ECC Macroeconomics Summary Notes

Transcription

1 ECC Macroeconomics Summary Notes Contents General Definitions... 3 Australia s National and International Accounts... 4 Nominal and Real GDP... 4 Balance of Payment Accounts... 5 Other National Accounting concepts... 5 The Macroeconomic Environment... 6 Business Cycle... 6 Unemployment... 6 Labour Demand and Supply... 7 Inflation... 7 Aggregate Expenditures Model and Multipliers... 9 Consumption and Savings... 9 Investment Demand Curve Investment Schedule Expenditures-Output Approach Leakages-Injections Approach Multiplier Aggregate Demand and Supply Aggregate Demand Aggregate Supply Equilibrium Fiscal Policy and the Public Debt Federal Government Finance Discretionary Fiscal Policies Non-Discretionary Fiscal Policies Problems with Fiscal Policies Public Debt Inflation and Fiscal Policy Fiscal Policy and Open Economy Net Export Effect Fiscal Policy and Aggregate Supply (AS) Finn Andersen,

2 More on Crowding Out Effect of Taxation on AS/AD Money, Banking and Financial System Backing the Money Supply Money Demand Australian Financial System Bank Balance Sheet Multiple-Deposit Expansion Multiple-Deposit Contraction Monetary Policy Balance Sheet of the RBA Monetary Policy Tools Monetary Policy and Open Economy Taylor s Rule Effectiveness of Monetary Policy Inflation and Aggregate Supply Phillips Curve Natural Rate Hypothesis Demand-Pull Inflation Cost-Push Inflation Labour market policies Economics of Growth Causes of Growth Production Possibility Curve Models of Growth Growth Policies Exchange Rate Models Purchasing Power Parity Exchange Rate Systems Interest Arbitrage Monetary Approach Exchange Rate Behaviour Models Finn Andersen,

3 Macroeconomic theory analyses the effects of policy and other changes in both the shortrun (Keynesian demand orientated) and in long-run (classical). General Definitions Equity Ownership in any asset after all debts associated with the asset are paid off asset value liabilities(debts) Security Any kind of tradable financial asset (notes, bonds, stocks, etc) Bonds a debt obligation of the bond issuer to the bond holder. The issuer owes the holder a debt, obliged to pay the principal amount potentially with interest Form of security Must be paid by maturity date Stock Type of security, signifies ownership in a corporation Represents claim on part of corporation s assets and earnings Are equity because they represent ownership in a company Government security A bond (debt obligation) issued by the government Used to raise funds that pay for government s expenses (e.g. infrastructure projects) Low risk backed by taxing power of government Repurchase Agreement (repo)- Form of short-term borrowing for dealers in government securities. Dealer sells government security and buys back the next day (agrees to repurchase) Seller gains cash loan for selling security (acts as borrower) Repurchase price usually greater than original sale price (effectively interest on borrowing) Securities used to protect lender (buyer) against default by seller Arbitrage Purchase and sale of an asset in order to profit from a difference in price Finn Andersen,

4 Australia s National and International Accounts GDP Total market value of all final goods and services produced in the relevant economy during a specific period (usually year) Only final goods counted (being purchased for final use, not to be further processed/manufactured Excludes transactions where no production of goods or services occurs Included Excluded Services (painter, construction worker, lawyer, insurance..) Wages Goods Welfare payments (financial transfer) Second hand sales Students allowance from parents Purchase of shares Three methods to measure the GDP (should all arrive at same result) Expenditure approach measure GDP as sum of all expenditures Consumption expenditure + capital expenditure + Ex Im GDP (Y) = C + I + G + NX C Consumption expenditures by households (durable, non-durable, services) I Gross private investment expenditures by business (machinery, equipment, construction, inventories) G Government purchases of goods/services NX net export expenditures (Exports Imports) Income approach Sum of incomes derived from the production of the GDP +Compensation of employees (wages, superannuation, direct pensions) +Gross operating surpluses (rents, interest, profits) +Indirect taxes (treated as cost of production - adds to prices of goods and services) Subsidies (payments to businesses to encourage production) Production approach Sum of value addition at each stage of production process Nominal and Real GDP Nominal GDP measured in current prices Real GDP nominal GDP adjusted for inflation using a price deflator (allows for comparison of GDP between different time periods) Real GDP = Nominal GDP Price Index Consumer price index Measure of the price level of a market basket of goods and services (relative expense of things in general) Finn Andersen,

5 Using GDP as a measure of social welfare is not always accurate. Does not account for nonmarket transactions: Leisure Composition and distribution of GDP Per capita output Underground economy Home production Balance of Payment Accounts Current account reflects current transactions. Considers goods and services balance, income balance and current transfers balance If exports < imports, current account deficit occurs Loans taken from foreign creditors income balance decreases CAB = G&S (Ex Im) + Income balance + current transfers Capital Account Comprises capital transfers and entries for acquisition of non-produced, non-financial assets (patents, copyrights) Must be relied upon when current account deficit occurs Financial account Value of Australia s transaction in domestic and foreign financial assets and liabilities Covers direct investment, portfolio investment Direct Investment Investment made by non-residents in an Australian company, or Australian making investment in foreign company controlled by Australian interests Portfolio investment Non-residents buy shares/bonds from Australian companies, or Australiana buy shares in foreign companies Other National Accounting concepts National turnover GDP + Imports Gross National Expenditure (GNE) C + I + G FAB = DI + PI + Reserve Assets National Income (NI) GDP depreciation and net income paid overseas Household disposable income (DI) Household income taxes and charges Finn Andersen,