Introduction-Advanced Macroeconomics.pptx

It's a 3rd year advance macroeconomic for students majoring Economic

1. Advanced Macroeconomics Introduction

2. Outline Administrative details Assessments Course Topics Overview of the course Issues macroeconomists study The tools macroeconomists use Some important concepts in macroeconomic analysis

3. Learning Outcome By the end of the lecture, you will be able to; identify the course coordinator’s contact details identify the assessments explain what the course is about describe the major topics this course will cover

4. Administrative details Course number: 3.30334 Credit points: 3 Role in the Academic Program : Core course Course coordinator: Ms Jollanda Mathew MIDEC B.Ec Email address: j [email protected] Consultation hours: Monday 3 – 4 pm Friday 3 – 4 pm Pre-requisites: Foundation Economics Principles of Macroeconomics Co-requisites: Quantitative Economics I   Learning resources: Lecture notes Prescribed: Mankiw NG. Macroeconomics , 7th Edition. Worth Publishers, 2010 Recommended: Blanchard, Olivier J., David R. Johnson, Macroeconomics , 7th Edition, Pearson, 2013. Additional readings

5. Assessments Types of Assessments /Evaluation When Marking Criteria Weight CLOs aligned with Assessments Test 1 Tutorial Week 4 Every week    10% 5% 1, 2, 3 Assignment Week 11   15%   Midterm exam Week 8   20% 1, 3, 4 Final evaluation: Written examination 3 hours writing and 10 minutes reading TBA   50% 1, 2, 3, 4, 5

6. Topics Week Major Topics CLOs aligned with Topics 1 Introduction 1, 5 2 Business cycle fluctuations vs. the economy in the long run 2, 3 3 Aggregate Demand I: The goods market 2, 3, 4 4 Aggregate Demand II: Financial markets 2, 3,4 5 Building the IS-LM model 2, 3 6 Applying the IS-LM model: Stabilization policies and the Global Financial Crisis 2018 2, 3,4 7 Open economy: Introduction 2,3 8 Open economy: Mundell-Fleming model 2,3 9 Stabilization policies in a small open economy and the PNG economy 2, 3,4 10 Long-run growth theory I 2, 3,4 11 Long-run growth theory II 2, 3, 4 12 Review 3, 4, 5

7. Course Description This course is an introduction to study macroeconomics at an advanced level. Advanced macroeconomics provides a bridge between the principles of macroeconomics and the advanced courses. The course develops a number of theoretical frameworks for the analysis of the determinants of economic growth, the price level and the rate of inflation, including ones in which monetary disturbances have real effects (that is, ones in which money can be non-neutral) and unemployment.

8. Three main variables Gross domestic product (GDP) Inflation (CPI Unemployment We will begin by looking at the trends in the data for these variables.

9. US Real GPD per capita Observations Real GDP grows over time. Income more than doubled over the last 30 years. Long-term upward trend. Short-run fluctuations in the trend: recessions, depressions and booms.

10. PNG Annual Real GDP Growth Source: Papua New Guinea’s government, economy and society

11. PNG’s GDP and non-resource GDP per capita Source: Papua New Guinea’s government, economy and society

12. US inflation Observations Short-run fluctuations: Inflation and deflation During boom period (high GDP), inflation is often high.

13. PNG’s inflation Source: Papua New Guinea’s government, economy and society Inflation is moderate Average annual CPI growth is 7% from 1977 to 2019 Inflation and exchange rate depreciations are linked.

14. US employment Unemployment Observations Unemployment is always positive Fluctuations related to RGDP: Unemployment lower during boom Unemployment higher during recessions

15. PNG employment Source: Papua New Guinea’s government, economy and society

16. Ref lection on the previous graphs Two alternative approaches: Positive economics Factual statement Describe and analyze the economy phenomena just the way they are For example: what is the effect of a tax reform? 2. Normative economics makes value judgement of economic phenomena and describe how situation should be or ought to be. For example: Is higher minimum wage better for youth?

17. Models are simplied versions of a more complex reality irrelevant details are stripped away Shows the relationships between economic variables Explain the economic behaviors Devise policies to improve economic performance Example of an economic model: demand and supply of a good

18. Endogenous vs exogenous variables

19. A Multitude Models No one model can address all the issues we care about. For example, If we want to know how a fall in aggregate income affects new car prices, we can use the S/D model for new cars. But if we want to know why aggregate income falls, we need a different model. Therefore, we will learn different models for studying different issues (economic growth, inflation, and unemployment). For each new model, you should keep track of Its assumptions Which variables are endogenous and exogenous, Which questions it can help to understand

20. Price: Flexible vs Sticky Market clearing: an assumption that prices are flexible and adjust to equate supply and demand. In short-run, many prices are sticky – they adjust sluggishly in response to supply/demand imbalances. For example, Labor contracts that fix the nominal wage for a year or longer Magazine prices that publishers change only once every 3-4 years

21. Price: Flexible vs Sticky con. The economy’s behavior depends partly on whether prices are sticky or flexible: If prices are sticky, then demand won’t always equal supply. This helps explain, Unemployment (excess supply of labor ) The occasional inability of firms to sell what they produce In the long run, prices are flexible and market clears. Economy behaves very differently.