macroeconomic policy in the asia-pacific geco6400 economic growth macroeconomic policy challenges...
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MACROECONOMIC POLICY IN THE ASIA-
PACIFICGECO6400
ECONOMIC GROWTHMACROECONOMIC POLICY CHALLENGESCOURSE REVISION
ECONOMIC GROWTH
The Asia-Pacific region consists of economic systems that range from free market to centrally planned.
Free market-based capitalist economies experience regular periodic fluctuations in the production of output.
Such fluctuations are often referred to as business cycles.
COUNTRY ECONOMIC SYSTEM
RESOURCE OWNERSHIP
AustraliaChinaHong KongIndiaIndonesiaJapanMalaysiaNew ZealandPhilippinesSingaporeSouth KoreaTaiwanThailandVietnam
Free marketCentrally PlannedFree MarketMixedFree marketFree marketMixedFree marketFree MarketFree MarketFree MarketFree MarketFree MarketFree Market
PrivateStatePrivateState and PrivatePrivatePrivatePrivatePrivatePrivatePrivatePrivatePrivatePrivatePrivate
ECONOMIC GROWTH
ECONOMIC GROWTH
The Business CycleThe Business CycleThe business cycle refers to the irregular fluctuation of real output in a capitalist economy over a period of time.
This fluctuation tends to be wave-like and consists of 4 recurring phases:PeakRecessionTroughRecovery
Time
Change in GDP
PEAK
TROUGH
RECESSION
RECOVERY
Wavelength
Amplitude
ECONOMIC GROWTH
ECONOMIC GROWTH
PhasesPhasesRepetitive aspects of the cycle.
Peak: economic activity reaches a maximum
Recession: decline in economic activity
Trough: economic activity reaches a minimum
Recovery: increase in economic activity.
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CausesCausesWhat turns the cycle?
Man-madePoliticalTechnological
NaturalDisastersDiscovery
ECONOMIC GROWTH
CharacteristicsCharacteristicsHow to determine what phase of the cycle
predominates. Output Employment Inflation Aggregate Demand
ConsumptionInvestmentExports and imports
MechanismsMechanismsWhat keeps the cycle going? Aggregate Expenditure
Consumption Investment Exports
Expectations
ECONOMIC GROWTH
ECONOMIC GROWTH
PHASE POSSIBLE CAUSES CHARACTERISTICS
PEAK
High outputLow unemploymentHigh pricesHigh Aggregate demand
RECESSION
Natural disasterWar
Declining outputRising unemploymentFalling pricesDecreasing aggregate demand
TROUGH
Low outputHigh unemploymentLow pricesLow Aggregate demand
RECOVERY
Breaking of a droughtDiscovery of new technologyInnovation
Rising outputDeclining unemploymentRising pricesRising Aggregate demand
ECONOMIC GROWTH
Source: Patnaik, Ila and Rachna Sharma, ‘Business Cycles in the Indian Economy’, Margin, Vol.35, No.1, pp.71-79, October-December 2002.
ECONOMIC GROWTH
Class TaskClass TaskFind one complete business cycle and provide years for:PeakRecessionTroughRecovery
Discuss any macroeconomic problems associated with the phases of the cycle and suggest policies to alleviate them.
MACROECONOMIC POLICY CHALLENGES
OverviewOverviewEconomic integration in the Asia-Pacific region has been advancing rapidly over the past decade, driven by growing intra-regional trade, increasing investment and financial integration.
Based on regional and bilateral free-trade agreements as well as emerging financial cooperation arrangements, this process is likely to increase over time.
Reflecting increasing trade and investment flows, business cycles across countries in the region are becoming more correlated.
ChallengesChallenges1.Development and integration of
different economic systems
2.Managing growth and development Infrastructure development Structural reform Climate change Ageing population Income distribution
MACROECONOMIC POLICY CHALLENGES
4. Global Integration Trade Policies
open vs closed global vs regional and multilateral vs bilateral
Capital Markets Regulation of international capital flows Financial system regulation Exchange rate systems
5. Balance of development Distribution of gains between economies
MACROECONOMIC POLICY CHALLENGES
THE MACROECONOMYTHE MACROECONOMY The Economic Problem The Circular Flow of Income Economic Sectors Measuring Output: GDP, methods,
nominal and real, alternative measures of economic welfare (HDI, GPI).
COURSE REVISION
MEASURING EMPLOYMENT AND MEASURING EMPLOYMENT AND INFLATIONINFLATION
Defining and measuring unemployment Unemployment rate, Participation rate Types of unemployment Discouraged workers Defining and measuring inflation Costs of inflation The Philips Curve
COURSE REVISION
MACROECONOMIC MODELSMACROECONOMIC MODELS Aggregate Expenditure Model Economic sectors AE=C+I+G+(X-M) 45-degree line diagram MPC and MPS, APC and APS Equilibrium Income (Y=AE) Multiplier
COURSE REVISION
MACROECONOMIC MODELSMACROECONOMIC MODELS Aggregate Demand and Aggregate Supply Aggregate Demand Aggregate Supply: short-run and long-run Movements along vs shifts Equilibrium Application of AD-AS model: inflation,
Stagflation
COURSE REVISION
FISCAL POLICYFISCAL POLICY Federal Budget Outcome Financing a Budget Deficit Discretionary and non-discretionary Fiscal
Policy Automatic Stabilisers Fiscal Policy transmission mechanism Crowding Out Net export effect Problems with Fiscal Policy
COURSE REVISION
MONEY AND BANKINGMONEY AND BANKING Defining money Money Demand and Money Supply Credit creation: reserves, reserve ratio
MONETARY POLICYMONETARY POLICY Open Market Operations Monetary Policy transmission mechanism Monetary Policy, interest rates and
exchange rates Second-round effects of Monetary Policy
COURSE REVISION
INTERNATIONAL TRADE AND THE INTERNATIONAL TRADE AND THE BALANCE OF PAYMENTSBALANCE OF PAYMENTSCurrent Account: Current Account DeficitCapital and Financial AccountTerms of TradeForeign DebtTwin Deficits
COURSE REVISION
EXCHANGE RATESEXCHANGE RATES Definition and determination Exchange rate systems
Flexible Managed Fixedinterest rates and exchange ratesPurchasing Power Parity
COURSE REVISION
ECONOMIC GROWTHECONOMIC GROWTH Business Cycles
COURSE REVISION