Klick in %

- /

good
middlerun - -

- Intermediate
r n
Zwischen Produkt
Short long rum
run →

/
←
IMPORTANT WORD S The Measure of output is called domestic ( GDP )
We
only
Final Good
aggregate gross product .

count the → Finales Produkt

aggregate Output
=
GDP
GDP is the value of final produced in the
Final
Goods
during

¥:*: :
goods and Services
economy a

!!!
"
¥::*::
""

Okuns Law d Phillips Curve

÷::-.: :c: ÷: :* :÷: ) : :S :
.

GDPJDEanprio%7a.se?ftgYasre;ansIsajes
NOMINAL & REAL ! Nominal GDP is also called GDP at current pricesleuros .

Real GDP is also called

goods / /
'

Nominal GDP is the sum of price of increases GDP in terms of in constant euros
goods
-

- - . _ .
.

the
quantities of final goods Real GDP in chained pries reflects
'
adjvslet for inflation / in ( base
"

Ö"
year ) pries

µ
/
Produced times their current
pm" ""

yöiäiöiüiä
iii.
.

,
we

,
ewoutegdsoniänonäiücas
me . .
. "
→ .
Real GDP is the sum of the t stk .
P N -

GDP R -

GBP6200910 Nominal Base Hd

changing quality Example .
.
:

2008 10 20 200 240 10-24

quantities final
goods times
Quality increase of 18%
¥0
of
constant (→ Basisjahr ) ④ 12 240 288 288 ^? -
24
Price
"%
}
prices .

2010 13 26 338 13-24

real Laptops
decade of 7%
312 -

Quality adjusted -

price has fallen

E- Zeitpunkt
Y Real GDP
-

by about 25%
€4 Nominal GDP

UN EMPLOYMENT RATE The

unemployment rate is the ratio of the
Background t
Important Ce
humber of to the
people who are
unemployed humber
Effect Welfare of the
Labour
employment t Un
employment
=
of
→ on
people in the labour force „ =
UIL
Force
.

Unemployment rate =
un
employment labour force unemployed
L = N t U
Discouraged Workers are those ,
who
give up
→
Signal economy is not using
lookingfor a
job and so no
langer counted as human resources
efficiency
oft
is the humber
§ unemployment do who not have job
unemployed .

people a
Low
→
unemployment rate can
.

participation is the ratio of the labour

but are
looking for one The rate
lead to labour
shortages
.

Force total
↳ Not in the labour force : Mothers at home .
to the
population of
waking age
_ .

retired people
Kids , ,
injuried ,
etc .

INFLATION RATE GDPDEFLATOR samt

Inflation is a sustained rise The GDP deflator in
year tlpn ) The rate
ofchange Real GDP Yzozo
=
1000

↳
in the
General level of prices .
is the ratio of nominal GDP to = raleof inflation Nominal GDP €42020
=
1100
real GDP t
in
year . GDP Deflator Pzosg = 1

rayofehange.fntaewamjfhs.tw
The inflation rate is the rate
Pott Pzozo
=

II =
1,1 → GDP Deftator

NpjjafppfDP-t.CI Price level

app ,
pz .
Ttt

(111/1)=0,1
Yt Pt \ Previews
of
Deflator GDP -
1 =
10% rate
#ozo
:
=

Is
Deflator Har inflation
Deflation is a svstaineddecline
→
Called an index number
in the Price level "
of nominal GDP %! 955
Nominal Gpp Rate of growth rateof inflation
.

is equal to the
equal of inflation
ratet
is to the rate
GDP deflator times real GDP
Background tlmportance -

plus the rate of real GDP

growth of .

→ Affects in come distribution when € Yt =

Pt .

Yt of nominal GDP

not all prices and rise

- -

wages
- - - - - -
-
- - -
-
- -
=

Proportion ally uncehmapinoyement Empirischer Mittelwert charge in the

rate %
inflation
rate %
Nt 0.419*-3%1
Yt

of
Verzerrung)
-

to distortion (
s
-

s
2
-

→ Leads ,
.
③
|

due to
°

vncertainty , some prices / .

.
°
.

Initiieren! ! III:"
Rate of inflation
. . '

t.im:* .

|
"
° ° °
°

Best rate of inflation

°
→ :
1- 4% '
. .
.

