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Macroeconomics precourse – Part 2 Academic Year 2013-2014

Macroeconomics precourse – Part 2 Academic Year 2013-2014. Course Presentation This course aims to prepare students for the Macroeconomics course of the MSc in BA. It provides the essential background in macroeconomics. PAOLO PAESANI Office: Room B6, 3RD floor, Building B

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Macroeconomics precourse – Part 2 Academic Year 2013-2014

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  1. Macroeconomicsprecourse – Part 2 AcademicYear 2013-2014 CoursePresentation This course aims to prepare students for the Macroeconomics course of the MSc in BA. It provides the essential background in macroeconomics PAOLO PAESANI Office: Room B6, 3RD floor, Building B Telephone: 06-72595701 E-mail: paolo.paesani@uniroma2.it Office hours: to be agreed

  2. Macro EMPLOYMENT AND UNEMPLOYMENT POP = LF + NLF LF = Employed + Unemployed Unemployed = Voluntary + Involuntary + Frictional NLF = Young (< 15) + Old (> 70) + Others (15 << 70)

  3. Micro Mankiw (2011)

  4. Macro MONEY Mankiw (2011)

  5. Macro MONEY Money supply (M) = Currency (C) + bankdeposits (D) Bankdeposits (D) = current account deposits D(1) + savingdeposits D(2) Monetary base (B) = Currency + RequiredBankreserves (R1) + Voluntaryreserves (R2) Monetaryaggregates GOVERNMENT Mankiw (2011)

  6. Micro MONEY 1. M = C + D 2. B = C + R 3. C = c D c > 0 4. R = R1 + R2 = aD + bD = (a+b)D 0 < (a+b) < 1 M = [(1+c) / (a + b + c)] B [(1+c) / (a + b + c)] = Money multiplier GOVERNMENT

  7. Macro MONEY Everyeconomic system islinkedto the othersthrough multiple channels: • International tradeofgoods and services (Exports and Imports); • International mobilityoffactorsof production (migration, foreigndirectinvestment); • Private internationalfinancialflows (portfolio investment, forextransactions) • Public internationalfinancialflows(management ofofficialforexreserves, interntionalaid, internationaltransfers) GOVERNMENT

  8. Macro MONEY Everyeconomic system islinkedto the othersthrough multiple channels: • International tradeofgoods and services (Exports and Imports); • International mobilityoffactorsof production (migration, foreigndirectinvestment); • Private internationalfinancialflows (portfolio investment, forextransactions) • Public internationalfinancialflows(management ofofficialforexreserves, interntionalaid, internationaltransfers) GOVERNMENT

  9. Macro MONEY

  10. Macro INTEREST RATE Nominal interest rate = price ofmoneyovertime = Additional sum ofmoney the borroweragreestopay, on top of the loanedamount, to the originallender or to the currentownerof the loan. Nominal interest rate = Real interest rate + Expectedinflation + Creditrisk premium + Liquidity premium + Otherriskpremiums Real interest rate (ex ante) = Nominal interest rate – Expectedinflation Real interest rate (ex post) = Nominal interest rate – Actualinflation Ifcurrentinflationexceeds (falls short) ofexpectedinflation, the ex post real interest rate ishigherthan the ex ante real interest rate.

  11. Macro INTEREST RATE Mankiw (2011)

  12. Macro EXCHANGE RATE Nominalexchange rate = price ofonecurrency in termsofanothercurrency = Amountofforeigncurrency per unitofdomesticcurrency Realexchange rate = (Nominal interest rate *– Domestic price leve) / Foreign price level Nominal and realexhange rate can bebilateral or multilateral (effective) Appreciation = Nominal Exchange rate up (in nominal and realterms) Depreciation= Nominal Exchange rate down (in nominal and realterms)

  13. Macro • REFERENCE • Mankiw, G.N. (2010) BriefPrinciplesofMacroeconomics, 6° ed.,

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