ECON1102 Macroeconomics 代写
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ECON1102 Macroeconomics 代写
ECON1102 Macroeconomics
Structure of the Course
üMacroeconomic goals – how do we know when an economy is performing well?
üMeasuring the economy:
Output and prices
Labour market
Balance of Payments
üThe economy in the short run:
The Business Cycle, stabilisation policies (Fiscal, Monetary), inflation, exchange rates
üThe economy in the long run:
How to achieve economic growth
üWhat have we learnt about the theory and practice of macroeconomics?
Microeconomics
and Macroeconomics
Macroeconomics deals with the economy as
a whole, or with the basic subdivisions or aggregates that make up the economy
◦An aggregate is a collection of specific economic
units that are treated as if they were one unit
Microeconomics is concerned with specific economic units and a detailed consideration
of the behaviour of these individuals units
Fallacy of Composition
Fallacy of composition: the idea that the whole is different from the sum of the parts, or, that what is true for the individual is not true for the whole.
Important justification for the study of macroeconomics
Macroeconomic theory is essentially different from
microeconomics, cannot move easily form one to another
Example: Paradox of Thrift
UNIT 1: Introduction to Macroeconomics & Measuring the Economy
1.Macroeconomic Goals
2.Measuring Output (GDP)
3.Measuring Prices and Inflation(CPI)
● Principles of Macroeconomics, 4nd Edition
by Bernanke, Olekalns and Frank (BOF)
Chapter 1
Evaluating Macroeconomic Performance
1. Rising Living Standards – Economic Growth
Tendency for the level of output (i.e. quantity and quality of goods and services) to increase over time.
Output divided by population = output per capita - GDP per capita
May also care about the distribution of living standards
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
Real Quarterly GDP per capital - Aust
Evaluating Macroeconomic Performance
2. Stable Business Cycle – low volatility in fluctuations of actual output around its trend or potential output.
Evaluating Macroeconomic Performance
3. Relatively Stable Price Level – low (positive) rate of inflation
Inflation: a sustained increase in the overall level of prices in an economy through time
Rapidly changes in prices alter the real purchasing power of goods and causes hardships
Inflation has been concern for most developed countries over the last 40 years.
Japan is an exception and has experienced deflation over the last decade.
Australian Inflation - Consumer Price Index Measure
Evaluating Macroeconomic Performance
4. Sustainable Levels of Public and National Debt
Public debt – borrowing by public sector from private sector
Influenced by government budget deficits/surpluses
Foreign debt – borrowing by domestic residents from foreign countries
Influenced by an economy’s current account deficits/surpluse
Budget Balance and Net Government Debt for Australia
Evaluating Macroeconomic Performance
5. Balance between Current and Future Consumption
How much should an economy save/invest?
6. Full Employment
Provision of employment for all individuals seeking work
ECON1102 Macroeconomics 代写
Australian Private Investment and National Savings
Evaluating Macroeconomic Performance
1.Rising Living Standards – Economic Growth
2.Stable Business Cycle
3.Relatively Stable Price Level – Inflation between 2-3 %
4.Sustainable Levels of Public and National Debt
5.Balance between Current and Future Consumption
6.Full Employment
Australia’s Unemployment Rate Monthly
1. Indicators of Macroeconomic performance
How do we know when an economy is performing well?
üRising living standards
- with a stable business cycle
üLow inflation
üFull employment
üEnsuring sustainable levels of public and national debt
üBalance between current and future expenditure - an optimal amount of saving
What about Australia?
üEconomic growth (real GDP) with stable business cycle ?
üInflation ?
üUnemployment rate ?
üPublic debt ? National debt ? Rising
ühttp://www.abc.net.au/news/2014-03-13/joe-hockey-correct-on-australia-debt-and-spending/5310736
üAn optimal amount of saving ? No
Australia
Australia
2. Measuring Output (GDP)
üGDP – Gross Domestic Product
The market value of all final goods and services produced in an economy in a given time period
üThree ways of measuring
Aggregate production
Aggregate income
Aggregate expenditure
Measuring Output - GDP
GDP – production approach
Aggregate the value added of every producer (value added = gross output less value of intermediate inputs in production process)
GDP – income approach
Aggregate the incomes generated in the production of goods and services Wages Profits
Measuring GDP
The market value of final goods and services produced in a country during a given period.
Astralian GDP in March 2013 = $379.6 billion
GDP is measure of aggregate production or output
Use market prices to value (or weight) quantities of various goods and service
Example: Quantity Market Price
10 cars $20,000 per car 100 apples $1 per apple
Masuring GDP
GDP = $200,000 + $100 = $200,100
What about goods and services with no observed market price?
