1st Lecture
Pillars of the course:
- Demand side (& underlying markets)
- Supply side (& underlying markets)
- Put together to derive 3 models;
IS-LM-FE model
AS-AD model
SAS-DAD
real world application: Covid and Ukraine-Russia war
Macroeconomics
What happens at the aggregate level (income, growth, unemployment,
inflation, etc.)
What are the relationships between these variables, due to globalization all
these are connected
Goal of macroeconomics; analyzing and comparing equilibriums, how do
countries move between equilibriums and in different time frames (different
processes, variables and policies).
Quantity equation: MxV = PxY
Long run: Y determined by production factors ∆M = ∆P
Short run: Y determined by M ∆M = ∆Y P assumed to be fixed
Chapter 2
The business cycle is the difference (booms and recessions) between the steady-
state income and potential income. The potential income is dependent on capital
and labor (labor is about fixed). These factors are assumed to not change in the
short run, there are however still business cycles; firms produce in relation to
what they expect will happen (assumed is that firms do not need to use the total
amount of capital and labor they have available to them.
To analyze the functioning of the economy, we focus on demand (price effects are
ignored in the short run; horizontal supply curve)
, The circle begins with income Y on the left. Taxes reduce this to disposable
income Y – T, and savings to consumption C ≡ Y – T – S. Taking away imports
leaves C– IM. Addition of exports, investment and government expenditure in the
circle’s lower segment gives total expenditure as C + I + G + EX – IM.
Actual expenditure can differ from planned expenditure due to unplanned
investments (inventories of firms).
The government expenditure is what the government spends in the economy, to
the subsidies & bonds paid out (and other).
Investment, Government expenditure and Net export are considered independent
incomes. Consumption increases with income, with a marginal consumption of c.
(there is also a level of autonomous expenditure)
Pillars of the course:
- Demand side (& underlying markets)
- Supply side (& underlying markets)
- Put together to derive 3 models;
IS-LM-FE model
AS-AD model
SAS-DAD
real world application: Covid and Ukraine-Russia war
Macroeconomics
What happens at the aggregate level (income, growth, unemployment,
inflation, etc.)
What are the relationships between these variables, due to globalization all
these are connected
Goal of macroeconomics; analyzing and comparing equilibriums, how do
countries move between equilibriums and in different time frames (different
processes, variables and policies).
Quantity equation: MxV = PxY
Long run: Y determined by production factors ∆M = ∆P
Short run: Y determined by M ∆M = ∆Y P assumed to be fixed
Chapter 2
The business cycle is the difference (booms and recessions) between the steady-
state income and potential income. The potential income is dependent on capital
and labor (labor is about fixed). These factors are assumed to not change in the
short run, there are however still business cycles; firms produce in relation to
what they expect will happen (assumed is that firms do not need to use the total
amount of capital and labor they have available to them.
To analyze the functioning of the economy, we focus on demand (price effects are
ignored in the short run; horizontal supply curve)
, The circle begins with income Y on the left. Taxes reduce this to disposable
income Y – T, and savings to consumption C ≡ Y – T – S. Taking away imports
leaves C– IM. Addition of exports, investment and government expenditure in the
circle’s lower segment gives total expenditure as C + I + G + EX – IM.
Actual expenditure can differ from planned expenditure due to unplanned
investments (inventories of firms).
The government expenditure is what the government spends in the economy, to
the subsidies & bonds paid out (and other).
Investment, Government expenditure and Net export are considered independent
incomes. Consumption increases with income, with a marginal consumption of c.
(there is also a level of autonomous expenditure)
