Wprowadzenie do
makroekonomii
Zespół
Wykłady:
- Michał Brzoza-Brzezina
Konsultacje: piątki, 17.30 – 18.30, pokój 6/3 „C”,
Materiały: http://web.sgh.waw.pl/~mbrzez

Ćwiczenia:
- Mgr Anna Duszak,
- Mgr Tomasz Kleszcz

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
2
Podręcznik
Podręcznik
Burda & Wyplosz: Makroekonomia. Podręcznik europejski, Polskie
Wydawnictwo Ekonomiczne 2013
Materiały w sieci: http://www.oup.com/uk/orc/


Inne materiały wskazane podczas zajęć
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
3
Zaliczenie




Zaliczenie ćwiczeń zależy od:
Aktywności
Prac domowych
Kolokwium (12.12 lub 19.12)
Szczegóły ustalą ćwiczeniowcy
Zaliczenie ćwiczeń warunkiem pisania
egzaminu
Będzie egzamin zerowy (w styczniu)
Ocena końcowa: 50% z ćwiczeń, 50% z
egzaminu
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
4
Syllabus
1.
2.



Introduction to macroeconomics: questions asked
by economists, real and nominal variables, national
accounts, the perils of using identities
The economy in the long run
Economic growth: stylized facts about growth, the
Solow growth model, sources of economic growth
Money, prices and exchange rates in the long run:
the economy in long-run equilibrium: potential output,
NAIRU, natural rate of interest and eqilibrium
exchange rate; long-run neutrality of money;
purchasing power parity
Labor markets and unemployment: labour supply and
demand, voluntary and involontary unemployment,
downward wage rigidities, the Phillips curve
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
5
Syllabus cont’d
The economy in the short run
 Stylized facts and main theories about business
cycles: pro, counter and acyclical variables,
deterministic and stochastic theories of business
cycles, the role of nominal rigidities and productivity
shocks
 Private and public sector behavior: budget
constraints of the private and public sector,
aggregate constraint and Ricardian equivalence,
intertemporal choice, sources of private demand, the
IS curve
 Money and credit: creation of money and credit,
demand for money, the LM curve
3.
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
6
Syllabus cont’d
The economy in the short run …
 General equilibrium and monetary policy: short-run
fluctuations under fixed interest rates, stability of
equilibrium, monetary policy and its role in stabilizing
the economy, the effects of monetary policy,
preference and money demand shocks, the AD-AS
model
4.
Open economy: interest rate parity, MundellFleming model, the economy under flexible and
fixed interest rates
5.
Fiscal policy: the stabilizing and redistributive role
of the government, public debt and deficit, fiscal
rules, fiscal multipliers
3.
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
7
Outline of this lecture


-
-
1. What is macroeconomics?
Questions raised by macroeconomics
The role of models
Modern approach to macro modelling
2. Macroeconomic accounts
Gross domestic product
Flows of incomes and expenditures
Real and nominal variables
Macroeconomic identities
This lecture follows chapters 1 and 2 of the textbook
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
8
1. What is macroeconomics?
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
9
Questions raised by macroeconomics

Macroeconomics concentrates on the
behaviour of aggregated variables: GDP,
consumption, investment, unemployment,
inflation, wages, exchange rates, balance of
payments etc.
 Tries to answer several important questions
and provide policy advice.
 Note: macro performance affects micro
happiness (welfare)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
10
What determines long-run growth?
Real Gross Domestic Product, 1870 - 2010
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
11
Why do some economies grow faster than other?
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
12
What causes cyclical fluctuations? Should we reduce
them? How can we do it?
Quarterly Rate of Change in GDP (in %),
UK, 1962:1-2010:4
(% change of GDP in one quarter relative to previous quarter)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
13
What causes unemployment? How can we
reduce it?
Unemployment rates: EU, US, Switzerland
(percent)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
14
What causes inflation? How can we fight it?
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
15
How do financial markets interact
with the macroeconomy?
Example: financial crisis 2007-08
caused a deep recession
 Did wrong macro policy (e.g. to
expansionary monetary policy) cause
the crisis?
 How does the credit crunch affect
economic growth? How can we fight it?

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
16
How to deal with poverty and
inequality?
Poverty and inequality are a serious
problem both in national and
international dimentions
 Which policies help, which do not?
 Often an empirical question
 Serious problem: endogeneity!

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
17
The role of models



Reality is extremely complicated
To understand it we need models
Simplified versions of real world (selected aspects)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
18
Models are only models …
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
19
Or even better…
„Essentially, all models are wrong, but
some are useful”
Box, G. E. P., and Draper, N. R.,
(1987), Empirical Model Building and
Response Surfaces, John Wiley & Sons,
New York, NY, p.424.
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
20
Fig. 1.10
Endogenous and Exogenous Variables
Endogenous variables are the object of analysis in an economic
model.
Exogenous variables are determined outside the economic model.
© Oxford University
Press, 2012. All rights
Modern approach to macro modelling





Until 1970s macro models based on ad-hoc
relationships of aggregated variables
e.g. Phillips curve: permanent trade-off between
inflation and unemployment
This resulted in misleading policy advice (Phelps,
Friedman, Lucas critique) – stagflation in 1970’s
Everything in macroeconomics comes from individual
behaviour
Mainstream approach since 1980’s: We should base
every macro model on individual behaviour
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
22
Microfoundations

Households maximize lifetime utility
They choose consumption, labour supply, real money holdings to
maximize:

