Session 6: - ECONOMIC HISTORY IN A NUTSHELL

MACROECONOMICS: INTRODUCTION

INDEX INTRODUCTION ECONOMIC HISTORY IN A NUTSHELL

Introduction

Microeconomics and MACROECONOMICS Microeconomics Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets Macroeconomics Macroeconomics is the study of the economy as a whole Its goal is to explain the economic changes that affect many households, firms, and markets at once

1. microeconomics 2. macroeconomics 1a) Why did consumers switch to smaller cars in 2008? Which of the following questions involve microeconomics and which involve macroeconomics? 1b) Why did overall consumer spending slow down in 2008? 1. microeconomics 2. macroeconomics

1. microeconomics 2. macroeconomics 1c) Why did the standard of living rise more rapidly in the first generation after World War II than in the second? 1d) Why have starting salaries for students with geology degrees risen sharply of late? 1. microeconomics 2. macroeconomics Which of the following questions involve microeconomics and which involve macroeconomics?

1. microeconomics 2. macroeconomics 1e) What determines the choice between rail and road transportation? 1f) Why has salmon gotten cheaper over the past 20 years? 1. microeconomics 2. macroeconomics Which of the following questions involve microeconomics and which involve macroeconomics?

1. microeconomics 2. macroeconomics 1g) Why did inflation fall in the 1990s? Which of the following questions involve microeconomics and which involve macroeconomics?

Macroeconomics Economy as a whole Workings of the entire economy Overall economy Aggregate

Figure 1 The Equilibrium of AGGREGATE Supply and Demand Copyright©2003 Southwestern/Thomson Learning Price of Ice-Cream Cone Quantity of Ice-Cream Cones 13 Equilibrium quantity Equilibrium price Equilibrium Supply Demand $2.00 AGGREGATE x x GDP CPI EMPLOYMENT

Content Growth Unemployment Inflation Monetary policy: Interest rate Fiscal policy: Deficit, debt Exchange rate policy: Exchange rate

Stage and characters The European Union and the Eurozone The United States Latinamerica Asia: China, India Africa and Oceania

Famous economists

Macroeconomics

Macroeconomics: stylized facts Deep linkages between economies all around the world

Macroeconomics: stylized facts Economies experiencing surplus in trade balance lend money to economies experiencing deficit

Macroeconomics: stylized facts Emergent economies growing; developed economies stagnated

Economic History in a nutshell

2 ECONOMIC HISTORY IN A NUTSHELL

Stages in economic history Change agriculture-industry-services: AGRICULTURE SERVICESINDUSTRY

Agriculture Agricultural revolution: Nomadic ► sedentary ↑ productivity ↑ life expectancy (30-40 years) Division of labor Surpluses (transition to industry) POPULATION: 1 million

Trade ↑ size of market ↑ productivity ↑ variety of goods ↑ division of labour Contracts, money, private property, Law (Roman Empire)

Time , Europe: Organization, labor, wages,…

Empires VENICE: Marco Polo ►India, China (silk, precious stones, vanilla, spices,...) SPAIN: Cristóbal Colón ► America (tomatoes, potatoes, silver, cocoa,…) PORTUGAL: Vasco de Gama ► America, Africa, Asia

Classical Macroeconomics: Adam Smith: “The Wealth of Nations”, 1776 Invisible hand: free market. Modern Economics Robert Malthus: “An Essay on the Principle of Population”, 1798 Population growth causes distress David Ricardo: “Principles of Political Economy and Taxation”, 1817 Comparative advantage

Industrial Revolution Karl Marx “Das Kapital”, 1867 Class struggle (capital and labor)

Transport and Inventions Productivity

First modern crisis Stock market crash 1929: demand crisis High unemployment Low prices

Main economists J. M. Keynes: “The General Theory of Employment, Interest and Money”, 1936 Why not the government?!

Keynes in action The New Deal: expansionary fiscal policies

A new era: The United States of America Bretton Woods 1944… and the Marshall Plan 1947

International economic institutions World Bank International Monetary Fund World Trade Organization Organization for the Economic Cooperation and Development International Labour Organization United Nations Organization

The construction of the European Union The European Union 1951

Member States of the European Union These are the 28 Member States of the European Union. Can you remember the names of the six founding countries?

Enlargement: from six to 28 countries 1952 Belgium, France, Germany, Italy, Luxembourg, the Netherlands 1973 Denmark, Ireland, the United Kingdom 1981Greece 1986Portugal, Spain 1995Austria, Finland, Sweden 2004 Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia 2007Bulgaria, Romania 2013Croatia

First supply-oil crisis Oil crisis 1973: Stagflation High unemployment… …and high prices!!

Main economists Friedrich August von Hayek: “The Road to Serfdom”, 1944 Free market economy, criticism of collectivism

The end of the Cold War Fall of the Berlin Wall Unilateral power: US End of Communism: Enlargement of the EU Increasing bilateral relations (trade, political) between USA and Russia

The Eurozone 1957: Treaty of Rome 1972: Currency snake 1979: ECU (European Currency Unit) 1986: Single European Act: Single market 1990: First stage € 1992: Maastricht Treaty 1994: Second stage €: European Monetary Institute Convergence criteria : Set of countries 1st Jan 1999: Exchange rates 1st Jan 2002: Banknotes & coins

A new scenario NY 9/ Dot-com boom

The second huge crisis: 2007-? USA, Europe, China, Latinamerica…

History in a nutshell UNTIL 1929: Microeconomics (A. Smith 1776, laissez faire-laissez passer, Markets) : Macroeconomics (J.M.Keynes 1936, New Deal, Government) …: Oil crisis + liberal policy + instability (F.A.Hayek 1944)

Economic History in a Nutshell