1. Introduction to Macroeconomics 1. Introduction to Macroeconomics PDF

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Introduction to Macroeconomics1. What is Macroeconomics? Microeconomics : the study of how individual economic units make choices and their interaction in individual markets. Macroeconomics: the study of the behavior of the overall economy as a whole and concerns with major economic totals or aggr...

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ECON 1006 Principles of Economics II (Macroeconomics)

Semester 2, 2021/22

Introduction to Macroeconomics 1. What is Macroeconomics? 

Microeconomics: the study of how individual economic units make choices and their interaction in individual markets.



Macroeconomics: the study of the behavior of the overall economy as a whole and concerns with major economic totals or aggregates.

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Three major concerns of macroeconomics are: o Economic Growth o Unemployment o Inflation

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Each of these three issues is linked to the total output produced in the economy, which is measured by the real gross domestic product (real GDP).

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ECON 1006 Principles of Economics II (Macroeconomics)

o

Semester 2, 2021/22

(Long-run) Economic Growth: The increase in the output level over long periods of time (the long-run trend).  Usually one to several decades.  Output per person (measured by real GDP per capita) is commonly used as a measure of average standard of living.

Average growth rate: 8.50% per year Average growth rate: 1.34% per year

o

Business Cycles: The short-run fluctuations in real output around its long-run trend.  Typically one to five years  The duration and intensity may vary substantially.  Expansion: A period of increasing output and decreasing unemployment.  Recession (or contraction): A period of decreasing output and increasing unemployment.  Depression: A prolonged and deep recession

Real GDP (output) Peak

Long-run trend: Economic growth

Peak

Trough

Trough Expansion

Recession

2

Expansion

Time

ECON 1006 Principles of Economics II (Macroeconomics)



Semester 2, 2021/22

Most economies agree on three macroeconomic goals: economic growth, full employment, stable prices. To achieve these goals, the governments adopt different macroeconomic policies (e.g. fiscal or monetary policies). o A major application in macroeconomics is to study the impacts of these policies.

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ECON 1006 Principles of Economics II (Macroeconomics)

Semester 2, 2021/22

2. Disagreement and Development in Macroeconomics 

The Classical School o Assumes wages and prices adjust rapidly enough to maintain equilibrium in all markets (the invisible hand). o Argue that government should have, at most, a limited role in the economy.

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The Keynesian School (since John Maynard Keynes, The General Theory of Employment, Interest, and Money, 1936) o Assumes wages and prices adjust slowly (price stickiness) o More willing to advocate a role for government in improving macroeconomic performance. o Enjoyed dominance until 1970s.  The stagflation (high unemployment and high inflation) experienced in the U.S. contradicts the prediction of the Keynesian theories.  The assumption of price stickiness was criticized as being without sound theoretical foundations.

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While economists generally believe that price stickiness might be a better assumption for studying short-run behavior of the economy (business cycles), they agree that price flexibility is a good assumption for studying long-run issues (economic growth).

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Evolution of the Macroeconomics (optional): o New classical economists have improved in their explanations of business cycles and unemployment, mainly based on rational expectations hypothesis. o

Real business cycle theory attempts to explain business cycle fluctuations under the assumptions of complete price and wage flexibility and rational expectations, which emphasizes shocks to the production technology and others.

o

New Keynesian economists retain the assumption of rational expectations, but assume sticky prices and wages, by developing models with sound theoretical foundations for price stickiness.

Readings:  Chapter 17

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December 6, 20216:03 PM CST

Asian Markets

Chinese govt thinktank proposes growth target of above 5% for 2022 Reuters 2 minute read

pushing for high-quality development," Li Xuesong, a researcher at the Chinese Academy of Social Sciences (CASS), told reporters. The world's second-largest economy is likely to grow around 5.3% in 2022, according to an annual blue book issued by CASS at the briefing, although the report cautioned that the forecast could be adjusted lower depending on the COVID-19 situation. Advisers to the government will recommend that authorities set a 2022 gross domestic product target lower than the target set for 2021 of "above 6%", Reuters reported, amid growing headwinds from a property downturn, weakening exports and strict COVID-19 curbs that have impeded consumption. [nL4N2SM2GL] The thinktank is also recommending the government set a target of around 5.5% for urban jobless rate and a target of around 3% for consumer inflation next year. On policy recommendations, CASS suggests that monetary policy could be relaxed marginally next year to cope with the downward pressures and the central bank should guide interest rates lower to aid small firms grappling with high costs before the U.S. Federal Reserve moves to taper. The economy is expected to have expanded by about 8% this year, according to CASS. The thinktank also warned that the property downturn was likely to persist and weigh on the expenditures of local governments next year.

