Macroeconomic Theory

Macroeconomic Vs Microeconomics
Distinction between microeconomics and macroeconomics

Macroeconomics
Macroeconomics is the study of the nations economy as a whole. Macroeconomic analysis can be used to: Understand how a national economy works. Understand the grand debates over economic policy. Information helps on business decisions.

Macroeconomic Objectives
The major macroeconomic issues
economic growth
unemployment

inflation
balance of payments & trade and exchange rates
balance of payments and Treade deficits and surpluses exchange rate movements

The major macroeconomic instruments & tools

Fiscal policy ( government expenditure, taxes, subsidies,)
Monetary Policy ( money supply (m4), interest rate,..) International Trade ( policies, protection, free trade,.controlling exchange rate, ) Income policies ( incomes and prices)

The Agents in the System

There are four agents that we will focus on when constructing a model of the economy:
Households Firms Government The Rest of the World

Markets
There are three markets that we focus on:
The Factor Market The Goods Market

The Financial Market

The circular flow of national income and expenditure

The circular flow of national income and expenditure

(1) Production

Firms

(2) Incomes

(3) Expenditure

Households

The circular flow of income Firms

Factor payments

Consumption of domestically produced goods and services (Cd)

Households

The circular flow of income

INJECTIONS
Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc GOV. ABROAD

Factor payments

Consumption of domestically produced goods and services (Cd)

Net saving (S)

Import Net expenditure (M) taxes (T)

WITHDRAWALS

The Circular Flow of Income

Withdrawals
net saving
net taxes import expenditure

Injections
investment

government expenditure
export expenditure

The Circular Flow of Income

The relationship between injections and withdrawals
planned injections may not equal planned withdrawals

The circular flow of income

INJECTIONS
Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc GOV. ABROAD

Factor payments

Consumption of domestically produced goods and services (Cd)

Net saving (S)

Import Net expenditure (M) taxes (T)

WITHDRAWALS

General Agreement on Tariffs and Trade GATT

Globalization and world trade

What is comparative advantage?

The ability of a country to produce a good at a lower opportunity cost than another country

What is absolute advantage?

The ability of a country to produce a good using fewer resources than another country

What is free trade? Globalization

The flow of goods and services between countries without restrictions or special taxes

What is protectionism?
The governments use of embargoes, tariffs, quotas,to protect domestic producers from foreign competition

What is an embargo?
A law that bars trade with another country

What is a tariff?
A tax on an import

What is a quota?
A limit on the quantity of a good that may be imported in a given time period

GATT PILLARS
FOUR PILLARS within GATT/WTO system:

1. Most Favored Nations (MFN) Rule of origin, Accumulation of origin 2. National Treatment (internal taxation) antidumping measures 3. Trade Liberalization (negotiated tariff reductions in trade rounds) 4. Non-Tariff Barriers & Fair Trade

Rules of Origin
The process criterion imported materials must have undergone substantial transformation. The value-added or percentage criterion

GATT Agreement Agreement on Agriculture AOA

Deals with 4 axis to increase competition and reduce distortions in agricultural product markets.

Agreement on Agriculture AOA 1- Market Access

The ability of countries to penetrate into markets (no tariffs, no barriers). Replacing non-tariff barriers by tariff barriers and reducing tariff barriers to zero.

Domestic Support
Elimination of domestic support especially programs aiming towards increasing farmer incomes. Support that poses harm to trade (Yellow box) Commodities undergoing reduction until total elimination. Support that poses no harm to trade (Green box) Commodities not undergoing reduction.

Export Subsidy
Elimination of export subsidy (increasing export competitiveness in international markets artificially).

Sanitary and Phytosanitary Measures (SPS)

The agreement identifies all sanitary measures that facilitate the flow of trade between nations, such as: HACCP, ISO 9001, EurepGap, ISO 22000

Traceability
Trace-back or Tracing

Trace-forward or Tracking

GLOBALG.A.P VERSUS EUREPGAP