introduction to macroeconomics

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swp0000.dvi introduction to macroeconomics lecture notes robert m. kunst march 2006 1 macroeconomics macroeconomics (greek makro = ‘big’) describes and explains economic processes that concern aggregates. an aggregate is a multitude of economic subjects that share some common features. by contrast, microeconomics treats economic processes that concern individuals. example: the decision of a firm to purchase a new office chair from com- pany x is not a macroeconomic problem. the reaction of austrian house- holds to an increased rate of capital taxation is a macroeconomic problem. why macroeconomics and not only microeconomics? the whole is more complex than the sum of independent parts. it is not possible to de- scribe an economy by forming models for all firms and persons and all their cross-effects. macroeconomics investigates aggregate behavior by imposing simplifying assumptions (“assume there are many identical firms that pro- duce the same good”) but without abstracting from the essential …

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ent (around 5%), good economic growth, and inflation (0—3%). in all specifications, aim is meeting several conflicting targets simultaneously. examples for further typical questions to macroeconomics: what causes business cycles (episodes of stronger and weaker economic growth)? can an increase in the monetary supply by the central bank cause real effects? what is responsible for long-run economic growth? should the exchange rate of a currency be kept at a fixed level? can one decrease unemployment, if one accepts an increase in inflation? a survey of world economics: three large economic blocks (eu- rope, usa+canada, japan+far east) with different problems, the remain- der mostly developing countries. 1. usa: good growth, low inflation, tolerable unemployment rate, per- sistent external deficit, increasing income inequality. 2. eu: moderate growth, low inflation, in some countries high unem- ployment, inconspicuous external balance (total eu active, in austria recently turned active), for some countries large public debt, …

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uropean system of accounts) standard. economic activity is mainly measured by transactions. phrases from text books: diversification of labor (not complete self-subsistence) causes transactions, exchange of money for goods or services, exchange of an asset or liability for a different asset or liability, etc. the transactions take place on markets. money makes transactions easier than direct exchange of goods for goods, which may require ‘double coincidence’ (hungry tailor meets freezing baker). purpose of money: apart from payment and storage of value primarily unit of measurement (numeraire). in economic text books, usually dollar ($), monetary unit (mu), or euro. gross: many activities serve to repair or replace worn or damaged ma- chines and objects (‘depreciation’), therefore it is not the total gdp that contributes to the accumulation of aggregate wealth. in the sna, ‘gross’ usually means ‘inclusive of depreciation’, ‘net’ often contains taxes, though no depreciation. consumption of fixed capital (in …

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ifficult to measure. a consequence of this measurement problem is an exaggerated wedge between developing countries and oecd countries (with the per capita gdp of angola you can- not survive in austria). interest focuses on transactions–bilateral (requited) transactions (purchase etc.) and unilateral (unrequited) transactions (trans- fers)–while value changes of existing objects are not accounted fully. value added : definition of gdp as the sum of values added in the produc- tion process (ore → metal → screw → motor part → video recorder) avoids multiple counts. problems in the valuation of public services. market prices: in principle, all goods and services are valued at market prices, that is, inclusive of all taxes. if data is collected at the net value (without taxes), taxes must be added. economic agents: resident ‘institutional units’ are classified with regard to their distinctive characteristics. types of institutional units are: pri- vate households, general government, financial …

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al government (‘public sector’): receives taxes from enterprises and from private households, provides public goods (‘consumes them by itself’ according to sna), no intention of profit. corporations: produce and invest, do not consume, intention of profit. corporations, not the government sector, comprise also firms in public prop- erty, if they cover 50% of their costs from sales. because depreciation is now called ‘consumption of fixed capital’, it represents a kind of consumption of corporations. corporations are either financial (banks etc.) or non-financial. non-profit institutions serving households (npish): institutions (such as schools, churches) that cover less than 50% of their production costs from sales; idea: no intention of profit. a small sector, for simplification often added to households. rest of the world : consumes goods and services produced by residents (exports) and produces goods and services consumed by residents (imports). imports of services: includes travels abroad by residents 5 exports of …

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swp0000.dvi introduction to macroeconomics lecture notes robert m. kunst march 2006 1 macroeconomics macroeconomics (greek makro = ‘big’) describes and explains economic processes that concern aggregates. an aggregate is a multitude of economic subjects that share some common features. by contrast, microeconomics treats economic processes that concern individuals. example: the decision of a firm to purchase a new office chair from com- pany x is not a macroeconomic problem. the reaction of austrian house- holds to an increased rate of capital taxation is a macroeconomic problem. why macroeconomics and not only microeconomics? the whole is more complex than the sum of independent parts. it is not possible to de- scribe an economy by forming models for all firms and persons …

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