Topic 1 Introduction(2)

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ECON 1020

INTRODUCTORY MACROECONOMICS

Semester 1, 2016

Ian King

Topic 1:

Introduction

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GENERAL INFORMATION

CONTACT

Professor Ian King Room 546, Colin Clark Building Consultation: Wednesdays, 2-3pm

LECTURES

Lecture 1: Wednesdays, 4:00-5:50pm, Room 49-200 Lecture 2: Tuesdays, 2:00-3:50pm, Room 49-200 Lecture 3: Mondays, 2:00-3:50pm, Room 22-201

TUTORIALS AND PASS

Several on different dates and times: you need to sign in. Start from week 2.

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TEACHING STAFF Lecturer and Course Coordinator: Prof. Ian King

Tutors Pass Course Administrator: Ms. Marie Taylor All staff can be contacted via the course e-mail address: econ1020@uq.edu.au

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COURSE PROFILE Read the ECON1020 Course Profile It provides detailed information on: course details teaching resources teaching objectives weekly teaching activities assessment

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TEACHING RESOURCES TEXTBOOK Hubbard, G., Garnett, A., Lewis, P., and O'Brien, T., (2015) Macroeconomics (3rd Ed.) Pearson Australia

BLACKBOARD SITE Lecture notes Tutorials Extra readings Announcements Recordings Grades

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ASSESSMENT Mid-term exam (date to be advised): 30%

Final exam 70%

Total 100%

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OUTLINE OF COURSE

1. Introduction, Overview, 12 Big Economic Issues 2. Foundations of Economics 3. National Incomes 4. Unemployment and Inflation 5. The Very Long Run: Economic Growth 6. The Long Run and the Short Run 7. Money and Banking 8. Monetary Policy 9. Fiscal Policy 10. Macroeconomics in an Open Economy 11. The International Financial System 12. Global Warming, Economic Development, and Governance 13. Review

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INTRODUCTION

What is macroeconomics?

"Macroeconomics is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth."

More generally: we are all part of the global macroeconomy, which is one of the most important and dynamic natural forces on the planet.

http://www.bbc.com/news/science-environment-35259987

It is taking us somewhere -- where?

Where do we want to go?

How much control do we have?

These are the sorts of questions that macroeconomics tries to answer.

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12 BIG ECONOMIC ISSUES FACING US TODAY 1. Global warming 7. Population growth

2. Economic Growth 8. Debt and financial crises

3. Economic inequality 9. Business cycles

4. Migrations, refugees 10. Unemployment and inflation

5. Emerging economies 11. Depleting natural resources

6. Wars, terrorism 12. Governance

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1. GLOBAL WARMING

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Map showing 2015 temperature deviations from 1961-90 average

Source: World Meteorological Organization

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What is the relationship between the macroeconomy, emissions, and global warming?

What are the projections?

What are expected consequences?

What can we do about it?

What should we do about it?

What is being done about it?

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2. ECONOMIC GROWTH

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Data available at:

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2003rank.html

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A Little Math The formula for growth: 1 T

new oldy y g

Where: new income levelnewy old income leveloldy average growth rate per periodg number of periodsT

For example: in 1820, real per capita annual income in the US was $1858 (i.e., 1858oldy ). In 2012, it was $45,336 (i.e., 45336newy ). The length of each

period is one year, so the number of periods is 2012 1820 192T . The average annual growth rate was approximately 1.68% (i.e., 0.0168g ). Thus:

Using the formula: 19245336 1858(1 0.0168)

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Suppose, instead, the growth rate had been 1 percentage point higher: 2.68% (i.e., 0.0268g ). What would real per capita annual income have been in 2012 in that case?

To answer this question, we turn to the formula again, to determine newy with the alternative 0.0268g :

1921858(1 0.0268)newy 298079newy

That is, if the growth rate in the US had been only 1 percentage point higher, per capita annual income in the US in 2012 would have been $298,079!

This is approximately 6.5 times higher than they actually had in 2012.

Small changes in growth rates have very large effects on incomes, in the long run ...

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Some questions about growth: Why was there no growth, for so long, then explosive growth recently? Why do different national economies grow at such different rates? What are the implications of these different growth rates? What can be done to encourage growth? Should we encourage growth? What is the relationship between economic growth and global warming?

