MACROECONOMIC POLICY IN THE ASIA
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Transcript MACROECONOMIC POLICY IN THE ASIA
MACROECONOMIC POLICY IN
THE ASIA-PACIFIC
GECO6400
ECONOMIC GROWTH
MACROECONOMIC POLICY CHALLENGES
COURSE 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.
ECONOMIC GROWTH
COUNTRY
Australia
China
Hong Kong
India
Indonesia
Japan
Malaysia
New Zealand
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
ECONOMIC SYSTEM RESOURCE OWNERSHIP
Free market
Centrally Planned
Free Market
Mixed
Free market
Free market
Mixed
Free market
Free Market
Free Market
Free Market
Free Market
Free Market
Free Market
Private
State
Private
State and Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
Private
ECONOMIC GROWTH
The Business Cycle
The 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:
Peak
Recession
Trough
Recovery
ECONOMIC GROWTH
Wavelength
Change
in GDP
PEAK
RECOVERY
RECESSION
A
m
p
l
i
t
u
d
e
TROUGH
Time
ECONOMIC GROWTH
Phases
Repetitive aspects of the cycle.
Peak:
economic activity reaches a maximum
Recession:
Trough:
decline in economic activity
economic activity reaches a minimum
Recovery:
increase in economic activity.
ECONOMIC GROWTH
Causes
What turns the cycle?
Man-made
Political
Technological
Natural
Disasters
Discovery
ECONOMIC GROWTH
Characteristics
How to determine what phase of the cycle predominates.
Output
Employment
Inflation
Aggregate
Demand
Consumption
Investment
Exports
and imports
ECONOMIC GROWTH
Mechanisms
What keeps the cycle going?
Aggregate Expenditure
Consumption
Investment
Exports
Expectations
ECONOMIC GROWTH
PHASE
POSSIBLE CAUSES
High output
Low unemployment
High prices
High Aggregate demand
PEAK
RECESSION
Natural disaster
War
Declining output
Rising unemployment
Falling prices
Decreasing aggregate demand
Low output
High unemployment
Low prices
Low Aggregate demand
TROUGH
RECOVERY
CHARACTERISTICS
Breaking of a drought
Discovery of new technology
Innovation
Rising output
Declining unemployment
Rising prices
Rising Aggregate demand
ECONOMIC GROWTH
INDIA’S ECONOMIC GROWTH
12
10
8
% 6
change 4
in GDP
2
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
1964
1961
1958
1955
-2
1952
0
-4
-6
YEAR
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 Task
Find one complete business cycle and provide years for:
Peak
Recession
Trough
Recovery
Discuss any macroeconomic problems associated with the
phases of the cycle and suggest policies to alleviate
them.
MACROECONOMIC POLICY
CHALLENGES
Overview
Economic 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.
MACROECONOMIC POLICY
CHALLENGES
Challenges
1. 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
COURSE REVISION
THE 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 INFLATION
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 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 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 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 BANKING
Defining money
Money Demand and Money Supply
Credit creation: reserves, reserve ratio
MONETARY 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 BALANCE OF
PAYMENTS
Current Account: Current Account Deficit
Capital and Financial Account
Terms of Trade
Foreign Debt
Twin Deficits
COURSE REVISION
EXCHANGE RATES
Definition and determination
Exchange rate systems
Flexible
Managed
Fixed
interest rates and exchange rates
Purchasing Power Parity
COURSE REVISION
ECONOMIC GROWTH
Business Cycles