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 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

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

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

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

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

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

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

Money Supply 100%-reserve banking Fractional-reserve banking