MODULE

HANDBOOK
Principles of Economics – Macro ECO1003

Foundations of Macroeconomics ECO1030

Term B

2023-24
Lincoln International Business School (LIBS)

LIBS Vision:
To provide an innovative, scholarly learning environment based on a commitment to
responsible management practices and a global community mind-set.

LIBS Mission:
To develop socially responsible leaders ready to meet the challenges of 21st century
business.

2
PoE - Macro ECO1003/ECO1030

Contents
Admin Support:.............................................................................................................. 4

Introduction........................................................................................................................ 5

Employability Skills / Skills for your Future........................................................................5

Principles of Responsible Management Education............................................................6

Teaching & Learning Methods...........................................................................................7

Module Delivery................................................................................................................. 7

Feedback Strategy.............................................................................................................7

Assessment Rationale.......................................................................................................8

Learning Resources...........................................................................................................8
The Library (www.library.lincoln.ac.uk ).........................................................................9
Topic 1 National Income Accounting....................................................................14
Topic 2 Determination of National Income...........................................................17
Topic 3 Money Supply............................................................................................19
Topic 4 Money Demand..........................................................................................21
Topic 5 Unemployment.......................................................................................... 25
Topic 6 Inflation...................................................................................................... 26
Topic 7 Exchange Rates.........................................................................................28
Topic 8 Balance of Payments................................................................................31
Digital Learning Resources (https://learning.lincoln.ac.uk/resources-hub/)..................34

Appendix a: Assessment Brief ECO1030........................................................................36

Appendix b: Assessment Brief ECO1003........................................................................38

Appendix c: Assessment Criteria.....................................................................................40

3
PoE - Macro ECO1003/ECO1030

Module Code: ECO1003 / ECO1030

Credit Rating: 30 / 15
Level: 1
Subject: Economics
Pre-requisites: None
Co-requisites: None
Barred Combinations: ECO2203M
Department: AFE
Module Lead: Dr David Gray [email protected]
Admin Support: [email protected]
[email protected]

Debbie Parker [email protected] Ex 5536

LIBS Reception David Chiddick Building Ex 5509
Open: 9am – 4pm Monday - Friday

4
PoE - Macro ECO1003/ECO1030

Introduction
This provides the non-Economist with an amalgam of macroeconomic theory and
contemporary comment which prepares them for a further study in Economics.
It will study inflation and deflation, growth and stagnation and balance of payment issues
and exchange rates. These will be applied to contemporary issues both nationally and globally.

Learning Outcomes
Upon successful completion of the module the student should be able to:
 apply core macroeconomics concepts, principles and tools to the analysis of economic problems (common)
 apply economic reasoning to economics policy issues in a way that promotes socially desirable outcomes (common)
 persuasive economic arguments
 quantitatively and visually frame economic concepts (common)

In addition to module specific outcomes, selected modules within Lincoln International Business School are required to deliver and
assess particular core competencies associated with our mission as an AACSB Accrediting Business School; and as such reflect core
skills and knowledge sets associated with being a graduate in business management. There are twelve core competencies, and
these are distributed across modules associated with each programme. Each core competency is assessed through the
assessment(s) for a module and is identified on relevant the Assessment Rubric. The assessment of these core competencies is not
weighted (they don’t contribute to your grade) but is assessed on the basis of proficiency/non-proficiency. If you find yourself not
achieving proficiency then this will not directly affect the outcome for a module but is an opportunity for you to reflect on your own
development and how you can work towards proficiency at a later opportunity. We will also reflect on the overall outcomes for
modules and programmes and seek to enhance our teaching, learning and assessment as a result.

Core Competencies
Reflecting Lincoln International Business Schools mission, vision and values, the broad goals of undergraduate programmes are:

PG1 Apply graduate knowledge and global mindset in a manner which is consistent with sustainable development goals.
PG2 Utilise evidence and critical thinking as the basis for creative problem solving and to inform responsible decision-making
PG3 Be effective communicators within diverse stakeholder contexts
PG4 Have life-long learnings skills to sustain effectiveness and value creation in a global business environment

Consistent with LIBS mission, vision and values the expectation is that all LIBS graduates will demonstrate core competences. In the
context of this programme these core competencies are embedded in the programme learning outcomes, but are identified as:

CC1 Apply concepts associated with sustainability to evaluate strategies, policies or practice
CC2 Assess the dynamics of the business environment and their effects at global and local levels upon the sustainability of
economies, organisations and communities
CC3 Consider ethical issues and the ways in which resources can be managed in a socially responsible manner
CC4 Design innovative and creative solutions to real world problems
CC5 Analyse data to support problem solving and decision-making
CC6 Select and apply appropriate technologies to investigate challenges
CC7 Identify and develop good practice in team working within potentially diverse and multicultural contexts
CC8 Construct and present effective and persuasive argument
CC9 Communicate effectively using a variety of mediums
CC10 Critically reflect on policy or practice.
CC11 Reflect on own capabilities, enhancing learning actively and independently
CC12 Appraise trends and their potential impacts on own agency and effectiveness in the context of sustainability
CC11 and 12 are not clear but from the QAA imply
• Self-management: a readiness to accept responsibility and flexibility, to be resilient, self-starting and appropriately
assertive, to plan, organise and manage time.
• Self reflection: self-analysis and an awareness/sensitivity to diversity in terms of people and cultures. This includes a
continuing appetite for development

Employability Skills / Skills for your Future

http://www.qaa.ac.uk/docs/qaa/subject-benchmark-statements/sbs-business-and-management-15.pdf?sfvrsn=1997f681_12
http://www.qaa.ac.uk/docs/qaa/subject-benchmark-statements/sbs-economics-15.pdf?sfvrsn=69e3f781_6

Transferable skills are not simply about careers but also reflect broader concerns for responsible citizenship. However, the QAA
Subject benchmarks for business and management list the following skills:
• People management: to include communications, team building, leadership and motivating others.
• Problem solving and critical analysis: analysing facts and circumstances to determine the cause of a problem and
identifying and selecting appropriate solutions.
• Research: the ability to analyse and evaluate a range of business data, sources of information and appropriate
methodologies, which includes the need for strong digital literacy, and to use that research for evidence-based decision-making.

5
PoE - Macro ECO1003/ECO1030

• Commercial acumen: based on an awareness of the key drivers for business success, causes of failure and the importance
of providing customer satisfaction and building customer loyalty.
• Innovation, creativity and enterprise: the ability to act entrepreneurially to generate, develop and communicate ideas,
manage and exploit intellectual property, gain support, and deliver successful outcomes.
• Numeracy: the use of quantitative skills to manipulate data, evaluate, estimate and model business problems, functions and
phenomena.
• Networking: an awareness of the interpersonal skills of effective listening, negotiating, persuasion and presentation and
their use in generating business contacts.
• Ability to work collaboratively both internally and with external customers and an awareness of mutual interdependence.
• Ability to work with people from a range of cultures.
• Articulating and effectively explaining information.
• Building and maintaining relationships. • Communication and listening including the ability to produce clear, structured
business communications in a variety of media.
• Emotional intelligence and empathy.
• Conceptual and critical thinking, analysis, synthesis and evaluation.
• Self-management: a readiness to accept responsibility and flexibility, to be resilient, self-starting and appropriately
assertive, to plan, organise and manage time.
• Self reflection: self-analysis and an awareness/sensitivity to diversity in terms of people and cultures. This includes a
continuing appetite for development

Principles of Responsible Management Education

The Lincoln International Business School is committed to the Principles of Responsible Management Education ( PRME) to develop
future leaders that are socially responsible who will create sustainable environmental and economic value.

Lincoln International Business School is a member of PRME (Principles of Responsible Management Education) and seeks to engage its
students in critical debate about the implications sustainability for the global business community and management practice. At its heart
the profit motive, greed, from a social responsibility basis, is good. Friedman argued the profit motive maximises wellbeing, so the study
of the profit motive and its achievement is key. In Economics and Quantitative Methods, the maximisation of wellbeing requires data
analysis. Where is the most appropriate level of output, that is sustainable for the firm, the industry and society? Sometimes excess
production (which is a waste of resources) produces oddly favourable outcomes. China produced an excess of solar panels. This
switched more that would otherwise to green energy.