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3. ECONOMIC INEQUALITY

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INCOME INEQUALITY

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WEALTH INEQUALITY

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INTERNATIONAL INCOME INEQUALITY

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$600 a year -- that's $1.64 per day.

The average person in Luxembourg earns the same as 154 average people in the Central African Republic!

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Why is there so much economic inequality in the world -- not just across countries, but also within countries What are the implications for growth, life expectancy, infant mortality? What are the implications for political changes? What can be done to change things? What should be done? Is there are trade-off between efficiency and equity?

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4. MIGRATIONS AND REFUGEES

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What are the fundamental causes of migrations and refugees? What are the rationales behind national boundaries for people? What would happen if we allowed purely open borders? Should we allow open borders? Who would be the winners, and the losers, if we did? What alternatives exist?

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5. EMERGING ECONOMIES

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Emerging economies, by definition, are those which are in a transitional phase between "developing" and "developed". Their growth rates tend to be significantly higher than those of developed countries. The two most significant examples are China and India. Due to their large populations, as these 2 economies develop, the effects on the global economy, and global politics, are transformational: in the long run, we can expect the size of both of these economies to be several times larger than those of the US and the EU. When will this happen? What are the implications?

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6. WARS, TERRORISM

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What causes wars? Political causes Economic causes "War is a Racket"

What is terrorism? State terrorism Non-state terrorism

What causes terrorism? Political causes Economic causes

What effects do wars and terrorism have on macroeconomies?

What can be done?

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7. POPULATION GROWTH

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What are the projections for population growth? What does the theory say? Will there be a maximum population? What are the implications for the macroeconomy, and for global warming? Will population start declining at some point? Is there a sustainable solution?

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8. FINANCIAL AND DEBT CRISES

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What is the history of financial crises? What causes financial crises? What is the structure of the financial system?

What do commercial banks do?

What do investment banks do?

What do central banks do? What regulations are in place? What regulations should be in place?

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What are government debt crises? How do they happen? When have they occurred? What are their implications? What can be done to avoid them?

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9. BUSINESS CYCLES

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Why does the economy seem to cycle its way through good and bad times? How are these cycles transmitted, from one economy to another? What can be done about it? What role(s) can the government play? What can fiscal and monetary policy do to make things better? What is the role of government debt in these cycles? Why has Australia not had a recession in so long (since 1992)?

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10. UNEMPLOYMENT AND INFLATION

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What are the fundamental causes of unemployment and inflation? What are their effects on society? Is there a relationship between unemployment and inflation? Is there a trade-off between the two? Does society face a choice between these two bad things? What is the connection with the business cycle? What role can policy play?

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11. DEPLETING NATURAL RESOURCES

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What are the most important natural resources? Which are renewable, or non-renewable? What are the projections of the stocks of non-renewables into the future? What are the roles of coal and oil in the global macroeconomy? In Australia? Case study: Oil

Where is it located? Who are the key exporters, and importers How much is left? What is the extraction rate? What is the role of fracking? What are the political economic implications of oil?

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12. GOVERNANCE

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What is the difference between private power and public power?

How democratic is the world?

Which countries are the most democratic?

How much power do national governments have, relative to multinational corporations, these days? How is this evolving?

Which countries are the most corrupt?

What effects does corruption have on macroeconomies?

What is the "political business cycle"? How can we achieve and sustain good economic governance?

What can be done?

What are our rights?

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WHAT WILL WE DO IN THIS COURSE? We will tackle all of these issues. To do so, we will first develop a set of analytical tools and techniques that will help us to understand the nature of these issues more systematically. Generally, we will use the economic way of thinking -- and, more specifically, the macroeconomic way of thinking -- to analyse the big economic issues of our time. The first 3 chapters of the textbook provide an introduction to the key concepts that are used throughout all economic analysis, including macroeconomics. The remainder of the text is devoted to specifically macroeconomic topics.

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The textbook does not cover all of the questions raised here, so we will supplement with additional material as we proceed.

The lectures, tutorials, and PASS sessions are all keys to success in this course.

Fundamentally, though, in order to get a good mark in this course, or any other, you should remember the golden ratio: at least 2 hours of studying for each hour of lecture time!

We have 2 hours of lecture time each week, so you should study at least 4 hours a week. It's hard work, but I will do everything I can to make it as interesting and as relevant as possible.

These are all big problems, that the world faces, and your help is needed to solve them!