
Holinski et al. (2012) ......................................................................................................................... 47
Baldwin & Giavazzi (2015) .............................................................................................................. 48
2
, Introduction, key concepts and Okun’s law
Chapter 13 – Economic Fluctuations and Unemployment 13.1 – 13.4
Recession A period when output is declining. It is over once the economy begins to grow again. Or a
period when the level of output is below its normal level, even if the economy is growing. It is not
over until output has grown enough to get back to normal (this level is subjective).
Business cycle: Alternating periods of faster and slower (or even negative) growth rates. The economy
goes from boom to recession and back to boom.
Okun’s law: The relationship between output and unemployment fluctuations. Rate of growth in GDP
negatively correlated with the rate of unemployment.
Okun’s coefficient: Change in unemployment rate in % predicted to be associated with 1% change in
the growth rate of GDP.
A fall in output growth → Rise in unemployment rate → fall in wellbeing.
A rise in output growth → Fall in unemployment rate → Rise in wellbeing.
Aggregate output (GDP, domestic product): Total output of all producers in a country, from all
sections and regions.
National accounts: System used for measuring overall output and expenditure in a country. Can be
estimated in three ways:
• Spending: Total spending
• Production: Total production. Measured by the value added (output-input) by each industry.
• Income: Sum of all the incomes received, comprising wages, profits, the incomes of the self-
employed and taxes received by the government.
Relationship between spending, production
and incomes in the economy as a whole can be
represented as a circular flow:
GDP is defined to include exports and exclude imports:
• Value added of domestic production, or as expenditure on domestic production.
• As income due to domestic production.
•
Consumption and production of these services can be visualized using the circular flow model:
• Households pay taxes to the government
• Government uses these taxes to pay for the production of public services used by households
3
