Agenda2012Instructor: Rod Biasca

• Welcome to the Seminar• Week 4. Tracking the Economy• Week 5. Economic Growth

Savings & Investment• Questions ? Comments?

Tracking the Macroeconomics

Unit

4

BU204 Macroeconomics

Economic GrowthSavings & Investment

Unit

5

BU204 Macroeconomics

Macroeconomics

Long-Run Economic Growth

© Worth Publishers, all rights reserved

5

Figure 9.1 Economic Growth in the United States, India, and China over the Past CenturyKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

6Figure 9.2 Incomes Around the World, 2007Krugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

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Figure 9.3 Comparing Recent Growth RatesKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

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Growth = Additional Resources + Total Productivity Increase

The Main Sources of Long-Run Growth are:

Labor productivity

Physical capital

Human capital

Technology

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Figure 9.5 Technological Progress and Productivity GrowthKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Technological Progress and Productivity Growth

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Why Growth Rates Differ

A number of factors influence differences among countries in their growth rates.

savings and investment spending,

foreign investment,

education,

infrastructure,

research and development,

as well as foster political stability, and

the protection of property rights.

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Unnumbered Figure 9.1 Old Europe and New TechnologyKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

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Figure 9.7 Success and DisappointmentKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

13Figure 9.8 Do Economies Converge?Krugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Are economies converging? No!

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LIMITS

Economists generally believe that environmental degradation poses a greater problem for whether long-run economic growth is sustainable than natural resource scarcity. Addressing environmental degradation requires effective governmental intervention, but the problem of natural resource scarcity is often well handled by the market price response.

The emission of greenhouse gases is clearly linked to growth, and limiting them will require some reduction in growth. However, the best available estimates suggest that a large reduction in emissions would require only a modest reduction in the growth rate.

15Figure 9.11 Climate Change and GrowthKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Macroeconomics

Savings, Investment Spending, and the Financial System

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The Savings–Investment Spending Identity in an Open Economy

I = SPrivate + SGovernment + KI = NS + KI

Investment spending =

National savings + Capital inflow

in an open economy

18Unnumbered Figure 10.1 America’s Low SavingsKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

19Figure 10.1 The Savings–Investment Spending Identity in Open Economies: the United States and Japan, 2007Krugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Open Economies: the United States and Japan

2007

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The Financial System

Definitions Wealth Financial asset Physical asset Liability Transaction costs Financial risk

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The Financial SystemTasksReducing transaction costs Reducing financial risk Providing liquid assets

Financial Intermediaries: Mutual funds Pension funds Life insurance companies Banks

Figure 10.4 Equilibrium in the Loanable Funds MarketKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Figure 10.6 An Increase in the Supply of Loanable FundsKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers

Figure 10.5 An Increase in the Demand for Loanable FundsKrugman and Wells: Macroeconomics, Second EditionCopyright © 2009 by Worth Publishers