Containers are seen at the Yangshan Deep-Water Port in Shanghai, China October 19, 2020. REUTERS/Aly Song/File Photo · ·

Summary Proposes target of over 11 mln for urban new jobs in 2022

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Proposes target of around 5.5% for urban jobless rate in 2022

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Proposes target of around 3% for CPI in 2022

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Proposes target of around 3% for budget deficit ratio in 2022

BEIJING, Dec 6 (Reuters) - China's top government thinktank on Monday recommended the government set an economic growth target of above 5% for next year as the economy slows due to the persistent COVID-19 cases and high commodity prices. "A target of above 5% leaves a certain room of leeway, which is a relatively prudent call. It would also allow all parties to focus on promoting reforms and innovation and

It urged the central government to proactively engineer a soft landing for the property sector, to avoid failed land auctions in big cities and to fend off risks of quickly falling property prices in smaller cities, the report said.

1/9/2020

China 2020 GDP growth target seen to be set at ‘around 6 per cent’ at top economic policy meeting | South China Morning Post

1/9/2020

China 2020 GDP growth target seen to be set at ‘around 6 per cent’ at top economic policy meeting | South China Morning Post

In a tense atmosphere created by slowing Chinese growth, rising ination and continued uncertainty whether

SCMP.COM

trade taris will be rolled back as part of a deal with the United States, hundreds of senior Beijing ocials, economic policymakers, provincial governors and heads of state-owned banks will convene for a major annual economic policymaking meeting later this month. The meeting will decide the economic policy priorities for next year, including setting growth and ination

Economy/ China Economy

targets [1] and how much scal and monetary stimulus will be needed to meet those goals.

China 2020 GDP growth target seen to be set at ‘around 6 per cent’ at top economic policy meeting

The trade war, which has entered its 17th month with no immediate end in sight, will be just one of many economic problems to be discussed at the three-day Central Economic Work Conference [2] at the tightly guarded Jingxi Hotel in Beijing.

The world’s second-largest economy is expected to continue to pursue policies that balance economic growth

The Central Economic Work Conference is to take place in Beijing later this month with trade war uncertainty still hanging over China The important policymaking meeting is set to allow modest expansion of scal and monetary policies to support economy without resorting to massive stimulus

seen after the global nancial crisis [3] a decade ago.

Topic| China economy

the consequences of a further decoupling of the Chinese and US economies.

with risk prevention, employing modest measures to support growth without resorting to the massive stimulus

But debate at this month’s meeting is expected to include whether to take the steps needed to ensure that the growth rate [4] remains at or above 6 per cent next year, how to defuse the nation’s ticking debt time bomb and

Frank Tang

The government’s management of the economy next year will be a big test for Beijing’s top leadership, headed

Published: 6:15am, 6 Dec, 2019

by President Xi Jinping, who has vowed to steer the world’s most populous country towards the 2020 milestone of building a well-o society.

Beijing has kept sending the message in recent months that the slowdown is gradual and this is OK as long as the labour market is good Louis Kuijs Analysts widely expect the meeting to set a growth target of “around 6 per cent” next year, [5] down from the target range of 6 per cent to 6.5 per cent for this year. The new target will be supported by an increase in the scal decit ratio to 3 per cent of gross domestic product (GDP), the issuance of more than 3 trillion yuan (US$424 billion) of local special purpose bonds to support local government infrastructure projects and an accommodative monetary policy that modestly reduces the costs of borrowing for consumers and businesses, analysts expect. “Beijing has kept sending the message in recent months that the slowdown is gradual and this is OK as long as the labour market is good,” said Louis Kuijs, who heads Asian economy research at Oxford Economics. The government should expand scal spending only modestly unless the headline growth drops signicantly to 4 or 5 per cent, Kuijs added.

https://www.scmp.com/print/economy/china-economy/article/3040822/china-2020-gdp-growth-target-be-set-around-6-cent-top

