EMBA Macro Session 2

7/31/2019 EMBA Macro Session 2

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Ace Institute of ManagementExecutive MBA Program

Session 2: Goals of Macroeconomic Policies

InstructorSandeep Basnyat

[email protected]

9841 892281
mailto:[email protected]:[email protected]


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Goals of Macroeconomic Policies

Usually three policy goals:

1. The Goal of Economic Growth

2. The Goal of low unemployment

3. The Goal of Low Inflation


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The Goal of Economic Growth


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5 Fastest growing in Asia

(Source: IMF 2010)

Country % GrowthDate of

informationWorld Rank

Region

Rank

Singapore 14.5% 2010 3 1

Taiwan 10.8% 2010 4 2

India 10.4% 2010 5 3

China 10.3% 2010 6 4

Sri Lanka 9.1% 2010 9 5
http://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Republic_of_Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/People's_Republic_of_Chinahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Republic_of_Chinahttp://en.wikipedia.org/wiki/Singapore


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Growth rate of other countries

(Source: IMF 2010)

Afghanistan 8.2 Ethiopia 8.8

Maldives 7.9 Thailand 7.8

Philippines 7.6 Malaysia 7.1

Vietnam 6.7 South Korea 6.1Indonesia 6.1 Bangladesh 6.02

Mexico 5.5 Pakistan 4.79

Nepal 4.5 Canada 3.07

USA 2.83 Australia 2.74

Switzerland 2.5


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What determines the economic

growth rate?

Productivity of Labour and Capital

Productivity = GDP (Output) / Total Hours of

works

Productivity is the Output per hour of work.


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What determines the capacity of

workers to produce?

A production function shows the

relationship between the quantity of

inputs used to produce a good, and the

quantity of output of that good.

It can be represented by a table, equation,

or graph.


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0

500

1,000

1,500

2,000

2,500

3,000

0 1 2 3 4 5

No. of workers

Quantityofoutput

Simple Example: Production Function

30005

28004

24003

18002

10001

00

Q(bushelsof wheat)

L

(no. of

workers)


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Effect of Better Technology


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Effect of Increased Capital


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The Goal of Low Unemployment


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U.S. unemployment rate(% of labor force)

0

5

10

15

20

25

30

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Very high Unemployment


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Categories of the population

employedworking at a paid job

unemployednot employed but looking for a job

labor forcethe amount of labor available for producinggoods and services; all employed plus

unemployed persons not in the labor force

not employed, not looking for work


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Two important labor force concepts

unemployment rate

percentage of the labor force that is

unemployed

labor force participation rate

the fraction of the adult population

that participates in the labor force


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Types of Unemployment

Frictional Unemployment

Unemployment due to time gaps between job

searching and finding

Structural Unemployment

Unemployment due to shift in industrial structure

Cyclical Unemployment

Unemployment due to change in business cycle


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The Goal of Low Inflation

Inflation: Sustained increase in overall price

level

Deteriorates the purchasing power of people

Nominal and Real wages

Real wage Rate = Nominal wage / Price Level


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Costs of Inflation

INFLATION AS A REDISTRIBUTOR OF INCOME

AND WEALTH: 3 Concepts

Those who lend money are often victimized by

inflation.

Borrowers often gain from inflation.

Inflation does not systematically steal from

the rich to aid the poor, nor does it always do

the reverse.


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Inflation and Interest Rates Nominal and Real Interest Rates

Nominal Interest Rate = Real Interest Rate +

Expected Inflation Rate

Malfunctioning with Tax Calculation

Other Costs of Inflation Shoe Leather Costs Menu Costs

Costs of Inflation


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Thank You

EMBA Macro Session 2

Documents

Transcript of EMBA Macro Session 2