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ECS2602 Only Study Guide Macroeconomics II
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- University Of South Africa
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ECS2602 OnlyStudy Guide
Macroeconomics II
, iii ECS2602/1/2012-2014
CONTENTS
Page
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
STUDY UNIT 3
FINANCIAL MARKETS ........................................................................................................ 57
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
, v ECS2602/1
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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