During our class on Aggregate Demand (AD) and the IS-LM curves, we talked about using both Fiscal and Monetary Policies to achieve a certain goal. For example, raising taxes to reduce a budget deficit would lead to an inward shift in the IS curve and thus reducing both output and the interest rate. To maintain output, the Central bank needs to increase Money Supply to the point that output would remain at its original level (note we also talked about how difficult it would be for the CB to know exactly how much money to pump into the economy). Below is a piece by Christina Romer and a report by the IMF that deal with a debate that’s currently going on, whether now is the time for Western governments to take action to reduce their budget deficits. There are two sides, the first argues that now is the time for action to be taken before it’s too late and the second, that now is not the time, that economies are still fragile and austerity measures could to a double dip recession. The two links here are in favour of the latter, i will try and get a link to at least one article that is in favour of the former.
Thursday, October 28, 2010
Sunday, October 10, 2010
Intermediate Macro- Multipliers
In our last class, I asked the class to try and find the Gambia Government Multiplier using data from the statistical appendix. For those who could not find the Appendix, the link to two appendices covering the years 1990 to 2004 have been posted below. Instead of finding the government multiplier only, I'd like you to also calculate the tax rate multiplier and MPC multiplier. As I mentioned in class, estimate the models that make up the macro model (Output, Consumption, Investment and Money demand), then fit the parameters into the relevant multiplier equation to be able to get the actual figure. If you run into any problems, raise them in class.
http://www.mediafire.com/file/s9744xuecbs8a4h/gmb%20macro%20indicators%2090-97.pdf
http://www.mediafire.com/file/s8cccelncvhc4op/gmb%20macro%20indicators%2098-04.pdf
Given that we have now covered the basics of the IS-LM model and Aggregate Demand, I thought that you might find this piece interesting. There are some policy effects that Economics students have no trouble understanding. The problem for most students is the transmission mechanism. This piece gives an explanation of the transmission mechanism of how printing more money can lead to inflation.
If you have comments on the piece, post them on the blog.
Lecture Slides Money and Banking
Below are the leture slides for Money, Banking and Capital Markets, lectures
3 and 4.
http://www.mediafire.com/file/skg481o4mo402as/mbcm%20Lecture%203.pptx
http://www.mediafire.com/file/k24al747k1rh79z/mbcm%20Lecture%204.pptx
Also take a look at the Central Bank website, cbg.gm. Look at the sections, Government Securities and Financial System. I'd like your comments with regards to the the structure of the Gambian Financial System compared to that of the US (in terms of size and the number of financial products available).
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