Macroeconomics Lecture Notes

Importance of Examples

• Fundamental for exams
• Use examples to back up points

Determinants of Aggregate Demand

Consumption

• Low Interest Rates: Promote borrowing and spending
  • UK (~0.5%)
  • Eurozone (0%)
  • Japan (negative)
• High Interest Rates: Control inflation/hyperinflation
  • USA (~1.75%)
  • Argentina (40%)
• Consumer Confidence: Influenced by economic performance
  • High: USA, Eurozone (low unemployment, high growth)
  • Low: Japan, China (uncertainty with trade policies)
• House Prices: Wealth effect impacts consumption
  • High: UK, USA
• Debt Levels: Influence spending capacity
• Disposable Income: Higher in recovering economies
  • High: Eurozone, UK, USA
• Income Taxes: Lower taxes increase consumption
  • UK: Raised tax-free allowance
  • USA: Trump's tax cuts

Investment

• Interest Rates: Lower rates reduce borrowing costs
• Business Confidence: Based on expected demand/profitability
  • High: USA, Eurozone
  • Low: China, Japan, UK
• Corporation Tax Rates: Influence investment decisions
  • Low: UK (19%, 17% by 2020), Ireland (12.5%), USA (20%)
  • High: Potential increase in UK if Jeremy Corbyn's policies implemented

Government Spending

• Fiscal Expansion: Increase in government spending
  • China, Japan, Hong Kong, USA (infrastructure)
• Austerity: Spending cuts
  • UK, Spain, Greece, Italy, France, Portugal

Net Exports (X-M)

• Weak Exchange Rates: Boost exports
  • USA, UK, several emerging markets
• Strong Exchange Rates: Harm exports
  • Europe, Japan, Australia

Short-Run Aggregate Supply (SRAS)

• High Commodity Prices: Increase production cost
  • Oil, fuel, gas prices
• Higher Wages: Increase production cost
  • UK, Eurozone, USA
• Higher Sales Taxes: Increase production cost
  • UAE, UK, Japan
• Weak Exchange Rates: Increase import costs
  • UK, South Africa, Turkey

Recession Causes

• Financial Crises: USA, UK (2008-09), several Eurozone countries
• Interest Rate Hikes: Russia, South Africa
• Housing Market Crashes: UK, USA
• High Commodity Prices: UK
• Weak Exchange Rates: UK, Turkey
• Falling Commodity Prices: Affecting exporters (Nigeria, Angola, Venezuela, Russia)
• Stagflation: Egypt, Nigeria, Turkey, Venezuela, Argentina

Development Economics

Market-Based Approaches

• Success: India, China, Botswana
• Failure: Nigeria, Angola, Ghana

Interventionist Approaches

• Limited Success: Iran, Ethiopia
• Failures: Zimbabwe, Burundi, Zambia

Recent Macroeconomic Policies

Monetary Policy

Expansionary

• Lower Interest Rates: Brazil, South Africa, Russia
• Negative Interest Rates: Japan, Sweden, Switzerland

Contractionary

• Higher Interest Rates: To control/reduce inflation
  • USA, Canada, UK, Turkey, Argentina
• Quantitative Easing: Non-conventional monetary policy
  • USA, UK, Eurozone, Japan

Fiscal Policy

Expansionary

• Increased Government Spending: Japan, China, USA
• Tax Cuts: UK, USA

Contractionary

• Increased Taxes: Australia, UK (VAT 2010), Japan (sales tax)
• Austerity Policies: Ireland, Portugal, Greece, France, UK

Supply-Side Policies

• Key for UK, focus on application and implementation

Globalization

• Winners: Asian Tigers (Japan, South Korea), Gulf states (UAE, Qatar, Saudi Arabia)
• Losers: Sub-Saharan Africa, South America, parts of North America (lower middle classes)

Trade and Protectionism

• US Tariffs: On Chinese/Japanese imports; retaliation by China, India, Japan
• EU Protectionism: Anti-dumping tariffs on Chinese goods

Miscellaneous Macroeconomic Topics

Current Account

• Deficits: UK, USA, India
• Surpluses: China, Germany, Netherlands, Singapore

Exchange Rates

• Fixed: UAE, Saudi Arabia, Qatar
• Managed: China
• Weak: USD, Pound, Lira
• Strong: Euro, Yen, Australian Dollar

Types of Inflation/Deflation

• Demand-Pull Inflation: China (past), expected in UK and USA
• Cost-Push Inflation: UK, Turkey, Argentina
• Good Deflation: Supply-side; Eurozone, UK (2015)
• Bad Deflation: Demand-side; Japan, Greece

Unemployment

• Cyclical: Eurozone (Greece, Italy, Spain), South Africa
• Structural: Eurozone, India, UK
• Real Wage: UK, Germany, France, Spain

Income Inequality and Poverty

• Low Inequality: Scandinavia
• High Inequality: African nations, USA, China
• Absolute Poverty: Zimbabwe, Burundi, Ethiopia, Rwanda
• Relative Poverty: UK, USA