Macro II

Introduction
 Course information
• 5EN453, 2 Lectures (6 ECTS)
• Lecturer: Pavel Potužák, Dpt. of Economics
• Office hours: Thursday 13:15-15:15, NB343
• Website:
http://keke.vse.cz/studium/materialy/5en45
3-macroeconomics-ii/

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 Course information
• Textbook: David Romer (2006): Advanced
Macroeconomics, 3rd edition (or higher)

• Download: kekebooks.vse.cz (psw: keke123)

• Barro: Macroeconomics (1997,2008) (Optional)

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 Course information
• Distribution of points:
 40 Points for Midterm in the 8th week (12th
for ill students, or in Exam period in case of
even longer illness):
 It covers 1st part of the semester. (Solow,
Ramsey)
 40 Points for Final test in the Exam period:
 It covers 2nd part of the semester (from
Diamond to NKE).
 20 points for 5 Problem sets (HW).Each for 4
p. 4
 Course information
• 100 points altogether:
 90-100 points … 1
 75-89 points … 2
 60-74 points … 3
 50-59 … 4+ implies 2nd attempt. Comprehensive test
covering the whole semester for 100 p. (Then you need at
least 60 points to pass.)
 0-49 … 4 (Failed)
 No Selective Excuse („Omluveno“) in this Course (only
General,i.e. all (or majority of) courses), since there will
be a wide range of terms in the Exam period.

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 The Science of Macroeconomics

• Master-economist must possess a rare combination of gifts. He

must be mathematician, historian, statesman, philosopher
—in some degree. He must understand symbols and speak in
words. He must contemplate the particular in terms of the general and
touch abstract and concrete in the same flight of thought. He must
study the present in the light of the past for the purposes
of the future. No part of man’s nature of his institutions must lie
entirely outside his regard. He must be purposeful and
disinterested in a simultaneous mood; as aloof and
incorruptible as an artist, yet sometimes as near to earth
as a politician.”

J. M. Keynes "Alfred Marshall, 1842-1924" The Economic Journal,

(Sept.,1924)

 Keynes(1936) as a father of Macroeconomics

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 The Science of Macroeconomics

• Macroeconomics, the study of the economy as a whole,

attempts to answer questions like:
 Why have some countries experienced rapid growth in
incomes while others stagnated in poverty?
 Why do some countries have high rates of inflation while
others maintain stable prices?
 Why do all countries experience recessions and
depressions and (how) can (and should?) government
policy reduce the frequency and severity of these
episodes?

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 U.S. Real GDP per capita
(2000 dollars)
40,000 9/11/2001

First oil
30,000 price shock
long-run upward trend…
20,000 Great
Depression Second oil
price shock
10,000

World War II
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
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 Growth
Growth rates
rates of
of real
real GDP,
GDP, U.S.
U.S.
10
Real GDP
growth rate
8

Average 4
growth
rate 2

-2

-4
1970 1975 1980 1985 1990 1995 2000 2005
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 Real GDP in the Czech Republic (in 2000 prices)
mil. of CZK
3900000

3700000

3500000

3300000

3100000

2900000

2700000

2500000

2300000

2100000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 Business Cycle in the Czech Republic
10,0%

8,0%

6,0%

4,0%

2,0%

0,0%

-2,0%

-4,0%

-6,0%

-8,0%
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 CR vs. EU
GDP per head, EU27 = 100

105
100
95
90 EU 27
85
The Czech Republic 82,2
80 79,8 81 79,6
75 75,1 74,9 75,8 76,9
73,2 73 73,1
70 70,3 69,6 70,2 70,3
68,3
65
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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 Kaldor's stylized facts
-The rate of growth of output per worker is roughly
constant over long periods of time, and its growth
rate does not seem to diminish
The shares of national income received by labor and
capital are roughly constant over long periods of
time
-The rate of growth of the capital stock is roughly
constant over long periods of time
-The capital/output ratio is roughly constant over long
periods of time
-The rate of return on investment is roughly constant
over long periods of time
-The real wage grows over time
 The ratio of labor income to total
income in the U.S.
Labor’s 1
share
of total 0.8
income
0.6

0.4 Labor’s
Labor’s share
share ofof income
income
is
is approximately
approximately constant
constant overover time.
time.
0.2 (Hence,
(Hence, capital’s
capital’s share
share is,
is, too.)
too.)

0
1960 1970 1980 1990 2000
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