Economics Studies human behavior Uncertainty ** It depends...*** on what?--- factors Why?--- intuitions How?--- logic Conclusions?

Microeconomics behind Macroeconomics Consumption Investment Money and Advances in business cycle model

Interest-Rate Differentials Country risk&ex -rate- expectations Country risk Political upheaval default on loan repayments higher i-rate to compensate Ex-rate expectations expect RMB to appreciate loans in RMB can pay a lower i-rate

The Open Economy in the SR The Mundell-Fleming Model Model under floating ex-rate Model under fixed ex-rate Interest-rate- differentials Debate over floating v.s. fixed ex-rate Mundell-Fleming model with changing price level Model in large open economy

Government Debt Scale of govern. debt Is budget deficit correctly measured? Traditional view of govern. Debt Ricardian equivalence Other possible effects of govern. debt

Topics Finish the assignment from last class Clarification for 4 questions from last class Demand for goods and services Equilibrium and the interest rate

How the sr and lr differ In the Lr, prices are flexible and can respond to changes in S or D. In the Sr many prices are stuck at some predetermined level In the sr, monetary policy does have a potent effect on output and employment

Questions from Last Lecture Demand for money↑ =)=l ,Y) ↑ while fixed →l(r,y: hold& to balance the pressure ofd↑; hold,↑ to balance

The money market LM curve The theory of liquidity preference

Goal Develop the Solow Growth Model How much of the economy's output should be consumed today and how much should be saved for the future? Static analysis(Ch. 3)> Dynamic