Market failure, where consumers under or over consume commonly is address by government intervention. Coffee cups straws and
David Attenborough show that being made aware, can make consumers behave differently. However, be aware that social responsibility
rests with the consumer; the producer should reflect the consumers’ morals.

LIBS has been a member of PRME since 2010. PRME ( http://www.unprme.org/about-prme/history/index.php ) is the largest voluntary
engagement platform for academic institutions to transform their teaching, research, and thought leadership in support of universal values
of sustainability, responsibility, and ethics. The PRME principles place the concept of sustainable development at the core of responsible
management education and is based on the premise that graduates with sustainability skills are in high demand. The sustainable
development goals are listed below, but more information can be found at http://www.undp.org/content/undp/en/home/sustainable-
development-goals.html :
Goal 1: No Poverty - End poverty in all its forms everywhere
Goal 2: Zero Hunger - End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal 3: Good Health - Ensure healthy lives and promote well-being for all at all ages
Goal 4: Quality Education - Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 5: Gender Equality - Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 6: Water & Sanitation - Ensure availability and sustainable management of water and sanitation for all
Goal 7: Energy - Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8: Decent Work & Growth - Promote sustained, inclusive and sustainable economic growth, full and productive employment and
decent work for all
Goal 9: Industry, Innovation & Infrastructure - Build resilient infrastructure, promote inclusive and sustainable industrialization and foster
innovation
Goal 10: Reduce Inequality - Reduce inequality within and among countries
Goal 11: Sustainable cities - Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12: Responsible Consumption & Production - Ensure sustainable consumption and production patterns
Goal 13: Climate Action - Take urgent action to combat climate change and its impacts
Goal 14 : Life below Water - Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Goal15: Life on Land - Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat
desertification, and halt and reverse land degradation and halt biodiversity loss
Goal 16: Peace - Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build
effective, accountable and inclusive institutions at all levels
Goal 17: Partnership - Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development

6
PoE - Macro ECO1003/ECO1030

Teaching & Learning Methods

The teaching and learning strategy entails weekly lectures involving a fair amount of interaction between the lecturer and the
students. When this entails face to face tuition this involves a series of very informal formative assessments as we progress through
the module. Where this is via blended learning the delivery mode Collaborate Ultra is used where again a series of very informal
formative assessments are used to maintain interest. Seminars follow the lectures reinforcing what is done and students are
encouraged to engage with current issues found in the news delivered by ft.com, BBC News website and Reuters.

Module Delivery
Contact time for ECO1003
Notional Time Allocation IF YOU HAVE A PROBLEM
In hours
Attend lecture classes 48 As first years you are likely to experience the problems of LIFE,
STUDY-TIME AND MONEY MANAGEMENT, where running short of
Attend seminar classes 24
the latter two (or perhaps all three) before the end of the first term is
Seminar preparation 72 not unusual. Although we fully recommend you enjoy yourself whilst
Keeping up to date 68 you are here, this should not detract from your studies. You are here
to read for a qualification. If you do not put in those hours in the
Assignment preparation 56 library from day one, you will not achieve the expected rate of
Examination revision 44 progress.

Total hours 300 If you have a genuine course related problem, your first port of call
is your seminar tutor. If you need an extension for your assignment,
see your Course Leader or personal tutor. Please note that the following excuses no longer have currency:-
* there weren't any books on the reading list in the library;
* I lost ALL my work when a friend's computer crashed (NB we know that everyone keeps a back-up copy);
* my desk burnt down (the best excuse to date);
* I am confused (confused means you have conflicting information; uninformed due to lack of effort is possibly the real story);
* I was stressed (assessment stresses everyone);
* I was ill (no doctor's, note-no illness).
By claiming a problem that others genuinely have but you do not makes it difficult for those who actually need support

If you have a problem with your money or life, see student welfare.

If you have a problem with your accommodation, see the accommodation office.

If you have a problem, seek help early. Claiming that you had some difficulties for two months prior to failing a piece of course-work,
but not mentioning them, appears as if you are looking for an excuse. Although we try to be sympathetic there are too many students
who tell untruths; now we seek documentary evidence rather than taking someone's word. YOU HAVE BEEN WARNED.

Absenteeism will be punished severely. If you fail to attend almost all your seminars, the University may withdraw you as
you have ABUSED YOUR STUDENT STATUS. Moreover, you cannot expect us to find time to help you outside prescribed teaching
periods if you do not attend.

We recognise that this topic will be new for at least some of you. This will mean that in every seminar group some students will have a
better grasp of economics than others from the start. If you are new to the subject and you compare yourself with those who have
done economics before you will find that they do not have to put in the same amount of work as you. DO NOT PANIC; this is to be
expected. After all, they would have had one or two years’ head-start. By the end of this module, if you put in the necessary effort, you
will have the level of competence that should see you through to the second year.

Feedback Strategy
Receiving formative feedback during your learning is essential to ensure you are prepared for your final assessments. To support
your learning throughout the module the following formative feedback strategies are used:
 Quick tests throughout the lecturers
 Prerelease exam paper
 Dedicated assigment support lecture
 Practice on test questions
 One-to-one meetings with tutors (evidence of prior study is a must)

7
PoE - Macro ECO1003/ECO1030

Assessment Rationale
LOs Assessed
Assessment Method Weighting (%) Week Due
ECO1003 1 2 3 4 5
Exam 75% In Exam Weeks X X X X
ECO1032

Assignment 100 Week 32 X X X

1. Examine the impact of markets on the wellbeing of firms and industries

2. apply core macroeconomics concepts, principles and tools to the analysis of economic problems (common
3. apply macroeconomic reasoning to economics policy issues in a way that promotes socially desirable outcomes (common)
4. write well-structured Economic arguments
5. quantitatively and visually frame economic concepts (common)

The assessment strategies and the contributions of each element are below. The pass mark for the module is 40% overall. See
below:-

Semester A Semester B
Module
Module Two in class Micro Macro Exam
Code
Tests Assignment Assignment
Principles of Economics ECO1003 12.5%+12.5% NONE formative 75%
Foundations of Macroeconomics ECO1030 N/A N/A 100% NONE

Essay hand in date 07/05/2024

NB ECO1003 can use the same assignment title and date

See appendices

Learning Resources
Sloman J Garratt D Guest J and Jones E Economics for Business, 8th ed., Prentice Hall 2020

Gray D Financial Update 23/24, Pearson 2023

Additional/ Alternative Texts
Gray D University of Lincoln Business Studies Update
Financial Update

Begg D, Vernasca, G, Fischer S and Economics 11th ed., McGraw-Hill 2014

Dornbusch R

Davies H 1991 Managerial Economics, 2nd ed., Pitman

Griffiths A & Wall S Applied Economics, 12th ed., Harlow, Essex, Prentice Hall 2012

Mulhearn C & Vane H Economics, Macmillan 1999

Sloman J, Garratt D & Wride A Economics, 9th ed., Prentice Hall 2014

This module requires that you follow the Harvard System of referencing.

8
PoE - Macro ECO1003/ECO1030

The Library (www.library.lincoln.ac.uk )

Our Subject Librarian is Louise Hill. They can assist you to use the catalogue, do
subject searches and so on. Contact details are:

Louise Hill <[email protected]>

Room: University Library

If you cannot find Louise Hill, any of the subject librarians will help you.
Assessment Preparation and Grading
Assessment can be an end and a means to an end. On this programme, the ‘end’ is understanding. Passing the assessments is a
manifestation of that. It is not right that someone is more interested in passing than understanding. Education is marvellous.
Understanding is a prerequisite of generating research. With CERD, the College and the University is committed to encouraging the
co-creation of knowledge: students and tutors working together. This cannot happen if you do not strive to understand. The
assessment process is supposed to reveal your capabilities. It is your responsibility to:-
 submit a good assignment prepared by you and you alone
 prepare and attend an exam
 prepare for attend and participate in seminars
 acquire recommended materials – (hang the cost)
If you don’t do yourself justice by being lazy or slapdash, we all lose. Also, do not cut and paste from other sources as this is
plagiarism. You are here to learn and assessment is meant to reveal what you have learned. The idea is to assess your abilities not
your tutor’s or some other author’s.

