Transcript
7/31/2019 EMBA Macro Session 2
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Ace Institute of ManagementExecutive MBA Program
Session 2: Goals of Macroeconomic Policies
InstructorSandeep Basnyat
Sandeep_basnyat@yahoo.com
9841 892281
mailto:Sandeep_basnyat@yahoo.commailto:Sandeep_basnyat@yahoo.com7/31/2019 EMBA Macro Session 2
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Goals of Macroeconomic Policies
Usually three policy goals:
1. The Goal of Economic Growth
2. The Goal of low unemployment
3. The Goal of Low Inflation
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The Goal of Economic Growth
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5 Fastest growing in Asia
(Source: IMF 2010)
Country % GrowthDate of
informationWorld Rank
Region
Rank
Singapore 14.5% 2010 3 1
Taiwan 10.8% 2010 4 2
India 10.4% 2010 5 3
China 10.3% 2010 6 4
Sri Lanka 9.1% 2010 9 5
http://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Republic_of_Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Republic_of_Chinahttp://en.wikipedia.org/wiki/Singapore7/31/2019 EMBA Macro Session 2
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Growth rate of other countries
(Source: IMF 2010)
Afghanistan 8.2 Ethiopia 8.8
Maldives 7.9 Thailand 7.8
Philippines 7.6 Malaysia 7.1
Vietnam 6.7 South Korea 6.1Indonesia 6.1 Bangladesh 6.02
Mexico 5.5 Pakistan 4.79
Nepal 4.5 Canada 3.07
USA 2.83 Australia 2.74
Switzerland 2.5
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What determines the economic
growth rate?
Productivity of Labour and Capital
Productivity = GDP (Output) / Total Hours of
works
Productivity is the Output per hour of work.
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What determines the capacity of
workers to produce?
A production function shows the
relationship between the quantity of
inputs used to produce a good, and the
quantity of output of that good.
It can be represented by a table, equation,
or graph.
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0
500
1,000
1,500
2,000
2,500
3,000
0 1 2 3 4 5
No. of workers
Quantityofoutput
Simple Example: Production Function
30005
28004
24003
18002
10001
00
Q(bushelsof wheat)
L
(no. of
workers)
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Effect of Better Technology
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Effect of Increased Capital
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The Goal of Low Unemployment
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U.S. unemployment rate(% of labor force)
0
5
10
15
20
25
30
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Very high Unemployment
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Categories of the population
employedworking at a paid job
unemployednot employed but looking for a job
labor forcethe amount of labor available for producinggoods and services; all employed plus
unemployed persons not in the labor force
not employed, not looking for work
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Two important labor force concepts
unemployment rate
percentage of the labor force that is
unemployed
labor force participation rate
the fraction of the adult population
that participates in the labor force
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Types of Unemployment
Frictional Unemployment
Unemployment due to time gaps between job
searching and finding
Structural Unemployment
Unemployment due to shift in industrial structure
Cyclical Unemployment
Unemployment due to change in business cycle
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The Goal of Low Inflation
Inflation: Sustained increase in overall price
level
Deteriorates the purchasing power of people
Nominal and Real wages
Real wage Rate = Nominal wage / Price Level
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Costs of Inflation
INFLATION AS A REDISTRIBUTOR OF INCOME
AND WEALTH: 3 Concepts
Those who lend money are often victimized by
inflation.
Borrowers often gain from inflation.
Inflation does not systematically steal from
the rich to aid the poor, nor does it always do
the reverse.
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Inflation and Interest Rates Nominal and Real Interest Rates
Nominal Interest Rate = Real Interest Rate +
Expected Inflation Rate
Malfunctioning with Tax Calculation
Other Costs of Inflation Shoe Leather Costs Menu Costs
Costs of Inflation
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Thank You
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