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Macroeconomics for EOR Summary
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MacroeconomicsSummary
EBB027B05
Semester I A
Wouter Voskuilen
S4916344
Theory from ”Macroeconomics, 2016, 5th edition, Pearson”
1
,Wouter Voskuilen Macroeconomics
Chapter 1
Macroeconomics studies the behaviour of the economy as a whole. Income is revenue
derived from work and assets, such as wages, interest, dividends and profits.
The Keynesian model can be viewed as showing what causes the aggregate demand
curve to shirt. In short run, income is determined by demand.
Figure 1: Short run and Long run Aggregate supply
Factors of production are all resources used in the production of goods and services.
GDP is income generated within a country. GNP is income generated by the inhabitants
of a country.
The national income identity is as follows:
Y = C d + I d + Gd + EX
where
• Private savings suplus if S > I;
• Government budget deficit if G > T ;
• Current account deficit if IM > EX.
Define private savings as S = Y − C − T , means (S − I) + (T − G) + (IM − EX) = 0.
Circular flow identity is defined by
(S − I) + (T − G) = (IM − EX)
2
, Wouter Voskuilen Macroeconomics
Figure 2: Circular flow of firms & households and firms, households & rest of the world
Total production or aggregate output is the value of all goods and services produced
by firms, may be measured by adding up all incomes or by adding up all expeditures.
• Raising taxes reduces savings by an equal amount: S = I − T + G − IM + EX,
but leaves investments unaffected.
• Raising taxes reduces imports: IM = I − S − T + G + EX.
• Raising taxes raises exports: EX = S − I + T − G + IM .
The balance of payments describes the market for foreign exchange. It consists of three
accounts:
• Current account (CA), trade of goods and services;
• Capital account (CP), trade of assets;
• Official reserves (OR), stock of gold and foreign currencies.
CA + CP + OR = 0
where CA = EX − IM , CP = −∆F and OR = −∆RES.
Classical quantity equation
M ×V =P ×V
is defined as money supply × velocity money circulation = nominal income.
3
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