macro

• • AD Increase:
  • When AD increase, increase in dd for g&s, firms start to exp unplanned depletion of inventories, firms increase pdn, hire more FOPs incl labour, give more factor payment, HH y increase, pp increase, increase in w&a to con, increase induced consumption, AD increase again, firms will increase pdn, hire more FOPs and give more factor payment again, hence rny increase by multiple folds, resulting in AEG
  • SRAS Increase:
  • Rny increase, aeg (eg. cost of labour decrease, L is FOP, cop decrease, firms will be more w&a to pdc g+s, sras increase, rny increase, aeg)
• PEG:

  • Increase in productive capacity of a country (qty/qly of FOP)
  • increase in LRAS
• increase Tech of FOP: (peg)

  • More efficient methods of production, increase productivity, increase production capacity, increase LRAS, peg, more o/p per unit i/p, fall in unit COP, increase in w&a to produce g&s, increase SRAS, increase rny, aeg
• • i) Higher positive growth rate = faster expansion of economy = desirable economic perf, give eg (singapore 5% malaysia 2%)
  • Higher investors confidence, greater incentive to invest, higher capital expenditure allows economy to expand it’s potential productive capacity, leading to potential growth and thus sustained growth
  • ii) Econ growth - more g&s demanded, induced demand of labour, increase job creation
• GDP: Gross Domestic Product 

  • value of all final g&s produced within geog boundary of a country over a period of time
  • real gdp (takes into acct inflation): P base yr x Q current year
  • nominal gdp: P current yr x Q. current year
• GNP: Gross National Product

  • value of all final g&s produced by nationally owned FOP during a given period of time
• i) sustainABLE EG: not depleting rss,  not creating problems for future gen (aeg+peg+ reduce env damage and rss depletion)

  • eg. electric vehicles: SG from 2030 stop of sales of fuel-powered vehicles
• ii) inclusive EG: beneficial for all socio-economic classes (income inequality doesnt worsen) (aeg+peg+reduce y gap)

  • eg. SG’s progressive tax structure (the more you earn the more taxes you pay)
  • eg. SG transfer. payment: FAS/CHAS
  • eg, upskill low wage workers, dd increase, wage increase
• calculating income equality: ginni coeff

  • plot pptn of income against pptn of population 
  • draw a 45deg line, connecting the ends, draw the Lorenz curve
  • fixed area btwn curve X2 = ginni coeff
• px stability: low and stable inflation rate: eg sg 2% vs msia 7%

  •  benefit: maintain real income prevent deterioration due to high col
• CPI: Consumer Px Index

  • measures px of a fixed basket of g&s commonly purchased by typical HH
  • weighted
• inflation: sustained increase in general px level 

  formula: (cpi current yr - cpi prev yr)cpi prev yrx100%

  hyperinflation: v high inflation

  stagflation: -ve AEG, high unemployment, high inflation (exp all 3)

  (inflation worsens real y. if sg lower IR than other countries, maintain real y, can con similar abt of g&s)
• types of inflation analysis:

  1. dd pull inflation
  2. cost-push inflation (causes change in SRAS: increase cop)

  • wage-push inflation 
  • imported inflation
• 1. dd pull inflation: AD increase, assume near yf, firms compete for limited FOPs, bid up factor prices, pass on increase in COP to consumers in terms of higher prices, gpl increase, dd pull inflation occurs
• wage-push inflation (wage increase via labour unions, min wage, change in ddss of L)

  • suppose wage is an impt component of cop, cop increase, w&a to pdc decrease, sras decrease, pass on increase prices to con, gpl increase, wage-push inflations
• imported inflation (imports rising eg. ex rate)

  • px of imports rise, imports incl key raw mat, cop increase, w&a to pdc decrease, sras decrease, pass on increase prices to con, gpl increase
• CPI limitations:

  • substitution bias (overstates COL)
  • when px of gd increase, con tend to switch to less ex alternative, eg if in basket got coffee & tea, coffe increase px, con will switch to more tea instead
  • quality adjustment bias
  • quality improves 
  • change in t&p
• unemployment rate = no. unemployed(actively finding jobs)/labour force X100% 
• unemployment reasons:

  1. cyclical/dd deficient: - recession /AD
  2. structural deficient: mismatch of skills, occurs due to shift workers in sunset industry will be made redundant & retrenched. they lack rev skills to be employed in sunrise industries despite jobs avail. a cse of skills mismatch.
  3. frictional: leaves job before finding new one

  • due to imperfect info btwn employees & employers: takes time to find jobs
• unemployment rate calc limitation: 

