Macroeconomic Theory1 (2) (1)

8/2/2019 Macroeconomic Theory1 (2) (1)

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Macroeconomic Theory



Macroeconomic Vs Microeconomics

• Distinction between microeconomics and

macroeconomics



Macroeconomics

Macroeconomic analysis can be used to:• Understand how a national economy works.

• Understand the grand debates over economicpolicy.

• Information helps on business decisions.

Macroeconomics is the study of the nation’s economy

as a whole.



Macroeconomic Objectives

• The major macroeconomic issues

– economic growth

– unemployment

– inflation

– balance of payments & trade and exchange rates

• balance of payments and Treade deficits and surpluses

• exchange rate movements



The major macroeconomic instruments & tools

– Fiscal policy ( government expenditure, taxes,subsidies,…)

– Monetary Policy ( money supply (m4), interestrate,…..)

– International Trade ( policies, protection, free

trade,….controlling exchange rate,… )

– Income policies ( incomes and prices)



The Agents in the System…

• There are four agents that we will focus on whenconstructing a model of the economy:

Households

Firms

Government

“The Rest of the World”



Markets

• There are three markets that we focus on:

The Factor Market

The Goods Market

The Financial Market



The circular flow of national income and expenditure



The circular flow of national income and expenditure

(1) Production

(2) Incomes (3) Expenditure

Firms

Households



Factorpayments

Consumption ofdomestically

produced goodsand services (Cd)

The circular flow of income

Firms

Households



Factorpayments



Investment (I )

Government

expenditure (G )

Exportexpenditure (X )

BANKS, etc

Netsaving (S )

GOV.

Nettaxes (T )

ABROAD

Importexpenditure (M )


WITHDRAWALS

INJECTIONS



The Circular Flow of Income

• Withdrawals

– net saving

– net taxes

– import expenditure

• Injections

– investment – government expenditure

– export expenditure



The Circular Flow of Income

• The relationship between injections and

withdrawals

– planned injections may not equal planned

withdrawals



Factorpayments



Investment (I )

Government

expenditure (G )

Exportexpenditure (X )

BANKS, etc

Netsaving (S )

GOV.

Nettaxes (T )

ABROAD

Import

expenditure (M )


WITHDRAWALS

INJECTIONS





General Agreement on Tariffs and

Trade

GATT



Globalization and world trade

Wh i



What iscomparative advantage?

The ability of a country to

produce a good at alower opportunity cost than another country

Wh t i



What isabsolute advantage?

The ability of a country to

produce a good usingfewer resources thananother country

Wh i f d ?



What is free trade?Globalization

The flow of goods and services

between countries withoutrestrictions or special taxes



What is protectionism?

The government’s use of

embargoes, tariffs,quotas,to protect domestic producers

from foreigncompetition



What is an embargo?

A law that bars trade

with another country



What is a tariff?

A tax on an import

Wh t i t ?



What is a quota?

A limit on the

quantity of a goodthat may be importedin a given time period



GATT PILLARSFOUR PILLARS within GATT/WTO system:

1. Most Favored Nations (MFN)

Rule of origin, Accumulation of origin

2. National Treatment (internal taxation)

antidumping measures

3. Trade Liberalization (negotiated tariffreductions in trade rounds)

4. Non-Tariff Barriers & “Fair Trade”



Rules of Origin

• The process criterion imported materials must have

undergone substantialtransformation.

• The value-added or percentagecriterion



GATT Agreement Agreement on Agriculture AOA

• Deals with 4 axis to increase competition

and reduce distortions in agricultural

product markets.



Agreement on Agriculture AOA

1- Market Access

• The ability of

countries to penetrate

into markets (no

tariffs, no barriers).

• Replacing non-tariff barriers by tariff

barriers and reducing

tariff barriers to zero.



Domestic Support

• Elimination of domestic support especially programs

aiming towards increasing farmer incomes.

• Support that poses harm to trade (Yellow box)

Commodities undergoing reduction until totalelimination.

• Support that poses no harm to trade (Green box)Commodities not undergoing reduction.



Export Subsidy

Elimination of export subsidy

(increasing export competitiveness in

international markets artificially).



Sanitary and Phytosanitary Measures

(SPS)

• The agreement identifies all sanitary measures

that facilitate the flow of trade betweennations, such as:

HACCP, ISO 9001, EurepGap, ISO 22000



Trace - back or Tracing

Trace - forward or Tracking

.

Traceability





GLOBALG.A.P VERSUS

EUREPGAP

http://gg_english_cpcc_cb.pdf/

http://gg_english_cpcc_cb.pdf/















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Macroeconomic Theory1 (2) (1)