1/9/2020

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China 2020 GDP growth target seen to be set at ‘around 6 per cent’ at top economic policy meeting | South China Morning Post

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1/9/2020

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China 2020 GDP growth target seen to be set at ‘around 6 per cent’ at top economic policy meeting | South China Morning Post

However, further measures that break the connections between the Chinese and US economies cannot be ruled

On the surface, China still remains one of the fastest growing economies in the world. However, new risks,

out in a US presidential election year, posing a great uncertainty for the Chinese economic outlook.

including increasing credit defaults, corporate bankruptcies and job losses, are now coming to the surface amid the slowdown. “At this point, it is denitely impossible for us to walk the old [debt-fuelled growth] road. The leadership

“The relation with the US is the number one risk,” Kuijs warned.

knows this very well. It has pursued a variety of de-risking policies in recent years,” said Mao Zhenhua, founder of China Chengxin Credit Rating Group.

Beijing and Washington continue to haggle over the details of their “phase one” deal almost two months after US President Donald Trump [6] announced the outline of the agreement.

“China has a severe debt problem, [8] which would already have triggered a crisis in traditional Western countries. A further policy loosening would increase the risk to a tipping point … We must be careful.”

Trump’s comments this week that he might not agree to a deal until after the election in November has fuelled market expectations that bilateral relations could worsen further, with a negative impact on bilateral trade and

Mao said the Central Economic Work Conference should focus on tackling nancial risks and providing more

investment.

tax relief.

The continuous decline in the headline growth rate since 2011 has fuelled worries that China’s economy, after “If we previously spent 70 per cent of our energy on economic support and the rest on risk prevention, the

four years of supply-side structural reforms, could enter a “vicious downward spiral,” triggering rising calls

balance now needs to be adjusted [to a ratio of about 50-50],” he argued.

from some policy advisers for Beijing to defend a 6 per cent growth rate.

Lu Ting, Nomura’s chief China economist who briefed Chinese Premier Li Keqiang and the State Council in mid-November on the economic outlook, believes that the Central Economic Work Conference will set a growth

“We can no longer let the economic growth rate break the 6 per cent threshold … it is time to brake,” Yu

target of “around 6 per cent”.

Yongding, former central bank adviser and a prominent government economist, wrote in an article published by Caijing Magazine on Monday.

“China has paid too much attention to the growth rate … and usually sets it too high,” Lu said. “It’s unnecessary to defend a number when no heavy [economic] shocks occur. No number is sacred and inviolable.”

Analysts, meanwhile, are divided whether the Central Economic Work Conference will increase the ination target next year.

The government can raise the scal decit ratio to 3 per cent from this year’s 2.8 per cent, while the quota for

China’s consumer price index (CPI) [7] rose 3.8 per cent in October from a year earlier, well above the

local special purpose bonds could be allowed to jump to 3.2 trillion yuan (US$453 billion) from 2.15 trillion yuan

government’s 3 per cent target for the full year, with pork prices more than doubling over the period, according

(US$305 billion), he said.

to the National Bureau of Statistics.

China has long claimed that it has ample toolkit to manage the slowdown, but it has shown restraint in using

“If the GDP target is lowered but the CPI target is raised, it would increase market speculation of stagation,

them. When meeting with the heads of six major international organisations last month, Premier Li [9]

which the government will want to avoid,” said Zhou Hao, a senior emerging market economist of

explicitly ruled out an all-out stimulus programme to arrest the current slowdown.

Commerzbank, who expects the government will keep the 2020 CPI target unchanged at 3 per cent.

In the article published last week, People’s Bank of China governor Yi Gang also rejected the use of unconventional monetary policies employed by Western economies – including quantitative easing and negative interest rates – to support the economy.

China has a severe debt problem, which would already have triggered a crisis in traditional Western countries. A further policy loosening would increase the risk to a tipping point … We must be careful Mao Zhenhua But Zhang Jun, chief economist of Morgan Stanley Huaxin Securities, expects the CPI target to be lifted to 3.5 per cent in 2020, to “create more room for monetary policy easing”.

https://www.scmp.com/print/economy/china-economy/article/3040822/china-2020-gdp-growth-target-be-set-around-6-cent-top

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