Some at school may have been ‘spoon fed’ information; here you are expected to be an independent learner who can research and
distil relevant information from a variety of sources. It is not necessarily your tutor’s fault if you do not understand, nor is it necessarily
inadequate teaching if you fail. If you are able, and turn-up prepared each week, you will do well. In 25 years, I cannot remember a
single case of a reasonably bright, diligent student failing these economics courses. Please note that the tutors on this programme will
NOT:-
 read and give comments on drafts of your assignment or tell you whether you ‘are on the right lines’
 tell you what questions are on the exam
 accept non-attendance and lack of preparation
 be available on tap – we are not your parents

Please do not expect lecture/seminar notes to be sent to you on an individual basis. If you miss a session, get notes from someone
that attended. Commonly, the slides are on Blackboard anyway. If you have a problem with Blackboard and no one else appears to,
see computer services. NB Notes may be removed from time to time, so keep a copy of everything.

Your tutor is NOT expected to make up for your absence or poor time management. It is not right that you are ill prepared by your
tutor. Too many start their essay too later and then realise they have done too little work throughout the semester. They then
complain, beg for an extension and point the figure at others. Start your essay early. If we give too much support, we cannot judge
how good the better student is, which affects the comments in a reference. With exam preparation, it looks odd that requests to talk
about exams occur just before the exam when attendance at seminars and background reading provide the necessary preparation.

There is new tendency of accusing questions of being vague. These are standard questions that 1st year students have addressed
for 30+ years, so that cannot be the case. Additionally, an Update a variety of references point you in a sensible direction. Indeed,
there are pointers to the theory you might think of applying.

Loss of Marks
Despite reasonable content, marks may be lost for a poor essay structure or a weak demonstration of understanding. Here are a few
pointers.

Generally Comments
 it is submitted in the requested form and style on time;
 it is of the required length;
 the bibliography clearly demonstrates a wide range of sources;

9
PoE - Macro ECO1003/ECO1030

 the assignment tackles all the topics implied by the question and NO MORE;
 any proposition is securely grounded in solid argument. This implies that a series of arguments is logically compiled,
empirically supported and reader friendly;
 there is no suggestion of plagiarism or excessive quoting from other authors.

Structure Presentation
An essay has The essay should have
a beginning (introduction) your name on it
a middle (main body) the title on it
and an end (conclusion) page numbers
only two headings (title and bibliography) printed on one side of the paper
Harvard referencing system is used diagrams/ tables are numbered and referred to in the text
diagrams/ tables are discussed before they are displayed
No subheadings
No bullet points
No contents page

Content
The introduction introduces the reader to the issues at hand. Define the area and key terms. It is longer than one sentence and
shorter than a page.

The main body should have a framework or structure provided by appropriate and justified theory. This could be discussed in abstract
and then referred to the case at hand. There should be a link between the case and the theory throughout, showing how the case
conforms, and where it conflicts, with theory.

There has been a recent trend towards answering the question in paragraph two or three and then padding out the rest of the essay
with what should have come before, such as in a question about stagflation, discussing the Phillips curve after a supply side shock.
The comment that this might elicit is that the essay would benefit from restructuring. The poor structure indicates that the student
does not understand the importance of recognising a supply side shock for a Phillips curve analysis. Worse, including as many
theories as possible, hoping that one of them is appropriate, is a scattergun approach that also does not demonstrate understanding.

Chances are that the question has an implicit assertion that you should challenge. In a recent exam students were given the
statement that a devaluation would resolve the problem of a balance of payments deficit: most just explained why it might. This is a
limited answer. It is not clear that this is the best method or that it would work at all in the long run. Thus, you should answer the
question!!!! And ensure that you have tackled all the relevant dimensions. Analysis is required, not only description. Analysis,
associated with tying the theory with the case, requires more than a checklist of points: they should be bound points together. Bullet
points/lists do not demonstrate you understand.

When talking to resit students one is struck by the lack of knowledge they have so they cannot even start an essay. Then there is the
should I include this or that, to which the answer is it depends. This is not good for either party. Please do not fall into this trap.

What to include is good question for anyone. Think on this – it is not a driving test where everything is tested. Rather we give you the
chance to show you have mastered economics by picking a question to do. In particular, we set questions to elicit certain behaviours.
A S&D-elasticity question generally doesNOT require anything other that that explaining. Putting extra stuff in like market failure will
not allow you to cover both in appropriate depth – so we don’t do that. The essay ends up being a mess.

Theory and evidence must be referenced to endow the points with validity /gravitas. Eg:-

There have been many studies of financial contagion (AuYong et al., 2004; Collins and Gavron, 2005; Corsetti et al., 2005; Forbes
and Rigobon, 2002; Gelos and Sahay, 2001; Masih and Masih, 1997: 2004; Serwa and Bohl, 2005; Smith, 2001; Syriopoulos, 2007;
Yang et al., 2003) yet, as Pericoli and Sbracia (2003) note, there is not a consensus on its definition.

Without a citation, the point appears to be the student’s, which carries little weight. Worse, these points may appear as
unsubstantiated assertions.

Quoting
Quoting has become too widespread. The academic process entails distilling from a variety of sources and ideas a series of points
that can be compiled into an argument. This should involve putting someone else’s point INTO YOUR OWN WORDS. Quoting (not
citing) somebody else’s point does not demonstrate that you understand it. With weaker students there is a tendency for some
unnecessary quoting or quoting followed by an interpretation of the quote – I feel this suggests…. to demonstrate you understand
PUT INTO YOUR OWN WORDS and leave it at that. You quote if an opinion maker says something important – briefly only. The
worse case I have seen: large quote + 1 line link + large quote – what has the student demonstrated other than they can use an index
in a textbook or cut and paste from the internet?

Sometimes students do not make it clear what is being quoted/ where the quote ends/ distinguishes between a quote and a citation. If
it is not in speech marks, it is not a quote. Pretending the passage is a citation when it’s a quote will not do. If it is not clear that it is
your work, you are likely to suffer a lower mark.

Language
Academic language should be used. No first person or phrases like ‘I feel’ should be used. The essay should be proof-read so that:
there are no 1 sentence paragraphs or 1 page paragraphs; paragraphing is clear and consistent (indent or not indents?); full stops are
used; the comma and the semi-colon are not confused; and misspellings/ missing words and poor grammar are eradicated.
Undergraduates, especially from overseas, are not expected to write in a style consistent with an author writing text books for 20
years: work that is, is likely to have been cut and pasted.

10
PoE - Macro ECO1003/ECO1030

The conclusion summarises what has been presented. It should reflect the introduction and the main body. Perhaps it ties together all
that has been said, succinctly. Nothing new appears here!

Presentation
Font size 12, double or 1½ line spacing. Print on one side of the paper ONLY

Problems Comments
 Diagrams are missing but referred to in the text  Did not reread the essay and forgot to draw the
diagrams in the final version
 References are missing from the bibliography but referred to  Possibly cut and pasted from the internet
in the text
 References are present in the bibliography but are not in the  Pretended to have read something – don’t try to fool
text/ read at all your tutor
 There is new material in the conclusion  Does not make sense
 The Harvard method is not used/ used poorly  Do not subdivide the bibliography in to books/journal
articles sections etc
 References are not in alphabetical order by author.  Unhelpful for your tutor to check references
 et al., appears in the bibliography  Poor scholarship
 Citing all the website in the text  Poor citations
 Citing a website and not the author’s name  Poor citations
 bbc.co many times – cannot tell which  Poor citations
 Only one reference in the bibliography or Not using key texts  Poor research
 Too many internet sites used  Many internet sites are not reliable. Looks lazy – can’t
be bothered to read textbooks. It is better to refer to
textbooks or better still, journal articles.
 Definitions from websites  Did not read or possibly buy a recommended textbook
 Relevant theory is briefly discussed at best  Where is the theory???

