Introduction to MacroeconomicsIntroduction to MacroeconomicsCourse overview

(c) 2007- 2014 Gary R. Evans. May be used for educational purposes only without permission of the author.

Gary R. EvansGary R. EvansGary R. EvansGary R. Evans• garyrevans@gmail.com

or evans@g hmc eduor evans@g.hmc.edu• http://www2.hmc.edu

/~evans/hmcgre html/~evans/hmcgre.html

• Parsons 1261Tu/Th 1:00 – 2:30 & apptTu/Th 1:00 2:30 & appt.

• Specialties• policypolicy• entrepreneurship• finance

• Twitter: PITraders

Remember ...Remember ...

• Reading assignments and exam dates are found at h // 2 h d / / 53 h lhttp://www2.hmc.edu/~evans/e53cc.html

• High-quality pdfs of these slides are athtt // 2 h d / / 53l hthttp://www2.hmc.edu/~evans/e53ls.htm

• If looking for material for any of my classes, always go back to sourcealways go back to source http://www2.hmc.edu/~evans/hmcgre.html

• I don’t use Sakai for this class• I don t use Sakai for this class

MacroeconomicsMacroeconomics( i li d l d )( i li d l d )(review outline and calendar)(review outline and calendar)

1. Reading and reviewing t t ll li .. no texts, all online .. all slides posted online prior to the lecture, 1-slide and

2-slide pp2. Exams and grades .. 3 exams, equally weighted, new material only .. grades on generous distribution .. no homework

3 Policy3. Policy .. attendance not required, but this is a lecture course .. no videos or recordings without permissiong p .. P/NC etc. review the rules!

T i l i tiT i l i tiTypical macroeconomic questions:Typical macroeconomic questions:

• What caused the recent recession?• What causes inflation or deflation?• What determines interest rates?• Why do exchange rates fluctuate?• Why do exchange rates fluctuate?• What causes unemployment?• What is our government and Federal

Reserve System doing?

Don’t Worry Be Happy (DWBH)Don’t Worry Be Happy (DWBH)Now sit back and relax and listen – don’t take notes. The next few slides are from the 2013 lectures, and they are not current. You will see them again as the semester proceeds but up to date!You will see them again as the semester proceeds, but up to date!

This is meant to be a teaser – a little overview of where we will be going.

Real GDP Growth: Real GDP Growth: 19601960--2012Q32012Q3

6

8

Average:

How do the components compare?

4

6 3.10%

2

0

2012 Q1 Q3: 2 0% 1 3% 3 1%

4

-22012 Q1-Q3: 2.0%, 1.3%, 3.1%

Below 0.0% for 2 consecutive quarters is a recession.-4

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Bureau of Economic Analysis, National Income and Product Accounts

CPI Inflation Rate: 1960CPI Inflation Rate: 1960--20122012Average: 4%

14

16Annual % change

Double-digitAcceptable level (about

10

12

Double-digit hyperinflation2.5%)

6

8Green line: BC troughs

2

4

-2

0

21960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

CPI for urban consumers, U.S. city average, all items,NSA. Source: Bureau of Labor Statistics

Unemployment Unemployment RateRate19601960--2012, 2012, annual, % of civilian workforceannual, % of civilian workforce

12

8

10

Mean: 6.096.09%

6

8

4

Red represents the trough of business

2

Red represents the trough of business cycles. In recent cycles, unemployment lags the cycle by a few months.

01960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

$ /Yen (¥) Exchange Rate$ /Yen (¥) Exchange RateMonthly data , Jan 2000 Monthly data , Jan 2000 –– February 2013February 2013

130

140 Shown here is the ¥ price of the $, interpreted as “one $ costs 93 ¥” and written as $/¥. This convention is inverted from the manner in which the ₤ and € are conventionally quoted.

110

120Mar 26, 2013$/¥ = 94.500

100

implies¥/$ = $0.010582

This was 238in 1985

80

90 in 1985.

60

70This value falling (when $ is in the numerator) is regarded as a “depreciating” or “weaker” dollar. Imported goods from Japan cost more and our exports to Japan cost less.

Source: Federal Reserve System G5/H10 data Foreign Exchange Rates

U.S. Government Budget Surpluses and Deficits U.S. Government Budget Surpluses and Deficits

200

4001969 1969 -- 20122012

$ Billions

-200

0Surpluses

-600

-400Deficits

-1,000

-800

-1,400

-1,200

Ford Bush IIClintonBush IReaganCarterNixon Obama

-1,6001969 1974 1979 1984 1989 1994 1999 2004 2009

Ford Bush IIClintonBush IReaganCarterNixon Obama

Source: Budget of the United States Government, Fiscal Year 2014, Historical Tables, Table 1.1

Excess Reserves of Depository InstitutionsExcess Reserves of Depository Institutions( thl billi $ 1959( thl billi $ 1959 M h 2013)M h 2013)

1,600

1,800(monthly, billions $, 1959 (monthly, billions $, 1959 –– March 2013)March 2013)

1,200

1,400QE1, QE2 and QE3 have "monetized” the budget deficit.

800

1,000

400

600

800

The celebrated Greenspan salvation ...

i f

200

400

The old scale: 20

saving us from catastrophe after the 2000 crash and 9/11.

01959-01 1969-01 1979-01 1989-01 1999-01 2009-01

Source: Board of Governors of the Federal Reserve Bank, H.3 Statistical Release

Topical IssuesTopical Issuesearly 2014early 2014

• What will be the effect of tapering QE3?What ill interest rates do in 2014?• What will interest rates do in 2014?

• Will deflation actually become a problem?Will th i t ?• Will the recession return?

• Is the budget deficit going to shrink (enough)?• What is the long-run cost of current govt. policy?• What is the future of Social Security and Medicare?• What are the global dimensions of this – is Europe or

emerging nations going to fall and drag us down?• Will there be an exchange-rate war this year?