ECS2602 Only
Study Guide
Macroeconomics II. This is an all-inclusive guide to ECS2602 - Macroeconomics
Macroeconomics deals with the economy as a whole and not the behaviour and decisions
of individual consumers, households and firms, as in microeconomics. Furthermore,
macroeconomics involves ...
HOW TO STUDY MACROECONOMICS AND USE THIS STUDY GUIDE
The focus of the module .......................................................................................................... 1
The function of the study guide ............................................................................................... 2
How to use the study guide ..................................................................................................... 3
Checklist in the workbook ........................................................................................................ 4
How to study ........................................................................................................................... 5
STUDY UNIT 1
AN OVERVIEW OF THE SOUTH AFRICAN MACROECONOMIC
ENVIRONMENT ..................................................................................................................... 6
1-1 The difference between microeconomics and macroeconomics ................................... 6
1-2 Economic growth ........................................................................................................... 7
1-3 The South African business cycle ................................................................................ 10
1-4 Stabilisation policy ....................................................................................................... 11
1-5 Inflation ........................................................................................................................ 12
1-6 Unemployment .............................................................................................................. 13
1-7 Balance of payments .................................................................................................... 16
1-8 Distribution of income ................................................................................................... 17
STUDY UNIT 2
THE GOODS MARKET ........................................................................................................ 19
2-1 The composition of GDP .............................................................................................. 19
2-2 The demand for goods ................................................................................................. 24
2-3 The determination of the equilibrium output ................................................................ 36
3-1 The demand for money ................................................................................................. 57
3-2 Determining the interest rate (i) .................................................................................... 60
, iv
STUDY UNIT 4
GOODS AND FINANCIAL MARKETS: THE IS-LM MODEL .............................................. 71
4-1 The goods market and the IS relation .......................................................................... 71
4-2 Financial markets and the LM relation ......................................................................... 82
4-3 Putting the IS and LM relations together ..................................................................... 86
4-4 Using a policy mix ........................................................................................................ 96
4-5 Comparing fiscal policy with monetary policy ............................................................... 97
4-6 Comparing fiscal policy in the goods market and the IS-LM model .............................. 98
STUDY UNIT 5
OPENNESS IN GOODS AND FINANCIAL MARKETS ....................................................... 99
5-1 Openness in the goods markets ................................................................................. 100
5-2 Openness in the financial markets .............................................................................. 104
STUDY UNIT 6
THE GOODS MARKET IN AN OPEN ECONOMY ............................................................. 110
6-1 The IS-relation in an open economy .......................................................................... 111
6-2 Equilibrium output and the trade balance .................................................................. 117
6-3 Increases in demand, domestic or foreign ................................................................. 119
6-4 Depreciation, the trade balance and output ............................................................... 122
STUDY UNIT 7
OUTPUT, THE INTEREST RATE AND THE EXCHANGE RATE:
THE IS-LM MODEL FOR AN OPEN ECONOMY ............................................................... 125
7-1 Equilibrium in the goods market ................................................................................ 126
7-2 Equilibrium in financial markets ................................................................................. 127
7-3 Putting goods and financial markets together ............................................................ 130
7-4 The effects of policy in an open economy ................................................................. 132
7-5 Comparing the impact of fiscal and monetary policy .................................................. 137
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STUDY UNIT 8
THE LABOUR MARKET .................................................................................................... 140
8-1 A tour of the labour market ........................................................................................ 140
8-2 Movements in unemployment and the position of workers ........................................ 142
8-3 Wage determination ................................................................................................... 142
8-4 Price determination ..................................................................................................... 146
8-5 The natural rate of unemployment ............................................................................. 148
STUDY UNIT 9
The AS-AD MODEL ........................................................................................................... 158
9-1 Aggregate supply ....................................................................................................... 159
9-2 Aggregate demand .................................................................................................... 163
9-3 Equilibrium in the short and medium run ................................................................... 168
9-4 The effects of a monetary expansion ......................................................................... 171
9-5 A decrease in the budget deficit ................................................................................ 175
9-6 Changes in the price of oil ......................................................................................... 178
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