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Macroeconomic
Week

Date

Mode

Complete

Slides

Chapter 1:
What is macroeconomic?
macroeconomic is the study of the structure and performance of national economies
and the policies that government use to try to affect the economic performances such
as:

1. Determinants of long-run economic growth

2. Business cycles

3. Unemployment, inflation

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 4. International trade and lending

5. Macroeconomic policies

What are the difference between macroeconomic and

microeconomic?
microeconomic: focuses on the firms, markets, goods & services.

macroeconomic: focuses on the national totals and aggregations.

What is aggregation?
Aggregation is the process of adding individual economic variables to obtain
economywide totals. (sum of VALUE)

Example:
1kg of Apple = 5$ 1kg of Silver = 600$
National wide, we have 100kg of Apple and 50kg of Silver
Hence, aggregation is suppose to be = (100*5) + (50*600)= $30,500 and

Macroeconomic concerns with 3 main areas:

Income generation (AD = AS) - Equilibrium

Inflation (AD > AS) - Economic expansion

Unemployment (AS < AD) - Economic recession

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 Chapter 2: measurement and structure of
national economy
What is GDP?
GDP : market value of all final goods and services produced by both NATIONAL
and INTERNATIONAL (foreign) workers ONLY within the country in a given period
of time.

GDP: Goods & Services produces within a country in a year and growth before tax.

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 What is GNP?
GNP : market value of all final goods and services produced by ONLY NATIONAL
workers at both DOMESTIC and ABROAD workplace in a given period of time.

GDP (Y) = C + I + NX + G

GNP = GDP + NFP

Measures of GDP:
Production Approach: “ the approach that measures GDP using all ‘Production
Output’, excluding ‘Intermediary Output’

Income Approach: “the approach that measures GDP using ‘Income’ received by
all producers of output”

Expenditure Approach: “the approach that measures GDP using VALUE of all
products that are sold to FINAL USERS”

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 Disposable Income: Net Income: Net Pay
Private Disposal Income: Y + NFP + INT + TR + T

Private Saving: Spvt = Y + NFP + INT + TR + T - C

Public Saving: Spub = T - TR - INT - G

National saving: Spvt + Spub = Y + NFP - C - G

NX = X - M

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 NX < 0 : Trade deficit

NX > 0: Trade surplus

NX = 0: Trade balance
CA = NX + NFP

CA > 0: Foreign lending

CA < 0: Foreign borrowing

Real GDP = sigma.Y x Q

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 What is Price Index
Price Index : is the measure of the CURRENT prices for some specified set of
goods and services, relative to the BASE-YEAR price.

price index: measures relative prices changes for any 2 periods or places

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 Chapter 3:

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 Marginal Productivity
Marginal productivity is the additional output produced by each additional unit of capital
stock. or increase in output produced that results from one unit increase in the capital
stock

MPN
Marginal Productivity of Labor (MPN): is the additional unit produced by each additional
unit of labor. or increase in output that results in output that results from one unit

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 increase in labor.

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 Supply Shock
Supply Shock is a CHANGE in the economy’s Production Function.

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 Labor Market
MRPN = MPN x Price

MPN = Norminal wage (W) / Price

MPN = real wage (w)

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 Factors affecting Labor Supply
Wealth: wealth increase, SN decrease

Expected real wage: expected real wage increase, SN decrease

Working age: Working age increase, SN increase

labor participation rate: Labor Participation rate increase, SN increase

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 Unemployment
Unemployment: a circumstance which a number of people, that are available for
work and are

actively seeking for jobs, CANNOT find job.

Type of Unemployment:
Frictional Unemployment: happens  when you are voluntarily quit the job and is
finding another job.

Structural Unemployment: happens when you are involuntarily unemployed

caused by mismatch between skills that workers in the economy can offer & skill
demanded of workers in economy.

Cyclical Unemployment: Occurs during downturns of the business cycle, when the
economy is in recessionary gap.

Seasonal Unemployment: typically occurs when a specific time of year ends or a

new season begins, such as for a holiday or due to weather changes.

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 Chapter 4: Consumption, saving, and
investment
Factors affecting Consumption and Saving:
An increase in Consumption Saving Shift S curve

Current Income (Y) increase increase right

Future expected income Increase decrease left

Wealth increase decrease left

real interests rates for savers decrease increase right

real interests rates for borrowers increase decrease left

Taxes decrease increase right

government spending (G) increase decrease left

Tax (Ricardian equivalence) no change no change no shift

Marginal Propensity to Consume (MPC):

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 Marginal propensity to Save (MPS):

MPS = 1 - MPC

MPC = 1 - MPS

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 At what QUANTITY of Capital (K) should we INVEST in order to maximize our
PROFIT / BENEFIT?

If there is tax output, then (1+t) MPK ≥ UC, in order to maximize

profit

Formula:
UC = Depreciation + Interest

Depreciation = Depreciation rate x Purchase Cost of Capital

Interest = Interest rate x Purchase Cost of Capital

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 Formula: UC = (d + r) * pK

Why does Capital Stock Changes overtime?

1. Total purchase or construction of new capital goods or gross investment.

2. Depreciation of capital stock.

When gross investment exceeds depreciation, the capital stock grows.

The change in the capital stock over the year (difference between gross investment
and depreciation is net investment)

Formula: Net Investment = Ending Capital Stock - Beginning

Capital Stock

Formula: Net investment = Purchase of New Capital Stock -

Depreciation
Good market equilibrium is when Sd = Id , (desired saving = desired investment)

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 Chapter 5: Saving and Investment in the
Open Economy

What is Balance of Payments?

Balance of payments accounts are the record of a country’s international
transactions

It shows all the payments received from other countries (credits), and all payments
made to other countries (debits).

Balance of payments consists of : Current account (CA), Financial Account (F), and
Capital Account (K).

CA (Current Account) consists of:

NX: Net exports

NFP: Net Factors of Payments

NUT: ODA: Net Unilateral Transfer

Financial Accounts Consists of:

Foreign owned domestic assets +

Domestic own foreign assets -

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 What is Open economy?
Open economy is an economy that is quite small to affect the world interest rate.

In open economy : Sd and Id doesn’t have to be equal.

Sd > Id : Foreign lending, current account surplus

Sd < Id: Foreign borrowing, current account deficit

Formula: Mainly NFP = 0

SN = I + NX

Sd = Id + Foreign lending

GDP = C + I + G + NX

Absorption =   C + I + G

SN = Y - C - G

Chapter 6: Long Run Economic Growth

In order to make Long-run Economic Growth, need to increase K
and N
N increases because of population growth

K increases because of investment

Purpose of investment:
To increase Capital stock

To replace Capital worn out (to replace amount depreciated)

What is growth accounting

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 Growth accounting: productivity growth is a part of economic growth
.

What is development accounting?

Development Accounting: income growth is a part of productivity growth.

Solow Model
Close economy: S = I

population growth: labor growth

measure in per capita term: (per worker)

In closed economy: Y = C + S

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 Factors Change in Long Run living standard
s: Saving rate increase → y. f(k) → k increase

A: total productivity increase → y* → k increase

n: population growth rate increase → (n+d)k increase → k decrease

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