Lecture 10 Notes, Macroeconomics from a Historical Perspective
A simple way to run macroeconomic policy is to be on the gold standard,
which means to peg your currency against gold i.e., $1 is worth a certain
amount of gold and allow free convertibility.
Lecture 6 Notes, Modern Crises
First, there is a large budget deficit and investors become concerned about
debt sustainability, i.e., whether there will be some kind of default or
other reduction in payments below what was promised. Interest rates tend
Lecture 8 Notes, Asia
Inflation is a sustained increase in wages and prices think of it as an upwards and selfreinforcing spiral. A one-off adjustment in the price level is not inflation; inflation
means that wages increase and prices continue to rise.
Lecture 9 Notes, Europe
The eurozone is a currency union 17 countries share the same
currency, which is issued by the European Central Bank (ECB).1 As a
result, none of them have their own central bank unlike Japan, the
UK, the US, and most other countri
Lecture 2 Notes, Long-Term Growth
One key building block is known as aggregate demand. The basic
demand equation is:
o C + I + G + (X M) = Y.
Domestic savings + foreign savings inflow = investment + government
Output per capita is a function of
Lecture 7 Notes, Japan
We use the BBNN framework to diagnose where a country is, with regard
to (a) distance from full employment (sometimes called internal
balance) and (b) its current account deficit or surplus (sometimes called
external balance). No m
Lecture 1 Notes, Introduction
Primary focus on single country macroeconomic analysis. (Mostly
deal with short-run issues)
Deal with multi-country interactions, putting macroeconomics in the
context of how the global economic and political system operate
Lecture 4 Notes, Industrialized Exchange Rates
A country can attempt to fix its exchange rate, by guaranteeing that local
currency can be converted into foreign currency at a fixed price. When
there is pressure on the exchange rate to depreciate, the cen
Lecture 3 Notes, Exchange Rates
The BBNN model is a simple way to diagnose the economic position of a
country, in terms of (a) its current account balance, and (b) its level of
On the vertical axis is the real exchange rate, written as e/w,
Lecture 5 Notes, Banks
Under the classical gold standard, the nominal exchange rate was fixed
relative to gold. Central banks held their reserves largely in the form of gold.
The attraction of this system was that it (a) constrained what central banks
Examples of utility:
U (x, y) = ax + by.
U (x, y) = mincfw_ax, by.
U (x, y) = Axb y c .
One good is bad
U (x, y) = ax + by.
The problem is ab
Elasticity - measures how one variable responds to a change in another
Price elasticity of demand - measures the percentage change in quantity demanded
resulting from one percentage change in price. Usually a
Deriving Individual Demand
Corner Solution of Optimization
must be satised. However, sometimes a consumer gets highest utility level
when x = 0 or y = 0. corner solutions:
Conditions for corner solutions:
Supply and Demand
Demand and Supply Curves
Quantity Demanded and Quantity Supplied
(Quantity demanded). Depends on price.
Q (Quantity supplied). Depends on price.
1. Change in price = change in quantity supplied
2. Change in something
Price elasticity - The percentage change in quantity supplied resulting
from one percentage change in price.
In the short run, if price increases, rms will want to produce more but cannot
Externalities and Uncertainty
Irish Potato Famine
Typical Gien good. In Year 1845-1849, people consumed more potatoes
when the price increased.
Network externality. One persons demand depends on the demands of
Substitution and Income Eect
Substitution Eect, Income Eect, Gien Goods
Substitution and Income Eects
The impact of price change on quantity demanded are divided into two eects:
Substitution eect. Substitution eect is the change in an items
Insurance and Production Function
Reducing Risk: Insurance
The insurance premium is equal to the expected payout by the insurance company, and say the insurance is actuarially fair.
Since the person is risk-avers
Indierence Curves and Risk
Preference Toward Risk - Risk Averse / Neutral
/ Seeking (Loving)
Three dierent kinds of behaviors:
Facing two payos with the same expected value, prefer the less risky one.
Diminishing marginal utility of income
Introduction to Microeconomics
Microeconomics - branch of economics that studies how
individuals and rms make decisions to allocate limited resources,
typically in markets where goods or services are being bought and
Optimization and Allocation