Let us examine a BBC News report A mother's place 'is in the home' 10 July 2018

A woman's place may no longer be in the home - but if she has pre-school children, it should be, according to an annual
survey of social attitudes.
Only 7% of British Social Attitudes survey interviewees felt mothers of under-5s should have full-time jobs.
Part-time work was judged acceptable by 38% - but one in three felt those with under-5s should be stay-at-home mums.
Meanwhile, 72% disagreed that "a man's job is to earn money - a woman's job is to look after home and family".
Older people, unqualified people and those on lower incomes were more likely to support a traditional view of women as
homemakers and men as breadwinners.
A representative random sample of 3,988 adults were interviewed between July and October 2017.
Parental leave
Lead author, Eleanor Attar Taylor, from the National Centre for Social Research, said: "Attitudes towards gender issues
depend on the topic under question.
"Looking at issues around roles in the home and labour market, we find that there is a marked reduction of support for
traditional gender roles of the man working and the woman looking after the home, mirrored by increasing agreement that
both men and women should contribute to household income.
"However, when it comes to maternal employment, the majority of people still think either mothers should stay at home or
work part-time, particularly when there is a child under school age.
"In addition, regarding parental leave, there is little difference between the sexes, with a majority feeling the mother should
take all or most of the leave."
Motherhood v career
Carolyn in Berkshire is a working mother of a two-year-old. She says it would have been an easier decision to make if
companies were more flexible.
"I love my job and gain a lot of satisfaction from working in a career I spent time building up, and my son gains a lot of skills
from being at nursery.
"But I have found it impossible to find a part-time position or a company to accept flexible working so that I can stay at
home with my son some of the time.
"I have been left with the decision to work full time or give up working in a career I love."
Mum Clare Nicholas in Swansea believes it is unusual to be a stay-at-home mum nowadays because families simply
cannot afford to raise children on one income.
"I had to return to work when my child was six months old as I am the main earner in my household. I am a graduate and
my job is far better paid than my husband's.
"Families do not have the luxury of having one family member at home in the current climate.
"I have one friend who is a housewife, and it is just not the norm. I am actually shocked that people still think this way."
Ray Davie has been a stay-at-home mum of two in Lincolnshire for 13 years. She says mums should not be made to feel
guilty whatever they decide.
"I don't see that it actually matters whether a mum is at home or working as long as the children are properly looked after
and all parties are happy.
"What I see as unacceptable is woman being made to feel guilty for not making a contribution or wasting their education by
being at home.
"I didn't particularly enjoy my job but I have a degree in earth sciences and I am a qualified chartered accountant, both of
which help enormously in running a busy household."
The survey findings come at a time when the highest proportion of women are in paid work. Some 71% of women aged
between 16 and 64 are working, according to the Office for National Statistics (2018).

Here we see an example of good and sloppy reporting. The journalist has a short time to digest the following chapter
http://bsa.natcen.ac.uk/latest-report/british-social-attitudes-35/gender.aspx

11
PoE - Macro ECO1003/ECO1030

Do you get the same feel from some of the actual text…
In general, men and women have comparable views on mothers returning to work; although 52% of women, compared with
46% of men favour a mother working part-time, both for mothers of pre-school children. Men (36%) are more likely than
women (30%) to favour a mother of pre-school children staying at home. The oldest age group’s views on mothers working
reflect the more traditional view of gender roles among older groups (49% of the oldest age group (75+) compared with
30% of those aged 18-34). When asked about a mother working with school-age children, the oldest group show a strong
preference for part-time work (64%) over full-time (14%), while similar proportions of young people aged 18-34 favour full-
time (37%) and part-time (42%) work. Similarly, those with lower educational qualifications hold more traditional views on
mothers’ employment than graduates. For example, 40% of those with no formal qualifications argue that mother of a pre-
school child should stay at home. A graduate is far less likely to argue the same, yet 21% do.
So there is an inconsistency in that women should no longer be solely the house maker but they should still be the child carer… This
mix of gender role and equality of opportunity can be an excellent discussion point about the nature of economics/business being not
quite gender neutral. In microeconomics, there is no family, children, homemaker or breadwinner. There are only consumers and
workers that seek to maximise their wellbeing.

Policy advice is a key area of many articles. It appears that women with good qualifications are in a position to choose to go part time
and bring up a family. From the Financial Update on gender wages, female Vets remuneration reflects this. An analysis of social
attitudes should focus on how to harness the good elements to advise policy makers. Claiming things are wrong or unfair may be
what you feel but does not look like analysis.

Where that article drifts badly is when the journalist appears to ask their friends from around their speed dial. It is not clear how this
section is useful for policy purposes. Including single samples like these in your essay will look like padding.

It’s not fair. I got 47% for an essay when I worked soooooo hard. It must be wrong. What Can I do?
There may be a mistake, but is it not likely. Could it be that 47% is a fair reflection of what you have done? NB. You cannot appeal on
the grounds of a mark. We sample second mark.

Let’s consider.
You: 1 semester of Economics. Did you buy a book? Did you keep up to date with your background reading? Your tutor: 3 degrees in
Economics; 20 years’ teaching; 10 publications in international journals. Why is there a presumption that the student knows the right
mark?… by definition they are not a student.

REREAD YOUR ESSAY BEFORE YOU SUBMIT IT

As a guide inappropriate or insufficient theory will render the work descriptive, so meriting no more than 49%.

IF YOU HAVE A PROBLEM

As first years you are likely to experience the problems of LIFE, STUDY-TIME AND MONEY MANAGEMENT, where running short of
the latter two (or perhaps all three) before the end of the first term is not unusual. Although we fully recommend you enjoy yourself
whilst you are here, this should not detract from your studies. You are here to read for a qualification. If you do not put in those
hours in the library from day one, you will not achieve the expected rate of progress.

If you have a genuine course related problem, your first port of call is your seminar tutor. If you need an extension for your
assignment, see your Course Leader or personal tutor. Please note that the following excuses no longer have currency:-
* there weren't any books on the reading list in the library;
* I lost ALL my work when a friend's computer crashed (NB we know that everyone keeps a back-up copy);
* my desk burnt down (the best excuse to date);
* I am confused (confused means you have conflicting information; uninformed due to lack of effort is possibly the real story);
* I was stressed (assessment stresses everyone);
* I was ill (no doctor's, note-no illness).
By claiming a problem that others genuinely have but you do not makes it difficult for those who actually need support

If you have a problem with your money or life, see student welfare.

If you have a problem with your accommodation, see the accommodation office.

If you have a problem, seek help early. Claiming that you had some difficulties for two months prior to failing a piece of course-work,
but not mentioning them, appears as if you are looking for an excuse. Although we try to be sympathetic there are too many students
who tell untruths; now we seek documentary evidence rather than taking someone's word. YOU HAVE BEEN WARNED.

Absenteeism will be punished severely. If you fail to attend almost all your seminars, the University may withdraw you as
you have ABUSED YOUR STUDENT STATUS. Moreover, you cannot expect us to find time to help you outside prescribed teaching
periods if you do not attend.

We recognise that this topic will be new for at least some of you. This will mean that in every seminar group some students will have a
better grasp of economics than others from the start. If you are new to the subject and you compare yourself with those who have
done economics before you will find that they do not have to put in the same amount of work as you. DO NOT PANIC; this is to be
expected. After all, they would have had one or two years’ head-start. By the end of this module, if you put in the necessary effort, you
will have the level of competence that should see you through to the second year

Directly or indirectly you will be developing your study skills.

 You will be introduced to the Blackboard where this, and semester two’s, handout will be available

12
PoE - Macro ECO1003/ECO1030

 You will be using electronic journals internet searches for the seminar and assignment work;
 You will be expected to type your assignments, possibly using drawing, equation, or table facilities within WORD;
 You will be expected to contribute to any group work and presentational activities.

The assignment titles will be closely related to one or more newspaper articles, lectures or seminar topics on the programme. The
most relevant teaching sessions may occur late on in the programme and so you must keep one eye on the submission date when
selecting your assignment.

SEMINAR PROGRAMME

Please keep up-to-date with current issues, which may become the basis of a seminar topic by:-
 reading news sources, such as the Financial Times, Reuters;
 watching current affairs programmes
 listening to current affairs programmes;
 reading textbooks and journals.

13
PoE - Macro ECO1003/ECO1030

Theme Introduction
Topic 1 National Income Accounting

Learning outcomes
Following this session you will be able to:
• construct a circular flow of income model and distinguish between withdrawals and injections
• calculate GDP using the product, income and expenditure methods
• explain the differences between total domestic expenditure, total final expenditure, GDP at market prices, GDP at factor cost, GNP, personal
disposable income; real and nominal measures and total and per capita measures
• describe the extent to which national income statistics give a good indicator of living standards, the various pitfalls in measurement, and the
difficulty of using such standards to make international comparisons.

