Sanjay Rode Advanced Macroeconomics Download free eBooks at bookboon.com Advanced Macroeconomics © 2012 Sanjay Rode & bookboon.com ISBN 978-87-403-0278-3 Download free eBooks at bookboon.com Advanced Macroeconomics Contents Contents Preface Acknowledgement 11 List of Figures 12 List of Tables 18 List of Graphs 19 Introduction to Macroeconomics 20 1.1 From a closed to an open economy 20 1.2 The IS-LM Framework 33 1.3 Aggregate demand and supply 43 The Consumption Function 52 2.1 Introduction 52 www.sylvania.com We not reinvent the wheel we reinvent light Fascinating lighting offers an infinite spectrum of possibilities: Innovative technologies and new markets provide both opportunities and challenges An environment in which your expertise is in high demand Enjoy the supportive working atmosphere within our global group and benefit from international career paths Implement sustainable ideas in close cooperation with other specialists and contribute to influencing our future Come and join us in reinventing light every day Light is OSRAM Download free eBooks at bookboon.com Click on the ad to read more Advanced Macroeconomics Contents 2.2 The Ando-Modigliani Approach: The life cycle hypothesis 55 2.3 The Friedman approach: Permanent income 60 2.4 Friedman’s consumption function: Cyclical movement 64 2.5 The Duesenberry Approach: Relative income 65 2.6 Money: Definition and function 68 3 Aggregate supply, wages, prices and employment 83 3.1 The Philips Curve 83 3.2 The dynamic aggregate supply curve 87 3.3 The production function 87 3.4 The properties of the aggregate supply curve 91 3.5 Inflation expectations and the aggregate supply curve 94 3.6 The aggregate supply curve (ASC) 96 3.7 The modified Philips Curve 99 3.8 The expected augmented Philips Curve 3.9 Criticism 360° thinking 4 The open economy: Macroeconomy 4.1 Introduction 4.2 The open economy and the goods market 360° thinking 99 101 103 103 105 360° thinking Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Deloitte & Touche LLP and affiliated entities © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Click on the ad to read more Download free eBooks at bookboon.com © Deloitte & Touche LLP and affiliated entities Dis Advanced Macroeconomics Contents 4.3 The Mundell-Fleming model 110 4.4 Competitive depreciation 117 4.5 The role of prices in an open economy 117 4.6 Automatic adjustment 119 4.7 Expenditure switching and expenditure reducing policies 120 4.8 Devaluation 120 4.9 The exchange rate and prices 122 4.10 The crawling peg exchange rate 122 4.11 The J curve effect 123 4.12 The Monetary Approach to Balance of Payments (MABoP): the IMF approach to macroeconomic stabilization 125 4.13 Exchange rate overshooting 132 Modern Macroeconomics 145 5.1 Introduction 145 5.2 The efficiency wage hypothesis 145 5.3 The government budget constraints and debt dynamics 151 5.4 Rational expectations 157 5.5 The new Keynesian alternative 164 5.6 The Ricardian Equivalence (RE) 165 We will turn your CV into an opportunity of a lifetime Do you like cars? 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We will appreciate and reward both your enthusiasm and talent Send us your CV You will be surprised where it can take you Download free eBooks at bookboon.com Send us your CV on www.employerforlife.com Click on the ad to read more Advanced Macroeconomics Contents 5.7 The search and matching model 169 5.8 Implicit contracts 176 5.9 The insider–outsider model 179 5.10 The real business cycle theory 182 6 International adjustments: 6.1 Policy implications 191 Government budget constraints 191 6.2 Hyperinflation 194 6.3 The Laffer curve 196 6.4 Controlling the deficit 198 6.5 Debt management 199 6.6 The dynamics of the deficit and debts 199 6.7 The Barro-Ricardo problem 202 6.8 Money and debt financing 202 6.9 The burden of debt 203 6.10 Government assets 204 6.11 The budget deficit 204 6.12 The size of debt /budget 204 6.13 The merged Bank-Fund model 205 6.14 Rules versus discretion 225 6.15 Lags in the effects of policy 227 6.16 Gradualism vs shock therapy 230 6.17 Credibility 233 References: 235 Glossary 239 Download free eBooks at bookboon.com for Vijaya Download free eBooks at bookboon.com Advanced Macroeconomics Preface Preface This book was written to complete the curriculum requirement of the Master’s of Macroeconomics degree Macroeconomics is a very practical subject and can be very useful for policy making Domestic and international economies are subjected to variations in savings, income, exchange rates, as well as interest rates and the balance of payments This book attempts to explain the domestic and international factors responsible for creating the equilibrium of the balance of payments, interest rates and inflation It is hoped that this book’s contents will help students to think, analyze and apply what they have learned Various industry-related examples such as exchange rate, inflation, domestic output and other data have been included to assist the understanding of macroeconomic issues This book was written with the aim to provide insights to students, teachers and policy makers to think about various macroeconomic issues in a broader way Once the issues are known to the policy makers, planners and academicians, it will be easier for them to think in that direction and ultimately, this knowledge may help them solve some of these problems related to these issues This advanced macroeconomics book will provide fundamentals of the basic macroeconomic principles, and thus, will be also useful to non-students of economics learning about macroeconomics for the first time This book is divided into two parts The first part explains the topics related to a closed economy The second part will discuss topics related to an open economy and includes the open economy and the macroeconomy Both are equally important because the first part forms the basis for understanding the second part Some current issues such as foreign exchange, money and capital markets are also explained because learning about such topics will help students understand macroeconomics in greater depth The first chapter explains the basic concepts of macroeconomics The IS-LM model is explained with expansionary fiscal and monetary policy The aggregate demand curve is derived from the IS-LM equilibrium The aggregate demand and supply curve explains the price adjustment in the short and long run The second chapter clarifies in detail the consumption function The lifecycle and the permanent income hypothesis form the major parts of the chapter Investment theories, demand and supply of money and the money multiplier are also parts of this chapter The third chapter elucidates the aggregate supply curve, inflation and the Philips curve The linkage of inflation, deficit and debt, as well as deficit and debt financing are also included in this chapter Download free eBooks at bookboon.com Advanced Macroeconomics Preface The fourth chapter describes the open economy as well as the macroeconomy The chapter includes an interpretation of the Mundell-Fleming model under fixed and flexible exchange rates, exchange rate fluctuations and the reserve bank policy In the fifth chapter, the fundamentals of modern macroeconomics are defined Rational expectations and the real business cycle theory are explained in the latter part The efficiency wage hypothesis describes the wage bargaining activities of workers in industry The insider and outsider models show how workers perform wage bargaining in industry The search and match model explains the asymmetric information and moral hazard problems of the selection of workers and employment issues The sixth chapter clarifies the monetary and fiscal policy mix for internal stability in detail The exchange rate and debt management of government are discussed in the second section Rules versus discretion and the Polak Fund model are also explained in this chapter 10 Download free eBooks at bookboon.com ... Rode Advanced Macroeconomics Download free eBooks at bookboon.com Advanced Macroeconomics © 2012 Sanjay Rode & bookboon.com ISBN 978-87-403-0278-3 Download free eBooks at bookboon.com Advanced Macroeconomics. .. free eBooks at bookboon.com Advanced Macroeconomics Preface Preface This book was written to complete the curriculum requirement of the Master’s of Macroeconomics degree Macroeconomics is a very... Download free eBooks at bookboon.com Click on the ad to read more Advanced Macroeconomics Introduction to Macroeconomics Introduction to Macroeconomics 1.1 From a closed to an open economy People have