Some are included in GDP:
National defense – use costs of provision (costs of buying equipment, wages of soldiers, etc.)
Some are excluded from GDP
Unpaid housework
Measuring GDP
GDP excludes goods and services that are produced in other countries (but might be consumed in Australia) Imports
Excludes goods and series that were produced in some earlier periods , but are resold in the current periods e.g. second hand goods
Measuring GDP
GDP excludes intermediate goods and services. These goods are used-up in the production process.
Example: In the production of a loaf of bread, the flour used is an intermediate input and is not counted in GDP.
Concept of Value Added: The market value of a firm’s production less the cost of inputs purchased from other firms
Value Added in Computer Sales: Chapter 1, Problem 2 (Textbook)
Intelligence Incorporated produces 100 computer chips and sells
them for $200 each to Bell Computers.
Using the chips and other labour and materials, Bell produces 100 personal computers.
Bell sells the computers, bundled with software that Bell licenses from Macrosoft at $50 per computer, to PC Charlie’s for $800 each.
PC Charlie’s sells the computers to the public for $1000 each.
Calculate the total contribution to GDP using the value‐added
Method.
Do you get the same answer by summing up the market
values of final goods and services?
Value Added in Computer Sales: Chapter 1, Problem 2 (Textbook)
Firm Sales Cost of inputs Value Added
Intel Incorp 20,000 0 20,000
Macro Soft 5,000 0 5,000
Bell 80,000 25,000 55,000
PC Charlie’s 100,000 80,000 20,000
PC Charlie’s final sales = $100,000
Sum of Value Added = $100,000
Measuring GDP
GDP is a flow variable – measured over a period of time.
Quarter – March, June, September, December
Australian GDP in March 2012 = $368.4 billion
Australian GDP in March 2013 = $379.6 billion
ar – just add-up GDP over 4 quarters
Calendar – Mar-12 + Jun-12 + Sep-12 + Dec-12
Financial – Sep-12 + Dec-12 + Mar-13 + Jun-13
Australian GDP in 2012 (Calendar) = $1,488.4 billion
GDP: The Expenditure Approach
Accounting Identity
Expenditure on goods and services by final users must equal the value of their production.
Aggregate the expenditures of final users of goods and services produced in the economy
Consumption (C) purchase by households
+ Investment (I) purchase by firms
+ Government expenditure (G)
+ Exports (X)
less Imports (M)
GDP = Expenditure
Y = C + I + G + NX
Australian GDP March Quarter 2013
Expenditure Approach
$billion
Household Consumption 210.0
Private Investment 86.8
Government (Public) Spending 85.7
Change in Inventories -0.5
Exports 76.4
Less Imports 76.0
Total 382.4
Statistical discrepancy -2.8
GDP 379.6
l vs Real GDP
Nominal - values quantities of goods and services produced at current year prices
Real (or constant price or chain value measure)
◦Values quantities of goods and services produced at base year prices – measure of the actual physical volume of production
Simple Example
2007 2008 % Change
No. of Cars 10 10 0
Price of Cars $20,000 $40,000 100
No. of Apples 100 100 0
Price of Apples $1 $2 100
Nominal GDP $200,100 $400,200 100
Real GDP ECON1102 Macroeconomics 代写
2007 prices $200,100 $200,100 0
2008 prices $400,200 $400,200 0
Choice of Base Year (Bit Technical)
In the above example whether we use 2007 or 2008 as base year prices gives the same answer for the growth rate of real GDP
This is not the case in general, particularly if you are comparing real GDP over a 5-10 year period.
Using initial prices (i.e. 2007) is know as a Laspeyres index
Using final prices (i.e. 2008) is known as a Paasche index
Chain-weighted measure of Real GDP
For any two consecutive years compute the growth rates of real GDP implied by both the Laspeyres and the Paasche indexes.
Then take the average of the two growth rates and this is the chain-weighted growth rate. This can be used to compute a real chained-weighted GDP.
Finally to compute a change index over a long period, the above approach is applied on a year-by-year basis.
Simple Example
2007 2008 % Change
No. of Cars 10 10 0
Price of Cars $20,000 $40,000 100
No. of Apples 100 1000 900
Price of Apples $10 $25 150
Nominal GDP $201,000 $425,000 111
Real GDP
2007 prices $201,000 $210,000 4.5
2008 prices $402,500 $425,000 5.
Chain-weighted measure of Real GDP
Take average of growth rates implied by 2007 and 2008 prices.
Choose either 2007 or 2008 as the base-year (nominal=real GDP). Let’s pick 2007
2007 2008
Nominal GDP 201,000 425,000
Real GDP 201,000 211,151
Income Method
GDP also equals the aggregate incomes paid to
◦Labour (L)
◦Capital (K)
in the production of goods and services.
