1 Macroeconomics [1] by C-J Huang

Macroeconomics U1: Blanchard Chs. 1~2, 27

1. Overview of the Modern Macroeconomy 1.1 Essential Structure (1)
Micro Partial Equilibrium Macro General Equilibrium
Scarcity in Resources Choice = Decision Making = Tradeoff
Market/Price Mechanism Exchange = Swap = Transaction = Trading
Factor Markets
Intervention by Policy and Regulation
Real Sector Flows Money Sector Flows
Goods Markets
Government Households
Firms
Factor Demanders (Employers)
Production Cost
Wage etc.
Labor etc.
Factor Suppliers (Employees)
(Labor) Income
Subsidy Transfer
Sales Tax Income Tax
Expenditure
Product/Service
Sales Revenue Consumption Budget
Goods Suppliers (Producers) Goods Demanders (Consumers)
q = f (L, K, M, T, E) Transformation U = f (q
1
, q
2
, ) Transformation
Intertemporal Financial System [Markets + Institutions]
Funds Demanders (Investors/Borrowers) - Funds Suppliers (Savers/Lenders)
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.1 Essential Structure (2)
Supplier/Seller Receive
Atemporal Transaction in Goods or Factor Markets
Demander/Buyer Pay
Goods or Factors
Money Payments
Fund Supplier
Lender/Saver/Creditor/F.I.
Security Demander/Investor
Intertemporal Transaction in the Financial System
Funds
Security
NOW: Issuing Security = Debt Contract = Claim = Financial Instrument
Real Asset [Capital/Fixed/Direct Investment] - Financial Asset [Financial Investment]
Fund Demander
Borrower/Debtor/C.I.
Security Supplier/Issuer
Funds + YLD
Security
FUTURE = Maturity [Term to Maturity or TTM]
Fund Supplier
Lender/Saver/Creditor/F.I.
Security Demander/Investor
Fund Demander
Borrower/Debtor/C.I.
Security Supplier/Issuer
2 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
Key Indicator (1): GDP GNP Y
Aggregate [Total] Output Measured in
National Income and Accounts
Production Side [Final Added Value];
Income Side [T2-1]; Demand Side [U2]
Production/Output Income Demand
D B Foreign
C A Domestic
Foreign Domestic Nationality Residence
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (1)
Macroeconomics U1: Blanchard Chs. 1~2, 27
Method 1: Total Dollar Value of Final
Goods and Services Produced for the
Market in an Economy During a Period
+ Nominal GDP $Y
t
EP
t
Q
t
+ Real GDP Y
t
EP
0
Q
t
[Chained Dollar]
+ Base Year [F2-1]: $Y
t
Y
t
[Micro]
Method 2: Sum of Value Added
+ VA Output Intermediate Goods
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (2)
3 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (3)
Income/Saving/Surplus Wealth/Savings/Asset
Process Result/State
Event
Marginal Utility; Birth/Death Utility Level; Population
Changed/Temporary Accumulated/Permanent
Value
Income Statement; Deficit Balance Sheet; Debt
Period: In/During/Over/For Point: At/On/From/To
Time
Flow Stock Since - By
Macroeconomics U1: Blanchard Chs. 1~2, 27
GDP Level = Economic Size
+ Per Capita/Head: Average (1) Output/
Productivity; (2) Income; (3) Standard
of Living Real Purchasing Power
+ Quality of Goods: Hedonic Pricing
GDP Change/Growth (Y
t
Y
t1
)/Y
t1
+ Expansion - Recession [F2-2/P26]
Time Span: Short - Medium - Long Run
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (4)
4 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
Key Indicator (2): Unemployment Rate u
+ u U/(Labor Force); U = Job Seekers
+ US CPS; Social - Economic Issues
+ Underground Economy: Overstated
Key Indicator (3): Inflation Rate t
+ General Price Level/Index; Deflation
+ Income Distribution - Pure Inflation;
Decision Distortion by Uncertainty
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (5)
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (6)
t (P
t
P
t1
)/P
t1
Inflation = Change in the Price Level
Cost of Living for Consumers Overall Economy Focus
X = YZ X ~ Y + Z $Y
t
~ P
t
+ Y
t
[Hat Growth Rate]
Financial Assets [Inflation - Bubble] Excluded
Imported/Second-hand Goods for CPI [F2-4] Included
1917; Monthly 1947; Quarterly Availability
Basket of Consumption Goods Aggregate Output Base
EP
t
Q
0
/ EP
0
Q
0
100 EP
t
Q
t
/ EP
0
Q
t
100 Definition
CPI - PPI - WPI GDP Deflator
^ ^ ^ ^ ^ ^
5 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.2 Key Indicators (7)