Read: Sloman Garratt Guest Jones Ch26 & appendix

Financial Update 23/24 National Income Accounting

Seminar and wider reading:

Begg, Fischer and Dornbusch Ch19
Sloman Ch14.1 and Appendix and Boxes 14.1, 14.2, 14.7
Mulhearn and Vane Ch9, Ch10

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: How is GDP calculated? How
might the contribution of companies or even Lincoln University Student to output be assessed?

LEARNING DIARY
the concepts of income, output,
expenditure, investment, saving and
consumption?

the income, output and expenditure

methods of measuring national
income?

the difference measures of national

income such as factor cost vs. market
prices, domestic vs. national and net
vs. gross?

the problems with the use of

international comparisons of national
income statistics when the population,
currency, inflation and distribution of
income are different?

the difficulties posed by informal

markets?

the circular flow of income model?

14
PoE - Macro ECO1003/ECO1030

Inclusive measures of growth – How ONS is moving Beyond GDP

Richard Heys November 11, 2022Categories: Coronavirus, Economy, Environment, Office for National Statistics,
ONS, Public Policy, Wellbeing

GDP is a well-used metric for measuring changes in the size of economies around the world. However, it has its
limitations. Richard Heys writes about the continuing developments at the ONS to go beyond GDP by including
measures of the impact of growth on people, the climate and environment.

GDP remains the most commonly-used measure of economic performance. It is compiled by looking at the economy
from three perspectives and includes adding up the total value of goods and services produced, bought and sold,
public services delivered, money spent and profits generated and tracked over time to see if the economy is getting
bigger or smaller.

While GDP is an important tool for economic decision making, is it argued that it is not a good measure of wider
welfare or sustainable development. Many past reviews and reports, such as the Stiglitz, Sen and Fitoussi report in
2009, have pointed out the limitations of GDP as an indicator of economic performance and recommended new
measures that go beyond GDP.

In a more recent report, the Dasgupta Review of the Economics of Biodiversity in 2021, stressed the need to move
beyond measures such as GDP, which do not account for the depreciation of assets, as a primary measure of
economic progress and move towards indicators of sustainable development. Dasgupta recommended measures of
‘Inclusive Wealth’ that incorporate the benefits from the natural environment and capture the levels of depreciation.
In such times where climate change is an increasingly important phenomenon, these indicators could provide policy
makers with a much more complete measure of progress and whether growth is sustainable for current and future
generations.

ONS has previously outlined its commitment to Measuring Progress across the UK, to better inform understanding of
economic, environmental and social progress more broadly than can be captured purely in Gross Domestic Product
(GDP) and we’ve made a lot of progress in that space: bringing climate change insights and quarterly wellbeing
insights together on the same day alongside our quarterly GDP release.

As part of this wider commitment, today we go one step further, and I am pleased to say that ONS has published two
new articles under the banner of Measuring Progress: GDP and Beyond. The first article introduces the concepts
underpinning two new measures; Gross Inclusive Income (GII) and Net Inclusive Income (NII).

Inclusive Income is not intended to replace current GDP. GDP will always be an important tool for economic decision
making. Instead, Inclusive Income will complement GDP to provide a broader picture of economic progress. These
Inclusive Income measures broadly align with the Inclusive Wealth concepts described in Dasgupta’s Review but
measure the value of the flow of benefits we receive from capitals rather than the values of the capital stocks
themselves.

Inclusive Income will provide a broader picture by including alongside the flows of benefits from produced capital
(which is broadly captured in GDP such as roads, software, machinery and buildings) the benefits we also receive
from the wider range of capitals currently outside the national accounts, namely, natural capitals (the stocks of natural
assets such as soil, air, water and all living things) and human capital (the knowledge, skills, competencies and
attributes embodied in individuals that aid the creation of personal, social and economic well-being), which will
provide a more extensive measure of economic progress.

Net Inclusive Income will take a step further by adjusting Gross Inclusive Income for depreciation, such as reduced
fish stocks, loss of land due to rising sea levels and people dying or emigrating from the country.

The second article introduces a bridging table that brings together the valuations the ONS already produces of the
stocks of produced capital, human capital, natural capital and financial assets to provide an estimate of what we are
calling the ‘Inclusive Capital Stock’, which we will use to inform the measurement of GII and NII. We have also
calculated a value of the UK’s Inclusive Net Worth which is the sum of all of these assets less liabilities to give a
more comprehensive summary of the UK’s wealth position.

15
PoE - Macro ECO1003/ECO1030

This stands at £36 trillion in 2020: a vast number 15 times larger than GDP, which reflects the ever-growing
importance of capital within the UK economy, but also three times the size of the traditional net worth measure
containing just the assets contained in national accounts, which equals £11 trillion in 2020. This is a clear justification
in and of itself for developing wider Inclusive Income measures, to allow policy-makers to consider the drivers of this
difference.

These publications mark a further significant step towards measuring the Inclusive Wealth of the UK, which is an
incredibly important pillar of our Beyond GDP agenda.

Today we have also published our quarterly update on Climate Change Insights, which focuses on natural and rural
environments. It looks at how land use and agriculture contribute to UK emissions, the capacity for different habitats
to mitigate climate change, how land use has changed over time and the impact temperature changes are having on
growing seasons and breeding habits.

We have also released an update to our Quality of life in the UK. This headline release focusses on updates to 10 of
the 44 indicators in areas including personal well-being, what we do, economy and education and skills. This bulletin
is accompanied by our National Well-being Dashboard. On 3 October 2022, we launched a review of the ONS
Measures of National Well-being. You can share your feedback on what you feel is important to national well-being,
our current measures and our outputs, and contribute to the review by filling in our online survey. The survey is open
until 25 November 2022.

OECD Factbook 2009: Economic, Environmental and Social Statistics - ISBN 92-64-05604-1 - © OECD 2009

Billion US dollars, current prices and PPPs, 2007 % of total GDP.

30.00
25.00
20.00
15.00
10.00
5.00
0.00
d ina
da

Ki io n

a
Ca a

n
y
G om
M n

Un ed ce
Fr i l
ly

es
ico

an

pa
di
az
ai
re

Ita

an
na

at
In
t
Sp

Ch
d
Ko

ex

Br

m
ite era

Ja
ng

St
er

ite
F

Un
n
ia
ss
Ru

16
PoE - Macro ECO1003/ECO1030

Topic 2 Determination of National Income

Learning outcomes
Following this session you will be able to:
• construct a 45º line model and explain the relationship between the various components of the model
• describe the determination of equilibrium in the model and explain how a new equilibrium is reached following the shift of one of the curves
• describe the multiplier process and calculate the value of the multiplier from a table, graph or marginal propensities
• identify inflationary and deflationary gaps and relate the size of the gaps to the size of the multiplier

Read Sloman Garratt Guest Jones Ch29.1 Ch29.2, Ch29.5, Ch26.2, Ch26.6

Seminar and wider reading:

Financial Update 23/24 Output Gap; Aggregate Supply and Demand; Income Multiplier
Begg, Fischer and Dornbusch Ch20, Ch21, Ch30
Sloman Ch14.2, Ch17 then Ch16, Growth Ch14.4, Ch14.5 Output gap Box 14.3
Griffiths and Wall Ch16-19

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: What is meant by injections
and withdrawals? What is meant by a Consumption function? Assess the likely MPC for Stockbrokers, middle-managers and students. Examine the
factors that influence the MPC of those groups. How would it vary over time?
FT.com JULY 2 2020 Save if you must, but spending is just as important

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: What are Keynesian income
and employment multipliers? Using the multipliers in Financial Update 23/24 to identify the size of the multiplier if m varied but c = .6, t = .2.

Consumption is defined as the act of using income for the purchase of consumption goods (i.e. those which give immediate satisfaction).
C (flow)

Savings S Income Y C+S= Y

Investment is expenditure by firms as new machines and buildings capital goods are expected to yield a future stream of income.
I (flow)

The consumption function shows consumption expenditure at every level of

C C=Y
income. If C>Y, the group under study is spending more than they are earning,
i.e. DISSAVING. Alternatively, if C<Y, the group is SAVING. The diagram is
S
C=f(Y) drawn with a 45º. Anywhere along that line C=Y and S=0.

The consumption function C=f(Y) is shown on the left. DS is dissaving and S is

saving. The equation of the consumption function can be written as:
DS
C=A+cY, where c is the marginal propensity to consume (MPC) and A is
autonomous expenditure or expenditure that does not depend in income.

