Intermediate Macroeconomics

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Intermediate Macroeconomics

• Introduction

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Macro vs. Micro

• Macroeconomics the study of aggregate behavior
  of consumers and firms.

• The study of individual behavior of consumers and
  firms.

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Modern view

• Macroeconomics is based on Micro foundations.

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Trend
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Growth and Business Cycles

• Growth economists study the trend

• Business cycle economists study the deviations
  from trend

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Why logarithmic trend?

• The slope of the graph in logarithmic scale is
  approximately the growth rate of the variable.
• Thus, if the variable grows at constant rate, the
  log of the variable will look like a straight
  line.

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Do richer countries grow faster?
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Are takeovers possible?
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The world became richer but inequality across
countries rose
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Questions that arise

• What causes sustained growth?
• Why some countries are doing better than others?
• Why are takeovers possible?
• Can governments do something?
• What causes business cycles?
• Can/should governments smooth business cycles?

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Government Spending and Tax Revenues
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Questions

• What ramifications does a larger government have
  on the economy? (crowding out)
• What are the consequences of government deficit?
• What type of government spending will encourage
  an increase in the future standards of living?

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Nominal Interest and Inflation Rates
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Questions

• Why are nominal interest rate and inflation rate
  positively correlated?
• What explains the level of the nominal interest
  rate?
• How does the Fed control the real interest rate
  (Monetary Policy) and should it?

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Exports and Imports as Percentage of GDP
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Questions

• Is more trade good or bad for the welfare of the
  U.S. residents? (specialization, transmission of
  BC from abroad, effect might be different for
  different groups of population)
• Why are net exports are countercyclical in most
  countries?
• How does the balance of trade (current account
  surplusnet exports net factor pmts from
  abroad) affect the economy?

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The Current Account Surplus and the Government
Surplus
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Questions

• When there is CA deficit, usually it means value
  of imports is higher than value of exports. US
  residents must borrow from abroad to finance CA
  deficit. Is it a bad idea to run CA deficit?
  (consumption smoothing, expanding future
  productivity).
• What accounts for movement over time in CA
  surplus? (G may affect borrowing from abroad gt
  CA deficit )

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Inflation Rate and Money Growth Rate
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Questions

• If the rate of growth in Money Supply explains
  the long run trends in inflation rate, what can
  account for the level of inflation in the short
  run?
• Why is inflation costly?
• Why does the Central Bank allow positive
  inflation if it is costly?

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Figure 1.15 Deviations from Trend in the
Unemployment Rate (black line) and Percentage
Deviations from Trend in Real GDP (colored line)
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Questions

• What determines unemployment rate?