global macro economic environment
Post on 06-Apr-2018
220 Views
Preview:
TRANSCRIPT
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 1/17
GLOBAL &
MACRO
ECONOMIC
ENVIRONMENT
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 2/17
•
Price Index
over
given
period
of
Time
= –
Last Period
CPI
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 3/17
•
matching qualified
workers
with
job
openings
the
skills
to
match
newly
created
jobs• Cyc ica : Recession p ase o usiness cyc e,
economy producing at less than capacity
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 4/17
A firm’s demand for labour is increased by –
1. Increase in
price
of
the
firm’s
output
2. Increase in price of a productive input that is a
3. Decrease in price of a productive input that is a
complement to
labour
The supply of labour is influenced by –
1. Substitution effect: Increase in wage rate causes
2. Income Effect: Increase in income increases worker’s
demand for leisure
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 5/17
MONETARY & FISCAL POLICIES
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 6/17
MONEY, THE PRICE LEVEL AND
INFLATIONThe goals of the Central Bank are –
1. Keep
inflation
low2. Promote economic growth and full employment
.
Central Bank targets the Overnight Rates
Balance Sheet
of
the
Central
Bank
‐
1. Assets: Government Securities, Gold and Foreign
Deposits, and loans to Banks
2. Liabilities: Reserve Notes / Currency , Reserves on
Deposits
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 7/17
Open Market Operations: Most Often used
1. RBI buys government securities for Cash Reserves Increase Money
Supply Increases
2. Selling Securities decreases the Money Supply
1. Reducing required reserve percentage increases excess reserves and
increases the money supply
2. Increasing required
reserve
ratio
decreases
the
money
supply
Discount Rate:
1. It is the interest rate member banks pay the RBI for borrowed assets
2. By raising the discount rates, Fed discourages banks from borrowing
,
money supply)
3. Decreasing the discount rate tends to increase the money supply
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 8/17
• The demand for mone is lar el determined is
largely determined
by
interest
rates
• Interest that could be earned on money deposited
in savings account or money market fund is the
opportunity cost
of
holding
money
• The supply of money is determined by the central bank and is independent of the interest rate
IR
i Money Supply
Demand for Money
Real Money
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 9/17
•
price level
Real GDP
• Financia Innovation as ecrease t e
demand for money on balance
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 10/17
• Mone Su l Increase
• Nominal and
Real
Interest
Rates
decrease
•
purchases of durable goods
• Forei ners invest
less,
exchan e
rate
falls,
im orts
down, exports up, net exports increase
• Aggregate demand , Real GDP, and Price Level
increase in
the
Short
Run
• In long run, full employment GDP
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 11/17
• =
Money Supply
× Velocity
= Price
× Real
Output
Since velocity and real output are relatively constant:
Increases in
the
money
supply
lead
to
proportional increases in
the price level
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 12/17
•
level in
an
economy
at
a point
in
time
level. There are two types ‐
1. Deman Pu In ation AD Up
2. Cost Push Inflation (SRAS Down)
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 13/17
High Inflation, even when well anticipated,
imposes costs on an economy. It can:
1. Divert resources
to
deal
with
inflation
2. Decrease value of currency as store of value
3. Distort investment returns (because of tax effects), reducing
capital investment and potential GDP
Nominal Rate = Real Rate + Expected Inflation Higher Inflation Higher Expected Inflation
Higher Nominal Rates
Faster Money Supply Growth Higher Inflation
Higher Nominal
Rates
With higher expected inflation:1. Expected nominal returns on business investment will be higher
( increased demand for financial capital)
2. Savers require
greater
return
on
savings
(decreased
supply
of
financial capital)
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 14/17
•
Wage demands
lag
actual
inflation,
real
wage
, ,
• W en actua in ation < expecte in ation:
Wage demands exceed actual inflation, real
wage rises,
unemployment
increases,
output
falls
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 15/17
•
while aggregate
demand
(AD)
growth
fluctuates
• When AD grows faster than LAS: Cyclical
Expansion, Real
GDP
above
potential
Real
GDP, Unemployment Falls, Inflationary Gap
• When AD grows more slowly than LAS: Cyclical
contraction, Real
GDP
less
than
potential
GDP,
Unemployment Rises, Recessionary Gap
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 16/17
•
confidence (Animal
Spirits)
•
and consumption , caused by (inappropriate)
fluctuations money
supply
growth
• New Classical Cycle Theory: Only unexpected
fluctuations in AD causes cycles
• New Keynesian
Cycle
Theory:
Both
expected
and unexpected changes in AD cause cycles
8/3/2019 Global Macro Economic Environment
http://slidepdf.com/reader/full/global-macro-economic-environment 17/17
•
top related