Lecture 1 Sept 16 Introduction

7/27/2019 Lecture 1 Sept 16 Introduction

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Lecture1

Se tember 16 201

1

SchemeoftheLectureyWhatisMacroeconomics

ySomeConcepts

ySchoolsofMacroeconomics

y tructure

o

our

y a us

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WhatisMacroeconomics

3

WHATDOESITTAKETOBEAMACRO ECONOMIST?

y ma ema c an,historian,statesman,

y philosopherinsomedegreeasaloofandincorruptibleasanartist,

earthasapolitician

y JohnMaynardKeynes

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MACROECONOMICNEWS

yMacroeconomicnews

is

typically

,yRisinginflationinIndia

yDepreciationofINR

yHighFiscalDeficitinIndia

y

yThedebtcrisisinGreece

yThevalue

of

the

Chinese

Yuan

5

SomeKeyFeaturesy YoungandImperfectScience

y Macroeconomichistorycouldgiveyouasenseofperspective

y Politicsplayakeyrole

y ToyModels providingthegrammar

ThusMacroecoomic Theory AnalyticalExplanations

ofanIncident ofPossiblePolicy

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THEKEYQUESTIONS

yWhatdeterminesanationslongruneconom cgrow

yWhatcausesanationseconomicactivitytofluctuate?

yWhatcausesunemployment?yWhatcausespricestorise?yHowdoesbeingpartofaglobaleconomic

systemaffectnationseconomies?yCan

government

policies

be

used

to

improveaneconomysperformance?7

THENATUREOFMACROECONOMIC

ANALYSIS

yUnderstandin thea re ateeconom .Allmarketstakentogether goodsandservices(housesandhaircuts,exportsandimports),financialassets(bondsandbankdeposits),labour(consultantsandcarpenters)intoan

aggregate supply.Linkingthefunction

ofmarkets,governments,andfinancialinstitutionslikebanks.

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Method

y Weuse

this

understanding

to

measure

and

compareperformance,suggestpolicies,make

y Themethodofcomparativestaticsy Restrictiveassumptionscanberemoved

gradually,andmodelsmademorecomplicated

y Simplifyingassumptionstofocusonsome

worldy Exogenousandendogenousvariablesy Results

are

contingent

on

assumptions

y Solutions9

SIMPLEMODELSFORACOMPLEXWORLD

y

onsomefundamentalrelationshipsinaverycomplexworld

yExogenousandendogenous

variablesyResultsarecontingenton

assumptions

ySolutions10


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EconomicModels

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SomeConcepts

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SomeBasicConceptsy StockversusFlow

y RealversusNominal

y PlannedversusActual

y EquilibriumversusIdentity

y FlexibleversusStickyPrice

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SchoolsofMacroeconomics

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WHYDOMACROECONOMISTSDIFFER?

yMacroeconomistsdifferintheir

analysisof

the

economy

and

the

policiestheyprescribefordesirable

yTheyworkwithdifferentmodelsbasedondifferentassumptions,speciallyabouttheflexibilityofpricesand

wages ,

oneneedstoseehoweconomistsand

accountants

add

up

different

things

likeapplesandoranges

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SchoolsofMacroeconomicsClassical

Keynesian

Monetarist

RationalExpectations/NewClassicalMacroeconomics

NewKeynesianMacroeconomist

RealBusinessCycle

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NobelLaureateMacroeconomistsy 2011: Thomas J. Sargent and Christopher A. Sims - "for t heir empirical research on cause and effect in

the macroeconomy"y 2006 Edmund S. Phelps - "for his analysis of intertemporal tradeoffs in macroeconomic policy"y

2004 - Finn E. Kydland and Edward C. Prescott - "for t heir contributions to dynamic macroeconomics:the time consistency of economic pol icy and the driving for ces behind business cycles"

y 1999: Robert A. Mundell - "for h is analysis of monetary and fiscal policy under different exchange rateregimes and his analysis of opt imum curr ency areas"

"y : o er . u cas r. - or a v ng eve o pe an app e e ypo es s o ra ona expec a ons,and thereby having transformed macroeconomic analysis and deepened our understanding ofeconomic policy"

y 1987: Robert M. Solow- "for his contributions to the theory of economic growth"

y 1985: Franco Modigliani - "for his pion eering analyses of saving and of financial markets"

y 1984 Richard Stone "for having made fundamental contributions to the development of systems ofnational accounts and hence greatly improved the basis for empirical economic analysis"

y 1981: James Tobin - "for his analysis of financial markets and their relations to expenditure decisions,employment, production and prices

y 1976 Milton Friedman "for his achievements in the fields of consumption analysis, monetary historyand theory and for his demonstr ation of the complexity of st abilization policy"

y 1972 John R. Hicks and Kenneth J. Arrow- "for t heir pioneering contribu tions to general economicequilibrium theory and welfare theory"

y 1971 Simon Kuznets "for his empiric ally founded interpretation of economic growth which has led tonew and deepened insight into t he economic and social struc ture and process of d evelopment"

y 1970: Paul A. Samuelson - "for t he scientific work through wh ich he has developed static and dynamiceconomic theory and actively contribut ed to raising the level of analysis in economic sci ence

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StructureofOurSyllabus

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Macroeconomics

ShortRunBusinessCycles

Dynamic

EconomyLongrunEconomic

Growth

NationalAccounts

Closed

Classical Keynesian

Open

FixedExchangeRate

FlexibleExchangeRate

SolowGrowthModel

StylizedFacts

DemandSide

Goods Money

SupplySide

Labor

19

BasicText.

MACROECONOMICS

/7th Edition,2009

Material

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ChaptersfromMankiwLectures Topic Chapter from Mankiw

1 Introduction 1

2 National Accounts Accounting 2

3 Classical Model & Labor Market 3

4 Money Market (Classical Paradigm) 4

6 Good Market: IS Curve + Money Market: LM

Curve

10

7 IS-LM Equilibrium 10

8 Aggregate Demand 11

9 Aggregate Supply +AS-AD Equilibrium 13

10 Phillips Curve 13

Mid Term Exam

11, 12 Open Economy - I 5

13. 14 Open Economy II 12

15 Economic Growth I 7

16 Economic Growth II 8

17 Special Topic -1 : Ricardian View of Govt Debt 16

18 Special Topic -2: Consumption andIntertemporal Choice

17

19 Current Crisis

20 Sum-up

End-Term Exam21

EvaluationPatterny OneMidTerm

y OneEndTerm

y SeparateQuestionsacrossInstructors

y Shortanalyticalquestions

y ButGradeNormalization

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Lecture 1 Sept 16 Introduction

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