EC1002 Revision Macroeconomics Powerpoint Slides PDF

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Revision notes for the webinar held before the summer exams....

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EC EC1 1002 Rev Reviision session: Macr Macroeconomics oeconomics Chiara Sotis April 15th 2021

A little bit about me

Part 1: IS-LM Model

IS-LM model: The IS curve

IS schedule

Why is the IS downward sloping?

IS-LM model: the IS curve

r

A change in the interest rate r This implies a movement along the IS schedule y

A change in government expenditure or taxes

r

This implies a shift of the IS schedule (up if G is higher and T lower, down otherwise) y

IS-LM model: The LM curve

IS-LM model: the LM curve

IS-LM model: the LM curve

IS-LM model: the LM curve

IS-LM: Equilibrium

Fiscal expansion

Fiscal policy: a few more comments

The multiplier in an open economy • Each extra unit of national income raises consumption demand for domestically produced goods just like in a closed economy, but not by 𝑐′, the induced additional consumption demand, but only by (𝑐′ − 𝑧). • Some of the extra demand now leaks out into imports without adding to the demand for domestic output. • The multiplier is lower because there are leakages not only through saving and taxes but also through imports and is equal ! ! to !"#!$% or, in full, to &$'(!"&)

%$• Just like before the denominator is the marginal propensity to leak through all channels –now taxes, saving out of disposable income and imports

Can we infer anything about policies?

Fiscal policy: crowding out

Monetary Policy in action

Monetary policy in action

Monetary Policy: reminders

Monetary Policy in action

Exchange Ex change rraates and the balance paaymen entts of p

Open economies and exchange rates

Forex market: who buys/supplies the money?

The Forex market Exchange Rate $/£

S

E*

D Quantity of £

Exchange rate regimes

Fixed exchange rate regimes Exchange Rate $/£

B ! ! = !∗ A

C

DD’ DD Quantity of £

Fixed exchange rate regime

Floa Floating ting eexxch change ange rrat at ate e rregim egim egime e

B

!" !! A

DD’ DD Quantity of £

The balance of payments

The current account

The capital account

The financial account

The balance of payment: an overview

A bit of practice

Floating exchange rates

Fixed exchange rates

The real exchange rate

Interest Power Parity

Ex Exchange change Ra Rate te Re Reggimes & Ma Macroeco croeco croecon nomi omicc poli policies cies

Fixed exchange rates

Fiscal policy with fixed exchange rates

Floating Exchange Rates

Monetary policy with floating exchange rates

Monetary policy with floating exchange rates

Fiscal policy with floating exchange rates

Exam technique and advice

Study tips

Study tips • Study is more efficient if you take regular breaks • Never study all day/night • if you don’t understand something have a go, then stop and try again the next day after sleeping. Often you will find that you then understand. • If you don’t ask a friend or the forum, let others guide you but not solve things for you!

Dos- before attempting the question When reading the question (and before writing anything) think about the structure: how are the parts connected? Are there definitions to be included? Methods to be explained? Look at “reasoning” questions: is there a part that invites you to broaden the scope of the model? If not can you maybe add a comment on this somewhere?

Think about the order you want to follow

Plan breaks

Dos- when you’re writing

Make sure all definitions are included

Make sure you label graphs properly

Make sure you highlight any relevant change (e.g. shifts in a curve)

Make sure what you write is legible

Always explain the method used and check whether the assumptions needed for it to work are satisfied

End the question with a short comment

Don’ts 01

02

Panic is your worst enemy

Overthinking is your second worst enemy

03 Mix and match questions as you answer them

04 More isn’t always better, there is no non-satiation assumption for answers!

Thank you & good luck!...