Intermediate Macroeconomics
Lecture 1: introduction and course overview
Semester 2, 2022
1
Lecturers
• Yusuf Mercan — Lectures 1–12 (first 6 weeks)
– Office hours: Mondays 1:00 pm 2:00 pm
– Zoom link for office hours is on Subject Overview page of Canvas site
– Email: yusuf.mercan@unimelb.edu.au
• Faisal Sohail — Lectures 13–24 (second 6 weeks)
– Office hours: TBD
– Email: faisal.sohail@unimelb.edu.au
2
Tutorial Coordinator
• David Moreton
– Office hours: TBD
– Email: dmoreton@unimelb.edu.au
– For any administrative enquiries, please send an email to David and clearly mention the
subject that you are referring to as David coordinates multiple subjects.
• Tutors and online discussion
3
Textbook
• Olivier Blanchard (2021). Macroeconomics. 8th global edition. Pearson.
Older
are
fine
numbers
versions
but
may
pg
be
wrong
4
Course materials
1- Syllabus/subject outline
2- Tutorial sheet
– pre-tutorial sheet posted on Canvas.
– in-tutorial sheet posted on Canvas.
– Solutions available one week later.
3- Lecture slides available (at least) 24 hours in advance.
5
Tutorials
• VERY IMPORTANT part of the subject
• You MUST do the pre-tutorial work before the tutorial
• Logistics
– Tutorials begin next week.
– Timetable can be accessed from MyTimetable.
– Want to make any change? make a request through MyTimetable.
– Further enquiries? STOP1.
– Still problems? contact David Moreton.
6
Assessment
All times and dates are Melbourne local
Online multiple choice test 1
Online multiple choice test 2
Assignment #1
Assignment #2
Final exam
Due date
9:00am August 22nd 2:00pm August 23rd
9:00am October 17th 2:00pm October 18th
2:00pm, Monday September 12th
2:00pm, Monday October 3rd
examination period
Please read the syllabus carefully.
7
Weight
5%
5%
12.5%
12.5%
65%
Schedule for lectures 1–12 — Yusuf
⇧ Topic 1. Short-run macroeconomics
– lectures 2–6, chapters 3–5 and selections from chapter 6 of text
⇧ Topic 2. Labor markets and unemployment
– lectures 7–8, selections from chapter 7 of text
⇧ Topic 3. Macroeconomic adjustment
– lectures 9–12, selections from chapters 8 of text and external sources
8
Schedule for lectures 13–24 — Faisal
⇧ Topic 4. Long-run macroeconomics
– lectures 13–18, chapters 10–13 of text
⇧ Topic 5. Open-economy macroeconomics
– lectures 19–22, chapters 17–20 of text
⇧ Macroeconomic policy and review
– lectures 23–24
• Final exam is cumulative, covering all topics
9
Rest of this lecture
• Three key macroeconomic concepts
1- aggregate output
2- inflation
3- unemployment
• Reading
– Blanchard, chapters 1 and 2
– most of this should be revision from Introductory Macroeconomics
10
Aggregate output
• National income accounts
– accounting system
– used to measure aggregate economic activity
• Key measures
– gross domestic product (GDP)
– gross domestic income (GDI)
– GDP = GDI, by construction
reality
in
{
data
is
sources ,
not
taken
the
as
from different
measurement
– flow variables, aggregate output per year (or per quarter, etc)
11
case
error
etc
.
Aggregate output
• Three ways to measure aggregate output: GDP is the
1- total value of the final goods and services produced
2- total value-added
3- total income
in the economy during a given period
• Definitions 1–2 are the production side of the accounts (GDP)
• Definition 3 is the income side of the accounts (GDI)
12
Example
Steel Company (Firm #1)
Sales revenue
Expenses
wages
Profit
Car Company (Firm #2)
$100
$80
$ 20
What is GDP? What is GDI?