Those factors affecting consumption include

* The level of income. The higher this is the lower the APC and the lower MPC
* The distribution of wealth) if these are evenly distributed
* The distribution of income) it will raise APC
* Availability of credit. If it is easily available it raises APC and the rate of interest rates.
* New consumer goods on market push up spending
* Savings schemes such as ISAs affect our attitudes towards savings and so affect level of spending
* Expectations of future prices and interest rates. If we expect prices to rise in the future it could encourage us to increase our spending
* Government policy could a impose additional income taxes which could reduces disposal income and may reduce spending

The actual level of consumption depends on

* Level of income. We would expect that the higher the level of income the lower the APC. This should apply within an economy and
internationally.
* Distribution of income. We would expect that the more uneven is the distribution then the lower the APC should be - this is because a
few rich families could undertake massive saving, sufficient to influence total saving in the economy overall APC quite low. Despite the
impression of millions of poor people spending everything, a few very high savers boost saving. This consideration is important in Third World
economics - where incomes can be very unevenly distributed. In UK the distribution of income between wages and profit is talked about as being
important.

Other factors are of less importance but note their stabilising influences such as saving and consuming habits change only slowly. Remember that
saving is an attempt to postpone consumption and/or to build up wealth (generates future incomes), important factors will be
* How well does the state provide for old age/illness/unemployment and other such rainy days. The less adequate state payments are the
greater the incentive to save. If savings are contractual, a very stable element is provided e.g. if you agree to pay £30 per month premium

17
PoE - Macro ECO1003/ECO1030

on an endowment policy then you feel obliged to keep up the payments. The benefits/rewards of many SAYE type schemes involve
fulfilling the terms of an agreement.
* Availability and attractiveness of savings institutions.
* Attitudes to saving and thrift. During the 1980s we preferred to consume rather that save.
* The importance of the rate of interest. In Keynesian economics this is not a key factor. In the neo-classical world savings are sensitive to
interest rates.
* Holdings of wealth. This provides security for 'rainy days' and, hence would release more current income for consumption, but are
wealth holders just more thrifty individuals?
* Family size. Larger families would encourage a higher level of consumption

LEARNING DIARY
the simple expenditure
identity E=C+I and the
simple income identity
Y=C+S?
the concept of the
consumption function?

the concepts of marginal

and average propensity to
consume and save?
the idea of the income
multiplier?

the concept of the

equilibrium level of
income?

the assumptions upon

which Keynes built his
model?

the ideas of inflationary

and deflationary gaps?

how the government could

shift the economy to the
full employment level of
income?

What is meant by
economic growth and the
difference between
potential and actual
output?
Supply-side factors
causing economic growth?

18
PoE - Macro ECO1003/ECO1030

Topic 3 Money Supply

Learning outcomes
Following this session you will be able to:
• describe the main functions of money and recognise that there are several different money supply measures
• explain the process and problems of credit creation

Read Sloman Garratt Guest Jones Ch28.1- Ch28.3

Financial Update 23/24 What is Money

Seminar and wider reading:

Sloman Ch18.1-18.3, Ch20.4
Begg, Fischer and Dornbusch Ch22, Ch23.1-23.3
Griffiths and Wall Ch20, 21

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: What could influence the
money supply? Why might we be concerned with the money supply? What could the differing money aggregates indicate?

Any commodity that fulfils the functions of money can be called money, these are:
 Generally accepted medium of exchange
 Measure of value - so that one can make direct comparisons between the prices of goods so that one can best use one’s LIMITED
spending budget
 Store of value - If money is not holding its value, i.e. priced are rising rapidly, people will off load the money by buying assets such as
goods
 Standard of deferred payment

Certain items can be classed as money.

 Cigarettes are common currency in prisons where money is not available
 Running for a year in the first instance, Lewes, an East Sussex town introduced, in August 2008, its own currency in an effort to encourage
shoppers to support the local economy. The Lewes Pound works like a voucher, with one Lewes Pound note worth the same as a pound
Sterling. Initially, the currency was accepted by 70 local traders and can be bought in four outlets in the town. According to one analysis, 80%
of the money that goes into a supermarket till leaves the local economy immediately. The Lewes Pound, being accepted only in Lewes, would
not provoke such an extreme leakage rate.. Similar schemes have been launched abroad and it is estimated there are about 9,000 around the
world.

The relationship between money and the banking system is complicated. The Government can put money in to the system, essentially by printing it
(see Quantitative Easing). This extra money can have broader consequences upon the economy via the banking system and its ability to create
credit. We can build a model of the banking sector. Assume that the economy has only one bank, the Bank of Toy Town. From its experience it has
found that for every £1 deposited only 10p is needed by the average customer on any day. This suggests that the bank could loan out the other 90p
and earn interest on it. The holding of 10p in every pound gives a RESERVE RATIO of 10%. In an initial extra deposit is made at the bank of £100
- it need only hold £10 to service it. The other £90 is lent out. As all members of this economy have a bank account with the Bank of Toy Town,
when the borrower spends it, it becomes someone’s income, e.g. a shopkeeper’s. The shopkeeper will deposit this £90 is his/her account at the
Bank of Toy Town. The bank of Toy Town then puts 10% of £90 i.e. £9 in reserve and loans out a further £81 to another customer. This process
continues until all the initial £100 is held in reserve by the bank. This process is similar to the Keynesian multiplier effect. Indeed there is an
equivalent MONEY MULTIPLIER of 1/reserve ratio or 1/r. In the above case the multiplier is 10.

The total increase in the money supply as a result of an initial extra injection of £100 is £100  {10.10}=£1000

The total stock of money in the economy is far greater than the sum of all cash. Most money is held on DEPOSIT in accounts in an electronic form.
However, consumer behaviour may reduce the size of the money multiplier.

Money supply (MS) = Cash in circulation (C) + Deposits (D)

Higher money (HM) = Cash in circulation (C) + Bank Reserves (R)

If consumers choose to hold a certain amount of their money in cash we could call this proportion c (= C/D).
The reserve ratio r=R/D

The money multiplier (MM) is the ratio of the increase in total money supply over the increase in the cash in circulation

MM = MS = C+D = C/D + D/D = 1+c

HM C+R C/D + R/D c+r

If the initial extra cash =£100, r=10% and c=8% the money multiplier is 6 (not 10 as above). The increase in the money supply will be £600 (not
1000 as above).

If the government ran a budget deficit it would imply that they spend money than they withdrew in taxes i.e. resulted in a PSBR. In effect they had
put an extra block of cash into the system. As a result the total money supply could be increased by a multiple of the PSBR unless the government
puts a brake on bank lending or customer borrowing.

MS = PSNCR - sales of debt to non-banking PS + Banks loans to PS + net external inflow to the PS - increase in Banks’ share capital and
reserves

19
PoE - Macro ECO1003/ECO1030

LEARNING DIARY
the functions of money?

the ideas of fractional reserve

banking, monetary base and the
money multiplier?

the roles of the Bank of England

and the City in the UK money
markets?

the definitions of M0-M4?

the effects of a large PSBR on the

money supply?

