EGCP_L1 Flashcards
(8 cards)
What are the key questions of macroeconomics?
- What determines macroeconomic variables (GDP, Unemployment, Inflation, etc.)?
- How can economic policy (Government Spending, Tax Policies, Monetary Policy) influence these variables?
- Should policy focus on long-run growth or stabilisation of business cycles?
What are some stylised facts of macroeconomics (I)?
- Output growth is highly correlated across sectors.
- Production, consumption, investment, and government spending are procyclical.
- Investments are more volatile than consumption.
- Employment is procyclical; unemployment is anticyclical.
What are some stylised facts of macroeconomics (II)?
- Real wages and labour productivity are procyclical (real wages slightly).
- Money supply and stock prices are procyclical and react early in the cycle.
- Inflation, price level and nominal interest rates are procyclical but react later.
- Bank credit is procyclical.
- In crises, relationships may change (e.g. interest rates at 0%).
What are controversial issues in economic policy?
- Leeway and effectiveness of government spending.
- The role of taxes in business fluctuations.
- The role of monetary policy in closed vs. open economies.
- The impact of government debt policy.
- The role of wage policy.
Which macroeconomic schools are commonly discussed?
- Keynesians and New Keynesians
- Classical and New Classical macro
- Monetarists
- Real Business Cycle (RBC) theorists
What are the driving factors of macroeconomic demand?
- + means it boosts aggregate demand
- - means it lowers aggregate demand
- → means neutral or context-dependent
Factor | Keynesians | Monetarists/New Classical |
|—————-|—————|—————————|
| Public spending| + | → |
| Tax reduction | + | → |
| Monetary policy| +? | + |
| Public debt | → | - |
| Wages | + | → |
What are the rules of macroeconomic policy (consensus)?
- Provide liquidity if there is a risk of financial distress (raise money supply).
- Avoid cutting public spending and infrastructure investment in recessions.
- Allow automatic stabilisers (budget deficits in downturns).
- In the long run, keep inflation around 2%.
- Real wage increases should not exceed productivity growth.
When can nominal interest rates be negative?
- They can be negative in certain circumstances (negative policy rates),
though physical banknotes complicate this. - Deflation can be dangerous if it fuels a cycle of falling prices and debt burdens.
- Lowering interest rates might not solve a banking crisis alone (depends on confidence, credit conditions).