Utility Function U = Stock = Level
1. U' MU = Change in Stocks = Flow
2. U'' = Change in Flows = Double AS
Stock Price: $100 $120 $132
1. The stock price finally rises to/at $___.
2. The stock price finally rises by $___.
3. The stock return changes by ___%.
4. The inflation rate is falling
Macroeconomics U1: Blanchard Chs. 1~2, 27
Note: Inflation Based on the GDP Deflator; Data by OECD [75% World GDP].
2.2 2.6 2.9 > 2.0 4.0 Inflation
4.8 4.6 4.6 > 5.0 6.2 Unemployment
2.5 2.1 3.3 < 3.4 3.1 Output Growth
2008 2007 2006 19962006 19702006 T1-1
US 2006: Population = 301M [TBMK]; Per Capita GDP = US$43,800
1/5 World GDP Created and Enjoyed by 1/20 World Population
Productivity Growth by Output per Hour Worked
New Economy by IT Global Warming
1. Overview of the Modern Macroeconomy 1.3 World Tour (1)
6 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.3 World Tour (2)
2.2 1.8 1.7 > 1.8 5.4 Inflation
6.7 7.0 7.6 < 8.7 7.4 Unemployment
2.2 2.6 2.7 > 2.0 2.3 Output Growth
2008 2007 2006 19962006 19702006 T1-2 EU5: 75%
EU 2006: Population = 496M; Per Capita GDP = US$28,400
European Unemployment - Asian Growth Miracle
Cause = Labor Market Rigidities?
Macroeconomics U1: Blanchard Chs. 1~2, 27
1. Overview of the Modern Macroeconomy 1.3 World Tour (3)
EU27 = 15 + 10 + 2 Euro Area/Zone [ECB] 17 = 15 3 + 1 + 2 + 1 + 1
Lower Inflation
in the Euro Area
7 Macroeconomics [1] by C-J Huang
Macroeconomics U1: Blanchard Chs. 1~2, 27
Japan: Prolonged Slump [Stock Crash]
Emerging Markets: BRIC/ASEAN/EU10
LA [Chile - Argentina]: Inflation Issue
Africa: Stagnation - North-South Issue
1. Overview of the Modern Macroeconomy 1.3 World Tour (4)
Note: Unemployment Distorted by Agricultural Workers; Data from IMF.
2.2 2.5 1.5 > 3.3 5.4 Inflation
9.5 10.0 10.7 > 8.8 9.3 Output Growth
2008 2007 2006 19962006 19802006 T1-3
China 2006: Total Output = Germany = 1/4 US; Population = 1.3B;
Per Capita GDP = US$2,100 US$8,000 at PPP
Model for Economies in Transition by Capital Accumulation and Tech Progress
Macroeconomics U1: Blanchard Chs. 1~2, 27
Inspire
Analyze
Doubt
1. Overview of the Modern Macroeconomy 1.4 Story of Big Guys
Classical Economists by Micro Approach: Adam Smith, Marshall,
The Great Depression 1929
Fail to Explain/Solve
John M. Keynes:
Father of Modern
Macroeconomics;
General Theory 1936 Neoclassical Synthesis
Developed by Keynesians
Monetarists Led
by Friedman
Attack
New Classicals
Rational Expectations by Lucas, Sargent, Barro,
New Keynesians
Defend
Integrate
Develop
Interact