.
.
.

/ ⑧

.in:7 .info: ::
:" " " "

i÷ Medium
determined

long rum
:

abilitytoinnovate
rum : level of

by supplyfactors
economy dependson
.
Output
:*
reduction in
Output growth
is associated with
vnemploymentrale
the
unemployment
that is love than

.
an increase
rate
usual
in the
. to
rate
an increase

Ieads to
in

a
the

decrease
inflation
in
rate

the
.
A
high vnemployment
inflation rate .
 Mir HEINI
- r
- -
/ \

is
THE SHORT RUN
Gear
on
-
to -

Production
gear movements

, in come and
focus | THE COMPOSITION OF GDP
consumption (c ) :

goods and Services purchased by Consumer sltotataemand ) .

demand : Investment (1) orfixed investment : The sum of non residential Investment and
Production residential
Changes in production investment

)
.

!
demnach:S! Had to
changes in

:p::*
""
¥:: :* .si:9?5nhinFsr:n::::ngs;::nme::er:a'% ! .name .

:* .

/
In come
Exports ( X ) Purchaises of domestic
goods and Services
by foreigner
:

Änne
.

! ! !!!! !!: msojiiiesna.me?..;::::::snaoms

"

Had to
changes in
demand for
goods .

Net exports trade balance investment

or
Inventory
:

X IM X > IM trade Difference between production and Sales

=

plus
=
- sur

Composition of GDP example

.

:
→ Produced but not Sold → Investment
IM > X =
trade definit
-

Total demand
DEMAND FOR GOODS open
↳ ZE ( It GTX IM
economy t -

consumption (C) is a function of disposabk

closed
in come ( YD ) ZE ( t lt G
economy
.

c
YD =
In come after Govenment transfers -
-
- - - - - -
- -

and taxes YD
Consumptionincreases Paging = Y T
-

C1 Loth YD
Slope
>

Kot
with (
Cs )
-
=

disposable in come
C C. ( YD ) → ( = .

YD
Consumption function
=
| :

but less than one for one .

-
A lower of Co
↳ behavioral uatio " )
consumptionifyoeauabzero.PE?YnistfmeNaoN9
value
"
what people consume )
fit hätt!
"" "
! Higherincome →
Aigner ↳ Autonomous
„
UK consumption
↳ variable
Endogen ous variables
Dependingon
:

)
-

( =
Cot Cs ( Y -

T
g. other variables .
Tltaxes ) and Gcgovernment
describe the Fiscal
✓
EJ
:
Spendings)
I
Exogenous variables Not explained
:

←
Polly and are independent
✓ takenasgiven to some a mode)
Takenas - and
exogenous
.

→
gieren
Private
✓ Saving
DETERMINATION OF EQUILIBRIUM OUTPUT 15 -
RELATION public saving
-

( Closed #
Assume IM ZE Ct It G
+ 0
economy ) so
(S) Public
Saving
G = T
= = '
Production private Saving
-

,
'

/ d
=

I
) S YD
( and C
Replacing
=
definit
Budget swplus > 0L Budget
-

GI
=

z = c. + ↳ (y -
g) + I +
C
From precious equations I income SE Y -
T -

q ,
jemand HEELS :3
Equilibrium with
g) lneauitibri
Z eqvation
in the
goods Replacing Y : =

mit "
I Tl
market requiresy
" Z
Z -
Y :( It G C
-

In equilibrium t
- -

( Y Ttt It G
-

Y Cot C1 equal gmp

.

= -

This is an equilibrium
condition Y -

T -

C =
It G -

T
.

More income
Rewrileegvation y :( otcs Y It ↳ more IN
:
.
-

G. Tt G
consumptiong It G T

{
Junge!!jen
= -

Character
Reorganise the
It highereauilibrium I )
-

↳T (T G
:
(y (y ) y (o G =
St -

+
-

=
ises
-
.

equations
equilibrium -5k autonomous spending ↳ This is the 15 relation
( doesn't dependonincome )

; Ihcsnides
Den
Output in : y :
[ ↳ + Eta c, >] -
.