20
PoE - Macro ECO1003/ECO1030

Topic 4 Money Demand

Learning outcomes
Following this session you will be able to:
• identify the motives for holding money and distinguish between Keynesian and monetarist views on the shape and stability of the demand for
money curve
• describe the various forms of monetary policy (including techniques to control the money supply, credit rationing and how the authorities
control interest rates) and explain the changing attitudes to monetary policy

Read Sloman Garratt Guest Jones Ch28.4, Ch28.5, Ch29.3, Ch30.2

Financial Update 23/24 Monetary Policy Instruments

Seminar and wider reading:

Begg, Fischer and Dornbusch Ch22.7, Ch23.1-23.7
Sloman Ch18.4-18.5, Ch20.2
Griffiths and Wall Ch20, 21

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: read… Reuters AUGUST 11,
2020 Does $20 trillion buy much inflation? What is Quantitative Easing?
Quantitative Easing has three elements.
 reducing interest rates to zero
 expand the Bank of England’s balance sheet to buy bonds
 Bank of England’s buys both corporate bonds and gilts.
This is akin to open market operations
If Saved If Spent/ Lent
The cash that the seller received can be > Ends up on deposit at commercial banks or Boosts demand for goods and services
saved or ‘spent’

Commercial banks could either save or lend > Ends up on deposit at the Bank of or Boosts demand for goods and services
out the deposit England
At the heart of quantitative easing is the quantity theory of money and the expression: MV = PQ
where M = money stock; V = income velocity of circulation - the average number of times a £1 is spent on national output; P = price level – as
measured by the RPI or CPI; Q = real GDP. This can be re-expressed as MD = kPQ,

where MD = nominal money balances demanded and k = the proportion

M of nominal income (PQ) desired to be held as money balances = 1/V

MD2
MD1
Monetarists believe that V and, hence, k is stable (constant) thus
changes in M must result in a directly proportionate change in P.
M2 MS2 However, if the additional cash is hoarded, then even if M increases, V
can decrease and P and/ or Q fall also. Converting MD = kPQ in to
growth rates  m = κ + p + q, if m = 0, 0= κ + p + q. If κ↑  p ↓
M1 MS1 and/ or q↓. The impact of an increase in the money supply can be
illustrated in the diagram below. In equilibrium MD = MS at point MS 1
PQ1. The money supply is increased through, say, Open Market
Operations. If the demand for money is stable (κ= 0), the shift of the
schedule MS1 to MS2 results in a rise in money output to PQ 2. This is
the Monetarist position: an increase in the money supply will increase
PQ3 PQ1 PQ2 PQ money GDP. In an expectations augmented Phillips curve analysis, in
the long run, m ↑ p ↑. However, if the money supply is increased but
the demand for money changes such that all the money is hoarded i.e. κ↑, MD rotates to MD 2. The shift of the schedule MS 1 to MS2 does not
change the level of money output. This is the other extreme.
Keynes and Monetarism
Monetarists believe that changes in the money Neo- Keynesians maintain that changes in income This applies to nominal national
supply cause changes in national income. bring about changes in the money supply. income i.e. income at current prices
Monetarists believe that changes in the money Neo-Keynesians believe that changes in the money This applies to real national
supply can have only small and temporary effects supply can bring about changes in real national income after allowing for the effects
upon real national income - that in the long-run income. of changes in the price level.
changes in the money supply will only result in
changes in the price level.
Monetarists (full employment) Buy assets Keynesians (underemployment) The transmission mechanism
(including bonds) but particularly GOODS. Result Buy bonds - Price of bonds rises, yield falls. As the Keynesians and Monetarists
- Asset price inflation particularly goods. yield is a rate of return, interest rates in the disagree over the affects of
economy fall. Lower costs of borrowing lead to increases in the money supply and
greater INVESTMENT. The result - Greater how they are transmitted consumers
output employment and growth find they have too much cash in
their hand what to they do with it?

21
PoE - Macro ECO1003/ECO1030

Direct transmission to economy Indirect transmission to economy

Keynes explained the mass unemployment of 1930s as caused by a lack of aggregate demand (a part of which was a lack of investment). He
advocated the use of budget deficits as a means of government infecting demand. Monetary policy he though was ineffective. However in more
normal times Keynes believed that monetary policy could affect investment through the interest rate. After World War II most governments were
committed to expansionary fiscal policies to avoid an expected depression. Monetarist ideas arose because of the inability of Keynesian economics
to explain or to cure the supposed contradictory problems of rising unemployment and inflation.

Monetarists argued that 1930s depression was caused by a contraction of money supply and not a lack of investment as Keynes said that post-war
inflation was caused by over-expansion of monies 'inflation is always and everywhere a monetary phenomenon'. Monetarists argue for control of
the money supply to avoid inflation and depression.

Monetarists believe that money and other financial assets are not close substitutes for one another but that money is a substitute for all assets. They
state that the demand for money is stable and predictable and is determined by spending and income i.e. by the level of NY.

Keynesians, however, believe that there are 3 motives for holding money.
* Transactions motive - for everyday life - the higher the level of income the higher the transactions demand for money (Monetarists
agree with this).
* Precautionary motive - for unexpected eventualities - the higher the level of income the higher will be the size of the precautionary
balances.
* Speculative motive - here monetarists and Keynesians disagree.

Monetarists do not think that people will want money for itself, only for transactions purposes, whereas Keynes believed that people might
speculate by holding money. The speculative demand for money is that money that is held in hope of making a speculative gain as a result of the
change in interest rates and the price of financial assets. The rate of interest and the speculative demand for money are inversely proportional to one
another i.e. as the rate of interest rises to the amount of money held for speculative purposes falls.

Keynesians thus believe that the demand for money can vary substantially because of the speculative motive for holding (LP). Demand for money
for speculative purposes rises as interest rates fall. Keynesians believe that the money supply responds to changes in other variables. The money
supply does not initiate changes. Thus a rise in AD may thus cause a rise in income and if the money supply does not change then it follows that
the velocity of circulation will increase.

But because the monetary authorities believe that increasing or decreasing the money supply does not affect other things in the economy, they will
thus respond to a rise in AD by reducing the money supply i.e. if they do not then individuals, shops businesses etc. will use credit anyway.

Thus, Keynesians believe that the MONEY SUPPLY expands or contacts in response to changes in the components of AD. Control of the economy
means controlling the level of AD through incomes policy, variations in taxation and government spending (fiscal policy) in order to influence the
multiplier effects of changes in total spending.

But Monetarists in contrast to Keynesians believe that money is a very active ingredient. Using MV = PT they believe that the money supply
determines income output and employment in the economy e.g. if the government changes the rate of growth of the money supply and then after a
further 6-9 months the general price level will begin to change. Thus it is because of these time lags that the Monetarists believe that the Authorities
should aim for a constant rate of growth of money supply that will bring a slow stable growth in price level. Monetarists believe that economic
growth in long run is determined by the availability and quality of the factors of production and the allocation of these to production: the
employment of these resources needs a stable monetary framework in which to operate in order to avoid short term fluctuations which produce
disturbances in employment and so on. Thus the quotation 'inflation is always and everywhere a monetary phenomenon' arises because it can only
happen when the increase in the quantity of money is more rapid than the increase in output.

What do 1) A rise in taxation will not affect the price level if at the same time there is a rise in the money supply to provide money
Keynesians incomes to pay the taxation.
say here? 2) A fall in rate of growth of the money supply will eventually bring about a fall in output, money incomes and the rate of
increase of the price level.
3) Also a rise in government spending will only be inflationary if it is financed by the creation of money.
4) A decrease in spending or an increase in taxation will only be deflationary in as much as it reduces the quantity of money.

Again what Monetarists say there are effects that result from increasing the rate of growth of money supply on interest rates.
do 1) In the short run interest rates will fall as the money supply rises but in the long run the process will be reversed and an
Keynesians increase in interest rates results from an increase in the money supply.
say here? 2) Thus high interest rates result from a rapid growth in the money supply and low rates from a slow growth in the money
supply.

Main difference then between Monetarists and Keynesians is that Monetarists view money as an active agent in quantity theory whereas
Keynesians view money as a passive agent. Thus, for Monetarists an increase in money leads to an increase in the demand for loans.

Monetarist policy makers may interpret money supply figures in the following way:
M0 - notes and coins. This reflects the transactions demand for money and is interpreted as a measure of demand for goods and services. A rise in
M0 is a good indicator that inflation will follow in 6 months.

M4 - broad money. This reflects the demand for investment and is interpreted as a measure of demand for capital goods. If people are repaying debt,
M4 should decline, whereas if they are investing it will increase.

22
PoE - Macro ECO1003/ECO1030

LEARNING DIARY
the implications of the two
positions vis-à-vis interest rates
and investment?

the competing theories concerning

the demand for money?

the inverse relationship between

yield and bond prices?

the quantity theory of money?

the transmission mechanism of

Keynes and the Monetarists?

the instruments that can be used to

control the growth of the money
supply and the merits of monetary
policy vs. fiscal policy?

