Intermediate Macroeconomics: Output & Time
Week 1: Chapter 2 and 3
The big picture:
Countries differ in income
Countries differ in growth rates
Unemployment
Inflation
Government deficits
There is a strong interaction between model making and empirical developments.
"The most important goal of macroeconomics is to develop an understanding of what makes income differ
between countries and what makes them grow or fluctuate over time" (Gärtner, p. 36)
Processes that need to and can be explained:
1. Globalisation
- Goods, services, capital and people
- Growing interdependence
2. Economic shocks
3. Government policies
4. Importance of institutions
- Exchange rate mechanisms
- Labour markets
- Trade and financial integration (EU, World Bank, IMF)
In macroeconomics we analyse equilibria and how countries move between equilibria. We also take into
account different time frames (different processes, variables and policies).
Analysis and explanations depend on the time frame: Short, medium and long-run. What do we assume about
prices?
𝑄𝑢𝑎𝑛𝑖𝑡𝑦 𝑒𝑞𝑢𝑎𝑡𝑖𝑜𝑛: 𝑀𝑋𝑉 = 𝑃 ∗ 𝑌
In the long-run Y is determined by production factors:
𝐿𝑜𝑛𝑔 − 𝑟𝑢𝑛: ∆𝑀 = ∆𝑃
In the short-run P is fixed:
𝑆ℎ𝑜𝑟𝑡 − 𝑟𝑢𝑛: ∆𝑀 = ∆𝑌
Classical versus Keynesian macroeconomics:
Classical Macroeconomics Keynesian Macroeconomics
Horizontal supply curve: Ignores price effects, everything that is demanded is supplied at the same price.
Week 1: Chapter 2 and 3
The big picture:
Countries differ in income
Countries differ in growth rates
Unemployment
Inflation
Government deficits
There is a strong interaction between model making and empirical developments.
"The most important goal of macroeconomics is to develop an understanding of what makes income differ
between countries and what makes them grow or fluctuate over time" (Gärtner, p. 36)
Processes that need to and can be explained:
1. Globalisation
- Goods, services, capital and people
- Growing interdependence
2. Economic shocks
3. Government policies
4. Importance of institutions
- Exchange rate mechanisms
- Labour markets
- Trade and financial integration (EU, World Bank, IMF)
In macroeconomics we analyse equilibria and how countries move between equilibria. We also take into
account different time frames (different processes, variables and policies).
Analysis and explanations depend on the time frame: Short, medium and long-run. What do we assume about
prices?
𝑄𝑢𝑎𝑛𝑖𝑡𝑦 𝑒𝑞𝑢𝑎𝑡𝑖𝑜𝑛: 𝑀𝑋𝑉 = 𝑃 ∗ 𝑌
In the long-run Y is determined by production factors:
𝐿𝑜𝑛𝑔 − 𝑟𝑢𝑛: ∆𝑀 = ∆𝑃
In the short-run P is fixed:
𝑆ℎ𝑜𝑟𝑡 − 𝑟𝑢𝑛: ∆𝑀 = ∆𝑌
Classical versus Keynesian macroeconomics:
Classical Macroeconomics Keynesian Macroeconomics
Horizontal supply curve: Ignores price effects, everything that is demanded is supplied at the same price.