Investment equus Saving

=
•
Geb " - Total Demand z # Jeder Schnittpunkt
i µ
'

¥
equilibrium point
"
=

Production , Y Production Demand

-
'
=

g. ✓
This Lern is the multiplier .
Slope -1
-

Equilibrium Output Investment

closer to 1
Saving
=
which is when \
largo es is .

isdetermined
by the

ytuefeptfffwts
y Equilibrium zz consumption behaviour
:
y >
z
Demand > lncome condition that pro

%
|
-

⑥
i ÷! Gütig:
man' s : " T
i eguaeto
- -

,
1/1/11 "" "
BF ,
I Slope : " =
y -

T -

Co -

(^ .
( y T) -

Ging G
| ZZ i
,

(y T )
'
An increase in
autonomous ar
s = -

cot ( 1- (s ) . -

± , spenaing
; ,
.
.

autonomous spenden,
.

„ " " .me > Demand

-
, has a more than ,
pr.pe +
g. save

between O and 1
l '
one -
for -
one effect on
.

4) : "

equilibrium Output Y lncomey

-
.

Y
y
YI
 NEE in
\ /
- -
/ n

BASF

flink
DEMAND FOR MONEY DETER MINING THE INTEREST RATE
decteasi function
Demand for Nominal
Morey attribute Ausgangspunkt Central bank Supplys amount of
:
an
in come of inlerest rate ;
•
Medium of
exchange MONS I
✓ money equal to M :

Financial
( Md = EY .
L (i) Equilibrium in
Ms Md µ
•
Store of value yoneysuppy qmount markets requires that :
= =

(t ) C- ) Ms =
M
in Hrestrate demand
Unit of a Count Moneysupply
=

Morey

.mn?.nesif
•

Increase in interest rate decreases demand

Ms
=
t transactions for money because more people Put their supply of money M EY LCI )
moneey moneysupply
= .

no interest Wealth into bonds

independent to i
-
.

I :p: %:L!.com , interstate

Müssen
demand for money
jemand! . . .

Er:{Isis!!!!!:c
other
bonds = t positive interest and i for level Md Moves demand
.

rate i of
agieren
in come EY - only
i . . . . . . . . . .
:
. . . . . . . . .
interstate

:/
- no transactions : M
"

÷: ÷:: ::* : ÷::* : . "

÷:
Md
( Government)
€ ' '
i .
-
.
. .
. . .
.
. . .
.
A
- - - -
- - - - -
_ - -

after time
""
9 Md
bond payment per year 100€ -
-

G ; wen
. . . . ' - r -
- . .

Investor fetest Price of bond to EPB

"
aus
day charge supplg of
:
Central banks
rate
Monat the bond market
Interest rate on bond : I : bybuging
market
selling bonds
or in .

€ Pß
→ Open Operations
DEFINITIONS the bond
Thehigher price ,
Central bank expands the
supplyof money bybuyingbonds
for transactions the lower the interest rate → Expansion arg open market operation
money pay
=
.

in come : what you ewnlftow ) The

higher the interest rate ,
the Central bank contract the supplyofmoney by selling bonds
value of accu mutation Contract Market
Saving
=
love the price
today .
→
ionary open Operation
over time
Liabilities
- - - - -
- -

Assets
-

Financial Value of Financial assets

PART TWO
BondsIMoney .ms
=
"
wealth minus financial liabiüties
Stock variable
,

Investment >
purchaseofanew Financial intermedia ries : Finanzielle Vermittler → Expansion wg open
Capital good Rec eine Funds and Use
I
→
from people and firms thesetobuy I
market operation f
Financial pvrchase of Share
Investment
>
or other financial asset
financial assets or to make 109ns to other people and firms Liabiüties
Assets
/

money-tiabilitieslikeepsomeands%3e.IE
ftp.ebay?ds/YIII3I-
Example :
Bank (
i
,
-

,
Asset Liabilities
The eiabilities of the

Bondsffnjealeb.ae?mIYc& }
central bank are the
money Central Bank No → demand Morey
it has issved , called central currency =
demand chequeable
bank
moneef .

↳ Md -

EY ( ( i ) deposit s

¥ä%/"P°"A""" }
_ .