GDP = Labour Income + Capital Income
Australian GDP March Quarter 2013
Income Approach
$ Billion
Compensation of Employees 184.0
Gross Operating Surplus 126.7
Gross Mixed Income 30.1
GDP (at factor cost) 340.8
Taxes – Subsidies 37.5
GDP (Market Prices) 378.3
Statistical discrepancy 1.3
GDP 379.6
Nominal vs real GDP
üNominal GDP: a measure of GDP in which quantities produced are measured at current year prices (measures the VALUE of production)
ü
üReal GDP: a measure of GDP in which quantities produced are measured at base year prices (measures the VOLUME of production)
Why is economic growth a macro goal?
üHiher living standards
üIncreased consumption possibilities
üImproved quality of life
Real GDP is a measure of output – is it a good measure of economic wellbeing?
No - consider the omissions:
ûHousehold production
ûUnderground economic activity
ûOther non market production
ûEnvironmental quality
ûHealth and life expectancy
ûLeisure
ûEconomic equality
BUT new measures are being developed
Alternatives (complements) to GDP
Direct measure of Happiness
◦Survey – based measures ( ask people how happy they are on a scale of 1 to 10
http://www1.eur.nl/fsw/happiness/index.html
◦
Index of variables that might affect welfare
http://www.smh.com.au/national/wellbeing
3. Measures of the Price Level
We want to measure the average level of prices in the economy.
Main Measures
◦Consumer Price Index (CPI)
◦GDP Deflator/Price Index
CPI – For a given period, measures the cost in that period of a given basket of goods and services relative to their cost in a fixed year – called a base year.
Construct a CPI
Choose a basket of goods and services
Basket 2000 (base) 2008
Rent (2 bedroom flat ) $500 $630
Hamburgers (60) $150 $150
CDs (2) $30 $70
Total Expenditure $680 $850
CPI =
Cost of base-year basket of goods and services in current year
Cost of base-year basket of goods and services in base year
CONSUMER Price Index
CPI = $850/$680 = 1.25
Cost of living is 25 percent higher in 2008 than it was in 2000
Average prices are 25 percent higher in 2008 than in 2000
Australian CPI
Published quarterly by ABS
Household Expenditure Survey used to determine typical basket
Base year changes every 5 years
Inflation/Deflation
Inflation is measured by the percentage change in the CPI over a given period.
Inflation rate = 0 implies prices are constant
Inflation rate > 0 implies prices are rising
Inflation rate < 0 implies prices are falling –Deflation
Is the CPI a good measure of inflation?
The consumer price index (CPI) is widely used as a measure of inflation.
ØCPI includes imports (not exports nor investment goods nor goods purchased by government)
ØSpending patterns of average household
ØCPI (as a base/fixed weight index) is subject to bias:
üNew goods bias
üCommodity substitution bias
ØCPI doesn’t account for quality changes
Is the CPI a good measure of inflation?
Quality Adjustment and New Goods Bias
◦Quality improvements may show up as higher prices for goods and services
◦New goods are often not included until CPI is re-based
Substitution Bias
◦Use of a fixed basket means that no allowance is made for consumers’ substitution toward relatively less expensive goods.
CPI tends to overstate the rate of inflation.
Cost of Inflation
Important to distinguish between relative price change and a change in the general price level
Shoe-leather costs – inflation reduces the real purchasing power of a given amount of money
Menu costs – real costs of changing prices
Introduces noise into the price mechanism
Distorts tax systems (if not indexed to inflation)
Unexpected re-distributions of wealth
Why do we care about inflation?
Costs associated with inflation:
ØDestroys the purchasing power of money
ØDisrupts workings of price system
ØMisallocation of resources (saving/investment)
ØDistorts the tax system
ØUnexpected redistribution of income and wealth
ØReduces international competitiveness
ØReduces the REAL interest rate
DEFLATION IS ALSO A PROBLEM – redistribution, asset prices, expectations, real interest rates
Inflation and interest rates
r = i – p
r = real interest rate
i = nominal (market) interest rate
p = inflation rate
Which is the best deal?
Year Interest rate Inflation rate real interest rate
1970 6.48 3.26 3.22
1975 8.49 16.81 -8.32
1980 11.50 10.24 1.26
1985 13.45 4.27 9.18
1990 14.05 8.02 6.03
1995 8.10 3.22 4.88
Fisher Effect
Nominal interest rate = real rate + (expected) inflation rate
r (real interest rate) measures the REAL purchasing power of a financial asset
ECON1102 Macroeconomics 代写
