Macroeconomics Part II: Long-Run Economic Performance

Transcription

1 Macroeconomics Part II: Long-Run Economic Performance I. Introduction 1. long-run versus short-run macroeconomics - long-run: trend, potential, efficiency, rationality, equilibrium, circular flow - short-run: cycle, fluctuation, possible inefficiency or irrationality disequilibrium, market failure, interruption of circular flow 2. long-run goals: economic progress, growth, improved opportunity 3. long-run macroeconomic models, an overview - agents, markets, institutions - production, exchange - general equilibrium (multiple markets), circular flow, Say s law - innovation: increase in resources (ex: human capital, technology) - government policy, reform 4. preview of basic and expanded versions of the long-run model - basic model: 2 markets - goods and also factors of production, 2 types of active agents - firms and households - expanded: multiple markets (goods, factors, financial, foreign) active, explicit role of government II. The Basic Long-Run Macroeconomic Model 1. production - output, labor, labor productivity, aggregate production function - effects on output of changes in labor and productivity: theory and examples 2. labor market - equilibrium in the labor market - effects on wage & employment of changes in labor demand and labor supply 3. circular flow - Say s law, general equilibrium, changes in rate of circular flow

2 II. The Basic Long-Run Macroeconomic Model, Continued 4. government policy, implicit in model - promoting economic growth increasing labor productivity: more capital, technology, training, education, entrepreneurship methods: tax cuts for R&D, funding of education & training & new businesses intellectual property protection - patents labor law reform - Civil Rights Acts -promoting economic opportunity labor laws, equal opportunity in education 5. what s missing from the basic model? -financial markets, investment, saving, money - foreign markets: imports, exports, outsourcing open economy, versus closed economy - explicit role for policy choices, government intervention III. Saving and Investment 1. forms of saving - cash, checking, savings accounts - bonds, stocks - real assets: homes, autos, collectables 2. saving as a source of loanable funds, for investment - national saving and national investment, in a closed economy 3. the market for loanable funds - equilibrium interest rate, investment level - expanded circular flow diagram 4. role of saving and investment in economic progress - the need for investment and saving - effect of changes in the supply and demand for loanable funds 5. government policy - financing government spending: borrowing versus taxing - crowding out: effect of deb-financed government spending on investment - taxes on saving

3 IV. Foreign Trade 1. the theory of comparative advantage - specialization and exchange - trade yields progress 2. foreign markets - open economy - imports, exports, foreign investment - exchange rates - outsourcing 3. long-run model of an open economy - expanded circular flow - sources of progress: exports, imports, outsourcing, foreign ivestment - limitations of the model: no explicit role for inequality, opportunity, non-monetary aspects of prosperity 4. trade policy - free trade - trade restrictions: tariff, quota, embargo, sanction - preferential trade agreements - exchange rate policy: fixed versus floating rates V. Money and Banking 1. money concept: store of value, medium of exchange, unit of account 2. types of money, M1 money measure 3. money and banks - economic role as financial intermediaries - the bank s balance sheet 4. banking and the Federal Reserve System - the Fed and the money supply - bank regulation 5. the market for money - supply, demand, equilibrium - long-run model with a money market, cicular flow 6. goverment policy - economic growth and the money supply - progress, financial stability, and bank regulation

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