Mt
max U  t 0  u ct , lt ,
Pt





t



subject to budget constraint
Firms maximize profits
They choose prices and production method subject to production
function, market structure (competition), price stickiness etc.
In equilibrium (after aggregation) all markets clear:
Labour demand equals labour supply
Production equals consumption
Money demand equals money supply
This is called general equilibrium
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
23
Example – contemporaneous macro model
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
24
2. Macroeconomic accounts
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
25
What are national accounts?
Set of statistical definitions
 Plays central role in studying
macroeconomics
 Discretionary with many drawbacks
 But still the best way to measure
economic activity and development we
have

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
26
Gross domestic product
GDP is a measure of productive activity
 It is a flow variable
 Measured for a geographic area
(usually country)
 Defined over a time interval (usually
year or quarter)
 Can be measured in three ways

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
27
GDP: definition 1
GDP=sum of all net final sales
 Only final sales – e.g. for consumption
purposes.
 Intermediate sales are not accounted
for – GDP does not depend on the
length of the production chain

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
28
GDP: definition 2
GDP=sum of value added
 Value added is the difference between
sales and cost of raw materials,
unfinished goods and imports
 Value added is not counted twice
 Hence, sum of value added must equal
value of final sale (corrected for tax).

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
29
GDP: definition 3
GDP=sum of factor incomes
 One persons expenditure (def. 1) is
someone else’s income
 Usual production factors: labour and
capital

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
30
Drawbacks of GDP accounting
Measures directly only legal economy –
underground activities are estimated roughly
 Does not account for many important
activities – e.g. housekeeping
 GDP is a bad measure of welfare – does not
account for social conditions (e.g. good
sidewalks or playgrounds), environmental
conditions, equality of incomes etc.
 Alternative measures exist, e.g. UN human
development index.

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
31
Satisfaction with life index
GDP per Capita and Life Satisfaction in 2006
GDP per capita 2006
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
32
Components of HDI
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
33
Source: HDR 2013
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
34
Circular flow
As mentioned, every expenditure is
someone’s income
 Examples:
- taxes are private sector’s expenditure
but the government’s income
- imports are the domestic economy’s
expenditure but the foreign economy’s
income

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
35
Figure 2.02
Circular flow (manual)
Government
(T-G)
Rest of
World
Private
Sector
(X-Z)
(S-I)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
36
Figure 2.02
Circular flow (automatic)
Government
(T-G)
Rest of
World
Private
Sector
(X-Z)
(S-I)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
37
Table 2.3
Components of GDP
Consumption (C)
Investment (I)
Government
purchases (G)
Australia
Germany
France
UK
56.4
58.5
56.8
65.0
22.4
18.2
20.1
17.0
17.4
18.9
23.6
21.0
Italy
Japan
Canada
Switzerland
59.3
57.4
56.4
59.1
20.7
24.0
21.4
21.4
19.9
18.1
19.7
11.3
USA
Euro Area
69.8
57.2
18.8
20.8
15.8
20.5
Source: IMF
Table 2.4
GDP and Household Disposable Income, 2009
GDP
Households disposable income
(billions of € )
(billions of € )
% of GDP
Germany
2,395.0
1,554.2
64.9
France
1,907.7
1,293.9
67.8
Sweden
290.9
154.4
53.1
Switzerland
354.5
211.4
59.6
10,122.6
7,911.5
78.2
1,565.7
1,057.6
67.5
United States
United Kingdom
© Oxford University
Press, 2012. All rights
Sources: OECD Economic Outlook, ECB
Real and nominal variables

Most economic variables including the
national accounts can be measured in
nominal or real terms
 Nominal variables are measured in units of
money
Examples: nominal GDP, nominal consumption,
nominal wages
 Real variables are measured in units of
goods
Examples: real GDP, real consumption, real
wages
 Real variables tell us how much purchasing
power has our income, wage etc.
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
40
How to construct real variables?
Nominal variables are usualy easily
available: e.g. the lecturers wage
 Real variables are constructed by
dividing the nominal variable by the
respective deflator (price of the
underlying good)
 Real GDP=Nominal GDP/GDP deflator
 Real wage=Nominal wage/CPI

M.Brzoza-Brzezina:
Macroeconomics II - Introduction
41
Deflators
Inflation in Italy, 1985-2010
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
42
Source: IMF
Table 2.01
Euro Area: Growth Rates (% per annum)
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
43
Source: Eurostat
Key accounting identities

From definition 1 (final sales go for
consumption, investment etc.):
Y=C+I+G+X-M
 From definition 3 (incomes are spent on
consumption, savings and (net) taxes):
Y=C+S+T
 Resulting balance of sectors:
(S-I)+(T-G)=(X-M)
 Savings of the private and public sector equal
(approx.) the trade balance
 Consequence: twin deficits
 Important: these are all definitions, do not
speak about causality!!!
M.Brzoza-Brzezina:
44
Macroeconomics II - Introduction
Table 2.5
The Accounting Identity in 2010 (% of GDP)
S-I
T-G
CA
USA
Japan
Belgium
-5.6
10.3
3.9
-8.8
-6.7
-2.6
-3.2
3.6
1.3
Denmark
France
Germany
4.7
2.6
8.1
0.8
-4.8
-2.5
5.5
-2.2
5.6
-1.3
11.5
0.7
-2.2
-3.8
-5.2
-3.5
7.7
-4.5
4.7
5.8
4.1
1.6
-8.3
-3.9
6.3
-2.5
0.2
Italy
Netherlands
Spain
Sweden
UK
Euro area
© Oxford University
Press, 2012. All rights
Source: OECD
Twin deficits
Source: Wikipedia
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
46
The Effect of Fiscal Consolidation on the Current Account
John Bluedorn and Daniel Leigh
M.Brzoza-Brzezina:
Macroeconomics II - Introduction
47