Macroeconomics 2A Ouput and Time - Full summary + Covid-19

Macroeconomics 2A: Output and Time.......................................................................................................... 2

Week 1: chapter 2 & 3.................................................................................................................................... 2
Chapter 2: booms and recessions (week 1)..........................................................................................................3
Aggregate expenditure AE..........................................................................................................................3
Keynesian Cross..........................................................................................................................................4
Fiscal policy.................................................................................................................................................4
Chapter 3 (week 1): The IS-LM Model..................................................................................................................4
Money market: DEMAND...........................................................................................................................4
Money market: SUPPLY..........................................................................................................................5
IS-LM: global economy model................................................................................................................6
Key topic in this course..........................................................................................................................6
The IS-LM model ~ Gobel economy model............................................................................................6
Monetary policy.....................................................................................................................................6

Week 2: chapter 4 & 5.................................................................................................................................... 7
Chapter 4: exchange rates...................................................................................................................................7
Exchange rates.......................................................................................................................................7
Foreign Exchange rates and balance of payments................................................................................7
FE curve..................................................................................................................................................8
Mundell-Fleming model.........................................................................................................................8
Chapter 5: Booms and recessions........................................................................................................................9
Mundell-Fleming model.........................................................................................................................9
Fiscal policy under flexible / fixed ER.....................................................................................................9
Monetary policy under flexible / fixed ER............................................................................................10
The effect of 𝑖𝑤𝑜𝑟𝑙𝑑.........................................................................................................................11
Case study: change in risk, Asian currencies........................................................................................11

Week 3: Enter aggregate supply................................................................................................................... 11
Chapter 6: Aggregate Supply.............................................................................................................................11
Mundell-Fleming and price changes....................................................................................................12
Expensionary fiscal policy, fixed ER......................................................................................................12
Expansionary monetary policy, flexible E............................................................................................12
Potential income Y*.............................................................................................................................13
Classical labour market........................................................................................................................13
What explains involuntary unemployment?........................................................................................14
AS curve: Long versus Short run..........................................................................................................15
Main points Chapter 6..........................................................................................................................16

Week 4: chapter 7........................................................................................................................................ 16
Chapter 7: Booms and Recessions (||) Aggregate Supply and Demand...........................................................16
The AS curve ~ aggregate supply curve...............................................................................................16
The AS curve ~ aggregate demand curve.............................................................................................16
Exchange rates:....................................................................................................................................17
AD curve with Mundell-fleming ~ FLEXIBLE exchange rate.................................................................17
AD curve with Mundell-fleming ~ FIXED exchange rate......................................................................18
Equilibrium AS-AD curve......................................................................................................................19
Main points chapter 7..........................................................................................................................21

Week 5: chapter 8........................................................................................................................................ 21
Chapter 8: dynamic AS & AD..............................................................................................................................21
Deriving the SAS and DAD curve..........................................................................................................21
AS to SAS:.............................................................................................................................................21

, AD to DAD curve...................................................................................................................................22
SAS-DAD long term equilibrium...........................................................................................................22
Drawing the SAS and DAD curves:.......................................................................................................23
Examples: SAS-DAD; monetary policy, flexible exchange rates & adaptive expectations..................23

Week 6: Macroeconomic effects of Covid-19................................................................................................ 24
How do we analyze this growth slowdown and inflation in the AD-AS framework?..........................24
Supply bottlenecks (=knelpunten) & inflation.....................................................................................25
Covid shock in the AD-AS framework..................................................................................................25
Example in the AS-AD framework: The toilet paper shortage.............................................................26
The macro-economic effect of Covid in the AS-AD model:.................................................................26
Fiscal policy during Covid-19................................................................................................................26
Government fiscal support programs..................................................................................................27
Fiscal policy recommendations............................................................................................................27




Macroeconomics 2A: Output and Time

Week 1: chapter 2 & 3
Short and long run
 Quantity equation: M x V = P x Y
 V = fixed (how many money changes of hand)
o Long run:

,  Y (output) = determined by production
 △ (change in) M (input / money) = △ P (price level)
o Short run:
 Y determined by M
 △ (change in) M (input / money) = △ Y (with fixed P)

 Aggregate supply curve:

Classical: AD = vertical
Change in
demand -> change in
price
level

Keynesian:
Short run: vary output
Change in demand -> change
in output
- Prices are fixed

Chapter 2: booms and recessions (week 1)
 Short run analysis -> how to explain these booms and recessions
o Look at aggregate demand
 Keynes
 Government can influence economy by influencing aggregate demand

 Boom = peak
 Recessions = not good
 45 degree line = potential income path

 This all focusses on aggregate
demand AD

Horizontal supply curve: everything is supplied at the same price
(see classical vs Keynesian curve above)

Y = C + I + G + Ex – Im
 Income Y = aggregate expenditures (in equilibrium) = AE




Aggregate expenditure AE
Actual expenditure = income (output) = Aggregate
expenditure (AE) IN EQUILIBRIUM
o = C + I + G + Nx (Ex – Im)

 Because of C, the slope is not horizontal -> C
increases with income -> therefore there is a
slope
o C spending increases with income,
with a marginal rate of consumption of
C -> the gives the AE line slope C