13
Sales revenue
$210
Expenses
wages
steel
$70
$100
Profit
$40
Example
1- GDP take #1: total value final goods & services
– steel is used to produce cars
– steel is intermediate good
– here, value final goods (just cars) is $210
2- GDP take #2: total value-added
– value of steel production $100
– value-added of cars $210 100 = $110
– total value-added $100 (steel) + $110 (cars) = $210
3- GDI: total income
– wages $80 (steel) + $70 (cars) = $150
– profit $20 (steel) + $40 (cars) = $60
– total income $150 (wages) + $60 (profits) = $210 (= GDP)
14
-
-
-
Why
GDP
Its
Not
do
is
we
a
an
a
measure
indirect
perfect
GDP ?
about
care
of
income
Countries
.
measure
measure,
of
e-
g-
the
Comments
with
higher
welfare of
does
not
GDP
are
human
account
richer
beings
for
• Valuation at market prices
welfare
• Home production? cleaning, ironing, cooking are all economic activities.
• Measure of aggregate economic activity, nothing more
• Provides a measure of welfare, but is not the full picture
• e.g., does not consider inequality
15
Nominal vs. real
• Nominal GDP
Sum of quantities times current prices where prices denominated in dollars
• Real GDP
Sum of quantities times constant prices.
Want to control for change in purchasing power of a dollar. Choice of prices defines
base year. For that year, nominal and real GDP are equal
16
Nominal vs. real
The two series intersect at the base year.
17
Inflation
• Inflation is sustained increase in general level of prices (“the price level”)
– inflation rate is percent change in price level in a given time period
• Disinflation is a decline in inflation
-
expected to go
– does not mean decline in price levels
– means a slowing down in the increase in prices
• Deflation is sustained decrease in general level of prices
• Two important measures of the price level
• the GDP deflator
• the consumer price index (CPI)
18
up
by
less
GDP
Expenditure approach to measuring GDP:
Y = C + I + G + NX
• Y : GDP — Total output in an economy
• C: Consumption — Households purchase food, gas, haircuts, ...
• I: Investment — Firms buy capital to produce things
• G: Government expenditures — Government spends money on goods and services
• NX = X
M : Net exports — Rest of the world purchases goods that home produces
19
Inflation
value
↳
in
• GDP deflator
of final goods
services
ing
in
current
$Yt ⌘ nominal GDP in period t
period
market
fix prices
prices
to
a
Yt ⌘ real GDP in period t
base period to
✓ calculate real GDP
$Yt
Pt ⌘
⇥ 100
Yt
/
Pt is called the GDP deflator, an implicit price index. Equals 100 (say) in base year.
GDP deflator Pt measures average price of aggregate output
20
Lbg
definition
(
consumer
price
index
Inflation
• CPI measures average price of a consumption basket
• CPI and GDP deflator usually move together over time
• Besides some technical differences, CPI and GDP deflator measure different things
• CPI: price of goods and services purchased by urban consumers (includes imports)
• GDP deflator: price of goods and services produced domestically (no imports)
• Inflation rate
⇡t ⌘
Pt
Pt
Pt
21
1
1
⇥ 100
Inflation
CPI and GDP deflator inflation move together over time
22
Unemployment
• Unemployment rate
L=N +U
N
U
⌘ labor force (number of people)
⌘ employed
⌘
unemployed a
Unemployment rate in given period: u ⌘ U/L
if
job
you
and
searching for
do
not
you
a
23
are
job
• Participation rate in given period: L/civilian (working age) population
have
.
Unemployment
• Australia in June 2018
12.5Gt
0.72
/
L = 13.28 million people
N
= 12.56 million people
U
=
0.72 million people
Unemployment rate: u = 0.72/13.28 = 0.054 or 5.4%
Participation rate: 13.28/20.24 = 0.656 or 65.6%
24
Unemployment rate
Unemployment rate u ⌘ U/L
25
Unemployment
• Of people without jobs, only those looking for work are counted as unemployed
– in Labor Force Survey, 42,000 households per month
– have been looking in last 4 weeks
• Those not working and not looking are “not in the labor force ”
• Unemployment rate changes due to
#
– size of pool of unemployed people U
– size of labor force L (“changes in participation ”)
26
%
or
¥N
Next lecture
• The goods market
– Blanchard, chapter 3
27