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APPLIED MACROECONOMICS

W.J.M. Heijman

CONTENTS
Preface
CHAPTER 1: INTRODUCTION
1.1 Background
1.2 Targets of economic policy
1.3 Instruments of economic policy
1.4 Tinbergen’s view on economic policy
1.5 The value of economic activity
Questions and exercises
Appendix 1.1

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CHAPTER 2: BASIC MACROECONOMIC MODELS
2.1 The models
2.2 Closed economy, fixed prices
2.3 Closed economy, fixed prices, government budget
2.4 International trade, fixed prices, government budget
2.5 A two country model of international trade
Questions and exercises
Case 2.1
Appendix 2.1
Appendix 2.2: Matrix operations in Excel

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CHAPTER 3: IS-LM ANALYSIS
3.1 Introduction
3.2 Closed economy, fixed prices, monetary sector
Questions and exercises
3.3 Closed economy, fixed prices, government budget, monetary sector Questions and exercises
3.4 Open economy, fixed prices, government budget
3.5 Open economy, fixed prices, government budget, monetary sector Questions and exercises
3.6 Estimation of coefficients
Case 3.1
Case 3.2
Appendix 3.1: Linear regression with Excel
Appendix 3.2: Time series of macroeconomic variables

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CHAPTER 4: AGGREGATE DEMAND AND AGGREGATE
SUPPLY ANALYSIS
4.1 Introduction
4.2 AD-AS in a closed economy
Questions and exercises
4.3 Aggregate Demand and Aggregate Supply in an open economy Questions and exercises
Case 4.1

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CHAPTER 5: THEORY OF THE BUSINESS CYCLE
5.1 Long-term and medium-term fluctuations
5.2 The long term: Schumpeter’s theory on cyclical growth
Questions and exercises
5.3 The medium-term business cycle: the Multiplier-Accelerator model Questions and exercises
5.4 Capital and the business cycle
5.5 Investments
Questions and exercises
5.6 Multiplier-Accelerator-Capital (M-A-C) Model
Questions and exercises
5.7 Cyclical unemployment
Questions and exercises
Appendix 5.1
Appendix 5.2

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CHAPTER 6: GROWTH THEORY
6.1 Introduction
6.2 Steady state growth
6.3 The Harrod-Domar growth model
6.4 Growth equilibrium
Questions and exercises
6.5 The neoclassical growth model
Questions and exercises
6.6 Steady state in the neoclassical growth model
Questions and exercises
6.7 Steady growth and technological change
Questions and exercises
6.8 Conclusions

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References

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Index

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PREFACE

This book is meant for students in the second year of their Economics study. It combines the regular macroeconomics theory with spreadsheet applications. The necessary assistance for the use of the spreadsheet programme and a set of data are also provided in the book.1

The contributions of Roel Jongeneel from Wageningen University and Frans de Vries from Groningen University are gratefully acknowledged.

Wim Heijman

Wageningen, February, 2000.

1The spreadsheet programme used here is Excel.

CHAPTER 1: INTRODUCTION1
Study objectives
To learn the distinction between micro- and macroeconomics;
To learn about the targets and instruments of economic policy; To acquire familiarity with Tinbergen’s view on economic policy; To learn to solve simple economic policy models by means of matrix analysis; To learn about the various indicators for macroeconomic activity. 1.1

Background

macroeconomics

Macroeconomics is the study of aggregate behaviour in an economy; it is defined as a study of the national economy as a whole and/or of the interaction between economies of various countries. So, the focus is on aggregates like inflation, total unemployment, total consumption et cetera.

Distinguishing between macroeconomics and microeconomics is
easy since microeconomics makes use of partial analysis. For example, in microeconomics the income of the consumer is assumed to be...
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