Definition Inflation The overall increase in prices Hyperinflation: extraordinary high inflation

Topics 4 questions from before HW#1 Unemployment Natural rate of unemployment reasons for unemployment Frictional unemployment Wait unemployment Patterns of unemployment

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

The Data of macroeconomics * Measure of economic activity Gross Domestic Product(GDP) Total expenditure on domestically-produced final goods and services Total income earned by domestically located factors of production

Money Supply 100%-reserve banking Fractional-reserve banking

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

The Open Economy Why do countries trade with each other? \No nation was ever ruined by trade.\ -- Benjamin Franklin More varieties; higher quality; cheaper price