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14.02 RecitationThe Short RunI. Course IntroductionI(a) Course StrategyI(b) Macro vs. MicroI(c) Why Are You Taking Macroeconomics?PowerPoint PresentationSlide 8I(d) Course OutlinesII. Mathematical backgroundII(a) LinearityII(b) Curves, which way do they shift?II(c) Adjacent or Stacked GraphsII(d) Changes and LogarithmII(e) ElasticitySlide 16III. Real vs. Nominal & Growth RateSlide 18You are required to calculate:You have 5 minutesSlide 21Slide 22III(b). Nominal vs. RealNotice:Also notice that:III(c). Another Real versus Nominal Exercise1(a). Paasche Index1(b). Paasche Average Annual Inflation Rate2(a). Laspeyres Index2(b). Laspeyres Average Annual Inflation RateSlide 313(b). Real GDP Annual Growth RateIV. The National AccountingIV(a) Key playersIV(b) Counting the GDPIV(c) Counting the GDP- an exampleIV(d) Other definitionsIV(e) A Summary: The relationships among the basic spending and income categories(V) The Government BudgetV(a) DefinitionsV(b) The Federal BudgetVI. Basic Macroeconomic Model– Kenyes ModelSlide 43VI(a) Key playersSlide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Exercise:Slide 54Slide 55Slide 56Notes:Slide 58VII. The Investment Saving EquilibriumSlide 60Slide 61Slide 62VIII. IS CurveVIII(a). IS Curve- DefinitionSlide 65The derivation of the IS curveVIII(c). Shifts of the IS curveSlide 68IX. LM CurveIX(a). LM Curve- DefinitionIX(b). Money Demand CurveSlide 72Slide 73Slide 74IX(c). The Quantity TheoryThe Velocity of Money (M1) vs. the Treasury Bill RateIX(d). Money Supply CurveIX(e). The Equilibrium in the Money MarketSlide 79Slide 80Slide 81X. IS-LMIn each of the following exercises, show the effect on the national accounts as follows:X(a). IS/LM: Effects of a tax increaseX(b). IS/LM: Effects of a monetary expansionX(c). IS/LM: Clinton-Greenspan mix and policy coordinationX(d). IS/LM: Dynamic effects of monetary contractionX(e). Fiscal and monetary efficacySlide 89Conclusions:XI. Labor MarketXI(a) OverviewXI(b) Some World Wide Key FactsXI(c) DefinitionsSlide 95The US CPSXI(d) Wage setting equationSlide 98XI(e). Price setting equationSlide 100XI(f). Equili1brium in the labor market and the natural rate of unemploymentSlide 102Slide 103The Medium RunXII(a). AD Curve- Definition & DerivationSlide 106XII(b). AS Curve- Definition & DerivationSlide 108XII(c). General equilibrium in the medium runXII(d). Money neutrality in the medium runSlide 111Slide 112Slide 113Slide 114Slide 115Slide 116Inflation and Phillips CurveSlide 118Slide 119XII(c). Okun’s LawThe Long RunXI(d) Aggregate Production FunctionSlide 123114.02 RecitationBySamer HajYehia2The Short RunI. Course IntroductionII. Mathematical BackgroundIII. Real vs. Nominal & Growth RateIV. National AccountV. Government BudgetVI. Basic Macroeconomic Model– Kenyes ModelVII. The Investment Saving EquilibriumVIII.The IS CurveIX. LM CurveX. IS-LM Model3I. Course Introductiona) Course Strategyb) Course Outlinesc) Macro vs. Microd) Why Are You Taking Macroeconomics?4I(a) Course Strategy - Define the important concepts, magnitudes and questions in the real world.- Learn alternative theories suggesting answers and explaining behavior.- Evaluate data to test and then choose among theories.- Put you in position to have a serious opinion on important topics.5I(b) Macro vs. Micro - Microeconomics examines the economic behavior of individual households and firms-- their responses to prices, income, tastes, opportunities and other fundamental variables.- Macroeconomics examines the sum of microeconomic actions, their dynamics & interactions.- Therefore Macro must be fully compatible with Micro in its explanations of behavior: to trust any Macro answer, you must be sure of each of its Micro roots. Usually, this requires common sense and introspection.- The power and elegance of Macro is its ability to confront important questions, resolve paradoxes, explain past and predict future dynamics.- Why is there so much controversy about macro theory and policy and so little about micro?- Macro hits us in the pocketbook through its policy prescriptions so we may want certain answers to be true even if not.- Macro gets intimately involved in politically sensitive issues, and only religious arguments are more emotional than political debates.- The media cares about these issues and wants to find/exaggerate controversy to sell itself.6I(c) Why Are You Taking Macroeconomics? •Possible reasons:- It’s required for economics majors.- You’ve heard it’s as good a way as any to meet distribution requirements in the social sciences since this will at least involve mathematics.- Economist jokes are better than lawyer or computer nerd jokes.- You want to call in to talk- show radio hosts and sound important.•Better reasons:- You know that, today or tomorrow, you will really need the macroeconomic analysis skills as: An investor: a politician a manager or employee an intellectually curious person7- Your interest might be as following: An investor: Where are interest rates headed? Which sectors of the economy will do best and worst during the next quarter, year, and decade? What will be the distinguishing differences across countries. A politician What determines interest rates and what are appropriate monetary targets? What are the appropriate taxes to raise? How will the level and composition of the budget affect family incomes? How will international trade impact jobs, inflation and credit? What is the cost of low inflation or low unemployment?8 a manager or employee What growth will my current markets provide if I maintain my share? Can I raise my prices as rapidly as my costs? What opportunities are emerging in the developing nations? a manager or employee Why do cycles exist/ persist in all economies? Are macro relationships stable? Can nonlinear mathematics and chaos physics help to understand economics? How can growth and environmental concerns be reconciled?9I(d) Course Outlines - Output- level, growth, trend, fluctuations (recessions and expansions).- Great Depression- Stagflation in the 1970s- Current long expansion and low unemployment- High stock markets and bubbles- From budget deficit to budget surplus- Who is Greenspan? Why is he worry? Why we care?- Asian 1980’s miracle and 1990’s
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