  • UR may change not bc more ppl are employed but bc changes in size of labour force 
  • eg. UR decline when unemployed stops looking for job & continues his edu, numerator falls larger pptn than denom, fall in UR but doesnt rep better utilization of rss
  • eg. UR ruse when increase in LF size bc of new/re-entrants who are not immediately employed and have to seek jobs first, numerator increase by larger pptn, thus rise in UR but doesnt reflect poorer utilisation of rss
• benefit of higher employment: smaller wastage of rss
• mat sol

  • amt of g&s avail for consump
  • measured by real gdp pc
  • calc??
  • rise in real gdp pc doesnt mean rise in matSOL bc machines could be bought but govt dont use
  • limitations: if only given UR or GR (& not real gdp pc) its insufficient to tell mat sol
• non mat sol

  • quality of life (eg literacy rate, stress lvl, crime rate, pollution lvl)
  • rise in real gdp pc may or not may not mean a rise in nmSOL 
  • may rise: rise in y allows consumers to enjoy more g&s
  • may not: longer working hours
• indicators of sol (takes into consideration of both mat and nonmat)

  • human development index (HDI) (0 to 1, 1 best)(includes life expectancy….. mean no. of yrs of schooling for adults, expected yrs of schooling for students…) 
  • hc indicators: define, eg higher life expectancy levels are assumed to higher QOL
  • edu indicators: define, eg higher literacy rate, suggests the qty & qly of edu (suggests a more effective edu system)
• limitations of composite indicators: 

  • valuation of each non-mat indicator is subjective
  • doesnt take into consideration y distri
  • hdi doesnt take into consideration qualitative factors like political freedom
  • comparison over space: higher real gdp GR may only suggest real gdp increasing at faster rate since economy has spare capacity (more UE), able to expand pdn at a faster rate, compared to another country w lower real gdp GR thats operating near full capacity eg bangladesh 7.1% GR, lower real gdp value but higher GR, compared to germany with 1.9%)
• ppp: theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of gds in all countries 

  • to acct for diff in COL
• ppp limitations:

    largely a theoretical ideal

  • 2 countries cnt produce exact basket: 
  • 1sgd may not bring con same lvl of welfare as quality of bus ride in sg and mlysia may be diff
  • consumption patterns differ btwn countries
  • inaccurate calculation: data collection reliability differs due to diff in tech
• CFOY:

  • withdrawals = injection
  • (a change) I > W. multiplier effect begins
  • (see who receive first) domestic firm will exp increase in 1mil, increase pdn and hire FOPs incl L and pay factor payment of 1mil
  • HHs increase 1mil, assuming MPC=0.5, CE increase by 500k, W increase by 500K.
  • repeat: domestic firm will exp increase in 500k, increase pdn, hire more FOPs incl L and pay factor payment of 500k. HH increase 500k, assume, mpc=0.5 CE increase 250k and W increase by 250k
  • process cont till final change in W = initial change in I
  • final change in rny is: size of injection x k
• unique limitation for EFP: ad increase: small k

  1/mpw usually western, 1/1-mpc usually sg asian countries
• contractionary FP: decrease AD

  • opposite

  adv of CFP: increases tax rev & decreases GE to improve budget

  dd pull inflation: ad decrease, assume near yf, firms bid down on factor px, pass on cost-saving to con -> gpl decrease (CANNOT SAYING DEFLATION, say curb inflationary pressure)

  limitation of CFP: -ve AEG: increase CE & mat sol
• expansionary FP: increase AD

  • decrease y tax, increase DI, pp increase, w+a increase, CE increase
  • decrease corp tax, increase after-tax profit, incentive to invest increase, I increase
  • increase GE in terms of PUBLIC WORK PROJECT (eg. tuas mega port,mchango T5, cross island line)

  C increase I increase G increase => AD increase
• EMP (involves i/r and ER)

  1. decrease i/r, decrease cob, increase incentive to purchase big-ticket items, increasing CE
  2. returns of savings decrease, less incentivised to save, increase w&a to con, CE increase
  3. decrease IR, no. of projects where expected rate or returns > i/r will increase, increase incentive to invest, I increase
• EMP adv (same as EFP)

  AD increase, aeg, fall in dd deficient UE, increase mat sol
• real i/r = nominal i/r - inflation rate
• credit rating

  ability to pay back loan, affects investors confidence
• limitation of EMP

  • when ad increase, dd pull inflation, liquid trap: occurs when i/r very near 0
  • any fall in i/r will not increase CE or I significantly
• how savings affect i/r

  increase in funds avail for banks, surplus, push i/r down
• ER

  • y axis is always USD / X
• 1. trade (X-M) affecting ER

  • DD of x increase, dd for local currency increase, app
  • DD for m increase, ss for local currency increase, dep
• i/r affecting ER

  i/r increase: inflow of hot money, dd for currency increase, app.

  then, ss of loanable funds increase, decreasing i/r

  i/r decrease: outflow of hot money, ss for currency increase, dep.