Macroeconomics
Gdp is the value of final goods and services produced in the economy during a given period
Sometimes gdp as total income
Nominal gdp: sum of quantities of final goods produced times their current prices
Real gdp: sum of quantities of final goods times constant prices
Gdp growth: rate of growth of real gdp
>0 expansion <0 recession
Short run (few years): output is determined by how much is needed: demand factors
Medium run (a decade): output is determined by how much can produce: supply factors
Long rung (a few decades): output is determined by factors that lead to a sustained increase
Consumption + investment + government + export - Import + inventory investment
C + I + G + X - IM + INV
Inventory investment: produce more than needed in a given year INV=0 production – sales
Total demand: z= C+I+G+X-IM
Inv is not included because inv is involuntary, firms cannot anticipate sales accurately
Consumption: c0+c1Y
Disposable income: Y=y-T
C1 (slope) is propensity to consume: the effect of an additional dollar of y on c
C0 (intercept) autonomous consumption: the level of consumption
T and G capture fiscal policy: the choice of taxes and spending
g=t balanced budget g>t budget defict g<t budget surplus
economy is closed and produces a single good
Firms are willing to supply any amount of the good given at p
So output is determined by demand
Equilibrium condition: supply Y= demand Z
Multiplier >1 an increase in output that is larger than the initial shift in demand
Multiplier effect: demand ↑ → production ↑ →income ↑ → consumption ↑ → en door tot y*
Private saving: S=Yd-C
Public saving; T-G
Equilibrium: Investment = saving, production = demand
Inflation rate: rate at which the price level increases. distortions
Measure: -gdp deflator: the price level associated with aggregate output. produced
Nominal GDP is equal to the GDP deflator times real GDP
-consumer price index cpi. consumed
, Net exports or trade balance X-IM
Endogenous: Some variables depend on other variables in the model
Exogenous: independent, a bar
Production depends on demand, which depends on
income, which is itself equal to production
Lecture 2
Still supply is unlimited at a fixed price level
Investment depends on the borrowing cost/ interest rate
Interest rate is determined by money demand and money supply.
Money are assets that can be used directly to make transactions
-Currency (𝑪𝑼): paper money and coins.
-Checkable deposit (𝑫): the bank deposits on which people can write checks/ use a debit card
Money supply (𝑴𝒔) = currency (𝑪𝑼) + checkable deposits (𝑫)
Monetary policy is about the central bank’s control over money supply.
Central bank: the institution responsible for the conduct of monetary policy in a country.
Monetary base: 𝐵 = 𝐶 + 𝑅 = Currency + Bank reserves
Monetary base is called high-powered money or central bank money
Multiplier effect because banks can create money
Money supply (𝑀%) is affected by
● Monetary base (𝐵 = C + R)
- Currency (𝐶)
- Reserve (𝑅)
● Money multiplier (𝑚 = 𝑐𝑟 + 1 /𝑐𝑟 + 𝑟𝑟 )
- Reserve-deposit ratio (𝑟𝑟)
- Currency-deposit ratio (𝑐𝑟)
Methode 1: central bank can conduct open market operations (buying or selling bonds)
Buy bonds →money goes to eco → increase R and Ms
Methode 2: central bank can lend reserves to banks
Bank increases lending rate, fewer banks borrow→ reducing R and Ms
Methode 3: central bank can control reserve requirements
Increase in reserved requirements raises rr and MS
Gdp is the value of final goods and services produced in the economy during a given period
Sometimes gdp as total income
Nominal gdp: sum of quantities of final goods produced times their current prices
Real gdp: sum of quantities of final goods times constant prices
Gdp growth: rate of growth of real gdp
>0 expansion <0 recession
Short run (few years): output is determined by how much is needed: demand factors
Medium run (a decade): output is determined by how much can produce: supply factors
Long rung (a few decades): output is determined by factors that lead to a sustained increase
Consumption + investment + government + export - Import + inventory investment
C + I + G + X - IM + INV
Inventory investment: produce more than needed in a given year INV=0 production – sales
Total demand: z= C+I+G+X-IM
Inv is not included because inv is involuntary, firms cannot anticipate sales accurately
Consumption: c0+c1Y
Disposable income: Y=y-T
C1 (slope) is propensity to consume: the effect of an additional dollar of y on c
C0 (intercept) autonomous consumption: the level of consumption
T and G capture fiscal policy: the choice of taxes and spending
g=t balanced budget g>t budget defict g<t budget surplus
economy is closed and produces a single good
Firms are willing to supply any amount of the good given at p
So output is determined by demand
Equilibrium condition: supply Y= demand Z
Multiplier >1 an increase in output that is larger than the initial shift in demand
Multiplier effect: demand ↑ → production ↑ →income ↑ → consumption ↑ → en door tot y*
Private saving: S=Yd-C
Public saving; T-G
Equilibrium: Investment = saving, production = demand
Inflation rate: rate at which the price level increases. distortions
Measure: -gdp deflator: the price level associated with aggregate output. produced
Nominal GDP is equal to the GDP deflator times real GDP
-consumer price index cpi. consumed
, Net exports or trade balance X-IM
Endogenous: Some variables depend on other variables in the model
Exogenous: independent, a bar
Production depends on demand, which depends on
income, which is itself equal to production
Lecture 2
Still supply is unlimited at a fixed price level
Investment depends on the borrowing cost/ interest rate
Interest rate is determined by money demand and money supply.
Money are assets that can be used directly to make transactions
-Currency (𝑪𝑼): paper money and coins.
-Checkable deposit (𝑫): the bank deposits on which people can write checks/ use a debit card
Money supply (𝑴𝒔) = currency (𝑪𝑼) + checkable deposits (𝑫)
Monetary policy is about the central bank’s control over money supply.
Central bank: the institution responsible for the conduct of monetary policy in a country.
Monetary base: 𝐵 = 𝐶 + 𝑅 = Currency + Bank reserves
Monetary base is called high-powered money or central bank money
Multiplier effect because banks can create money
Money supply (𝑀%) is affected by
● Monetary base (𝐵 = C + R)
- Currency (𝐶)
- Reserve (𝑅)
● Money multiplier (𝑚 = 𝑐𝑟 + 1 /𝑐𝑟 + 𝑟𝑟 )
- Reserve-deposit ratio (𝑟𝑟)
- Currency-deposit ratio (𝑐𝑟)
Methode 1: central bank can conduct open market operations (buying or selling bonds)
Buy bonds →money goes to eco → increase R and Ms
Methode 2: central bank can lend reserves to banks
Bank increases lending rate, fewer banks borrow→ reducing R and Ms
Methode 3: central bank can control reserve requirements
Increase in reserved requirements raises rr and MS