Reserves

Banks bank depends

LIQUID , Ty TRAP Demand reserves
°" amount of chegueable deposit
E- reserve ratio
¥2 :
Trainierst rate Hd f. Md =
-0 EY LCI )
# D= demand
.

|
=
-

Interstate
cannot
go below Zero .

suppy central high power -

.sn/--ff:e: : :aeeaui: : nconainon

bank
money money of
Economy is in a
eiquidity trap when Hdenotes the
supply
the inlerest rate Central bank then
is down to zero ,
monetary honey ,

"

!!! : : :\:*
""

:"
" :

in

if /
.. .
Hd :( Udt Rd H :
f. EY -

L (i )
mon

d gleichgültig
"

:c:: : : :
.in:7:
:
"

::{÷: :: : :c : :
i doesn't
charge

-
(

Money
 All ( l
-
L - - - n
HIHI l e
l l -
r
"-

- -

=
-

:!Ein
µÄÄÄ;÷Ä%J
> / T
;
THE GOODS MARKET t IS RELATION FINANCIAL MARKETS andre
Investment (1) depends on Production ( Y) and the interest LM RELATION
/ rate ( i )
/ / ( ) so market
¥!)
= '

ecluilibrium in
goods
:
/
Investment

↳
÷:'(
IS LM model
| eauaes
Y :C (Y Ttt t.LY ) G M EY Lli ) ← den de
Framework by the price level
-

: i t
' -
- - .
-

, savings output - ,

sina.%ae.in?:::T:.Y::ni:q..y
by Hicks & Hansen
"

. . . . . . _ . . .
-

ni ) → emanation

Demandt ③ In equilibrium real

moneysupplyeguals
js.u.me
,

Demand Z the real

ZZ money demand ,
which depends
ßzzcurne
A lfori ) ② On real in come Y and the interestratei
DIE;D
.

zl Eauiyibaapmuevee
:3 :::{ si:p:
"
" "

÷:÷÷ ::* .
i: ::
: :
SO as to
.

.
.
In equilibrium : achieve it .

145 :
"
i : demand for goods
-
Output
145
"

- Output y .

µ y
-
Output Y interstate i IS relation
:
Y =L ( Y -

Ttt I ( Y IHG ,

E:* :*:*
→ ZZ is
upwardsloping because T
:

Increaseinlerest rate LM relation :

i =

Interestratei demand Är
inlereaset output ihres demand
↳ deaease at

f.
" :
"
""
:
÷:
""

÷::-.
less than one for one
- - -
- -

↳ increase in Output
-

A
- - _ .

→ ,
-

i IS Curve demand
. . . . . _ . . .
.
.

increase
. . . . .
.

in I

'
interest rate i
-

Output Y i I

Aninaeaiintaxssnstnecurmee einig:b: ::*

'

"

üü:
i

.
' I
y y

! i "

PUTTING IS II IM RELATIONS TOGETHER .

in Financial markets
D Equilibrium in the
goods market implies that an increase in the interest IS
,

rate eeads to decrease in Output

"
a
-
.

Y
• This is represented by the IS -
Curve .
Output llncome)
,
,
Y

D horizontal
Equilibrium in financial markets is represented by the LM Curve
Fiscal
poeicy
.

D
Only in point A ,
which is in both curres ,
are both goods and Financial Markets G T
Decrease in
-

in equilibrium .

inlerestratei
→
Fiscal contraction fiscal Consolidation
A monetary expansion
Monetary Policy
:
shirts the LM curve down lncrease in G- T
and Ieads to
higher An inctease in

¥595.at?pansioni
"" "
→ "
Pension
!!!!!!!-meintest
"
taxessni.s.me

Decrease in M -
y MI< interest rate ; IS Curve left .

if
Contract on
'
'

This leads to decrease

monetary
.
.

19
'
'

in equilibrium level
Lightning
.

monetary
.

← ←
Output Y
-

Y
'
of Output
y .

POLICYMIX inlerestratei

÷:::
.

÷::*:c: : :S:*:
fisalpoeicies .
A monetary expansion ,
.

.
cm
'
Shift s LM curve
that the
Suppose economy is in
'
•

!
down
Y Y
Output llncome)
, .

Y
.

tecession and output is too

'
Is
'

a ,
,

Iow .
: ts Bothlead to
-
Both fiscal and monetary policies ,
high output
-

•
y
can be used to increase output .
Y Output Y