8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 1/41
Macroeconomic Theory
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 2/41
Macroeconomic Vs Microeconomics
• Distinction between microeconomics and
macroeconomics
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 3/41
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.
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 4/41
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
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 5/41
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)
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 6/41
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”
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 7/41
Markets
• There are three markets that we focus on:
The Factor Market
The Goods Market
The Financial Market
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 8/41
The circular flow of national income and expenditure
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 9/41
The circular flow of national income and expenditure
(1) Production
(2) Incomes (3) Expenditure
Firms
Households
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 10/41
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
The circular flow of income
Firms
Households
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 11/41
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I )
Government
expenditure (G )
Exportexpenditure (X )
BANKS, etc
Netsaving (S )
GOV.
Nettaxes (T )
ABROAD
Importexpenditure (M )
The circular flow of income
WITHDRAWALS
INJECTIONS
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 12/41
The Circular Flow of Income
• Withdrawals
– net saving
– net taxes
– import expenditure
• Injections
– investment – government expenditure
– export expenditure
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 13/41
The Circular Flow of Income
• The relationship between injections and
withdrawals
– planned injections may not equal planned
withdrawals
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 14/41
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I )
Government
expenditure (G )
Exportexpenditure (X )
BANKS, etc
Netsaving (S )
GOV.
Nettaxes (T )
ABROAD
Import
expenditure (M )
The circular flow of income
WITHDRAWALS
INJECTIONS
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 15/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 16/41
General Agreement on Tariffs and
Trade
GATT
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 17/41
Globalization and world trade
Wh i
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 18/41
What iscomparative advantage?
The ability of a country to
produce a good at alower opportunity cost than another country
Wh t i
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 19/41
What isabsolute advantage?
The ability of a country to
produce a good usingfewer resources thananother country
Wh i f d ?
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 20/41
What is free trade?Globalization
The flow of goods and services
between countries withoutrestrictions or special taxes
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 21/41
What is protectionism?
The government’s use of
embargoes, tariffs,quotas,to protect domestic producers
from foreigncompetition
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 22/41
What is an embargo?
A law that bars trade
with another country
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 23/41
What is a tariff?
A tax on an import
Wh t i t ?
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 24/41
What is a quota?
A limit on the
quantity of a goodthat may be importedin a given time period
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 25/41
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”
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 26/41
Rules of Origin
• The process criterion imported materials must have
undergone substantialtransformation.
• The value-added or percentagecriterion
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 27/41
GATT Agreement Agreement on Agriculture AOA
• Deals with 4 axis to increase competition
and reduce distortions in agricultural
product markets.
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 28/41
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.
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 29/41
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.
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 30/41
Export Subsidy
Elimination of export subsidy
(increasing export competitiveness in
international markets artificially).
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 31/41
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
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 32/41
Trace - back or Tracing
Trace - forward or Tracking
.
Traceability
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 33/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 34/41
GLOBALG.A.P VERSUS
EUREPGAP
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 35/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 36/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 37/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 38/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 39/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 40/41
8/2/2019 Macroeconomic Theory1 (2) (1)
http://slidepdf.com/reader/full/macroeconomic-theory1-2-1 41/41