23
PoE - Macro ECO1003/ECO1030

US Business Cycle Expansions and Contractions

Business Cycle Reference Dates Contraction Expansion Cycle
Previous Trough from
Peak to Trough to Previous Peak from
Peak Peak Trough Trough Trough Trough this Peak Trough Previous Peak
Peak Month Year Quarter Month Year Quarter (Months) (Months) (Months) (Months)
- - - December 1854 4 - - - -
June 1857 2 December 1858 4 18 30 48 -
October 1860 3 June 1861 3 8 22 30 40
April 1865 1 December 1867 1 32 46 78 54
June 1869 2 December 1870 4 18 18 36 50
October 1873 3 March 1879 1 65 34 99 52
March 1882 1 May 1885 2 38 36 74 101
March 1887 2 April 1888 1 13 22 35 60
July 1890 3 May 1891 2 10 27 37 40
January 1893 1 June 1894 2 17 20 37 30
December 1895 4 June 1897 2 18 18 36 35
June 1899 3 December 1900 4 18 24 42 42
September 1902 4 August 1904 3 23 21 44 39
May 1907 2 June 1908 2 13 33 46 56
January 1910 1 January 1912 4 24 19 43 32
January 1913 1 December 1914 4 23 12 35 36
August 1918 3 March 1919 1 7 44 51 67
January 1920 1 July 1921 3 18 10 28 17
May 1923 2 July 1924 3 14 22 36 40
October 1926 3 November 1927 4 13 27 40 41
August 1929 3 March 1933 1 43 21 64 34
May 1937 2 June 1938 2 13 50 63 93
February 1945 1 October 1945 4 8 80 88 93
November 1948 4 October 1949 4 11 37 48 45
July 1953 2 May 1954 2 10 45 55 56
August 1957 3 April 1958 2 8 39 47 49
April 1960 2 February 1961 1 10 24 34 32
December 1969 4 November 1970 4 11 106 117 116
November 1973 4 March 1975 1 16 36 52 47
January 1980 1 July 1980 3 6 58 64 74
July 1981 3 November 1982 4 16 12 28 18
July 1990 3 March 1991 1 8 92 100 108
March 2001 1 November 2001 4 8 120 128 128
December 2007 4 June 2009 2 18 73 91 8
February 2020 - April 2020 2 2 128 130 146

24
PoE - Macro ECO1003/ECO1030

Topic 5 Unemployment

Learning outcomes
Following this session you will be able to:
• describe the economic costs of unemployment
• distinguish between different types of unemployment
• distinguish between demand and supply side measures to tackle the problems of unemployment
• describe the difficulties in using fiscal policy to manage the level of aggregate demand.

Read Sloman Garratt Guest Jones Ch26.4

Financial Update 23/24 An Unemployment Problem; Aggregate Supply and Demand

Seminar and wider reading:

Begg, Fischer and Dornbusch Ch27
Sloman Ch15.1-2, Ch23.1, 23.3, Box 23.4
Griffiths and Wall Ch23
Mulhearn and Vane Ch11

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR:
How has the labour market changes since the pandemic?
Reuters May 26, 2022 Apple to increase starting pay for U.S. workers
BBC 15 7 22 UK tech talent shortage threatens to stifle growth in the industry

LEARNING DIARY
the economist's and the state's
definition of unemployment?

the types of unemployment and

the difference between
equilibrium and disequilibrium
unemployment?

the economic and social costs

of unemployment?

the policies the state could

adopt to alleviate the various
forms of unemployment?

the idea and role of the Phillips

curve?

the effects of a change in

aggregate demand on
unemployment with wages that
are sticky downwards?

25
PoE - Macro ECO1003/ECO1030

Topic 6 Inflation

Learning outcomes
Following this session you will be able to:
• describe the economic costs of inflation
• distinguish between different types of inflation
• distinguish between demand and supply side measures to tackle the problems of inflation
• explain the process by which fiscal policy influences output, employment and inflation
• describe the difficulties in using fiscal policy to manage the level of aggregate demand.

Read Sloman Garratt Guest Jones Ch26.5, Ch29.3 Ch29.4

Financial Update 23/24 Inflation, Output Gap; Aggregate Supply and Demand

Seminar and wider reading:

Griffiths and Wall Ch22
Sloman Ch15.3, Ch21
Mulhearn and Vane Ch12
Begg, Fischer and Dornbusch Ch26

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR:
How did some commodity exporting countries affect others?
Reuters April 23, 2022 Indonesia bans palm oil exports as global food inflation spikes
Reuters April 27, 2022 How Africa is bearing the brunt of palm oil's perfect storm

Inflation is technically defined as a situation in which there is a sustained rise in a weighted average of all prices, or a persistent general increase in
prices.

26
PoE - Macro ECO1003/ECO1030

LEARNING DIARY
the definition of inflation
and the various indices used
to measure it and the
difference between core and
headline inflation (excluding
poll tax and mortgage
costs)?

the ideas of cost push and

demand pull inflation?

the difference between

anticipated and unanticipated
inflation and their associated
costs?

the concepts of rational and

adaptive expectations?

the idea and history of

stagflation in the late 1960s,
the oil crises and the
breakdown of the Phillips
curve?

policies that could be

adopted to reduce inflation?

27
PoE - Macro ECO1003/ECO1030

Topic 7 Exchange Rates

Learning outcomes
Following this session you will be able to:
• describe the various exchange rate regimes and understand their advantages and disadvantages

Read Sloman Garratt Guest Jones Ch27.2 Ch27.4

Financial Update 23/24 Exchange Rates

Seminar and wider reading:

Begg, Fischer and Dornbusch Ch28.1-2, 4, 8 Ch29 Ch34
Sloman Ch14.4, Ch25
Griffiths and Wall Ch25
Mulhearn and Vane Ch16.3-7

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: A Strong Currency is Good
for the Stock exchange and the Economy.

FT Venezuela devalues bolívar by 32% February 8, 2013 11:38 pm

FT The Egyptian economy in 10 charts July 4, 2013 3:22 pm by Kate Allen
FT Egypt’s foreign reserves give cause for concern May 8, 2013 6:41 pm

An exchange rate is simply the price at which one currency can be traded for another.
There are a number of possible exchange rate regimes but all lie somewhere between the two extremes:
* Floating/freely fluctuating exchange rates
* Fixed exchange rates

Floating Exchange Rates are determined according to free market forces of demand and supply. Since one country demands the currency of
another on the foreign exchange market it follows that a demand for US($) implies a supply of sterling and a supply of £'s implies a need for $. If
the exchange rate is £1 = $2, then portable TV in UK price £150 sells for $300 in the USA and a US fridge price $400 sells for £200 in UK.

The diagram on the left reflects the workings of the foreign exchange market for sterling (£) and US
Dollars $. The supply curve slopes upwards as UK residents supply MORE £ to buy MORE US
goods when they appear cheaper to them, i.e. when the £ buys a lot of $. The demand curve for
$/£ sterling slopes downwards as US residents will demand £ to buy more British goods when they
S of £ appear cheaper to them, i.e. when the $ buys a lot of £.

$2
The equilibrium exchange rate occurs where the demand and supply for sterling is equal, i.e. at $2/£.
If the exchange rate was at $1/£ the BALANCE of PAYMENTS (BofP) will be in surplus (excess
$1
demand for sterling on the foreign exchange market of q2-q1)
D for £

0
Q of £
q1 q q2

Let us suppose that there is an increase in the demand for US exports i.e. the supply curve for
sterling on the foreign exchange market shifts to the right (to S of £’). The effect is to decrease the
exchange rate from £1 = $2 to £1 = $1.Result would be a depreciation in the value of £ and this
$/£ makes imports relatively dearer and exports relatively cheaper. UK telly sells for $150 in USA. The
S of £ US fridge sells for £400 in UK. If foreign currency becomes more expensive the £ is said to have
appreciated
S of £'
$2

$1

D for £

0
Q of £
q1 q2

The advantages of flexible exchange rates include:

* Automatic stabilisation - they provide an automatic mechanism for correcting a balance of payments disequilibrium. e.g. if a country
has a balance of payments deficit then supply of its currency is greater than demand and as a result the currency should depreciate, thus making
exports cheaper and imports dearer and bringing the balance of payments back into equilibrium.
* Frees Internal Policy. A government is, free to carry out its own internal policies without any concerns for its external position via the
balance of payments. With a floating exchange rate the balance of payments will balance itself via a change in exchange rate.
* Allows a government to manipulate currency to their own advantage e.g. high value of £ in early 1980s used to keep inflation down.
* Lower reserves necessary compared with a fixed exchange rate.

The disadvantages of flexible exchange rates include:

* Uncertainty which can hinder trade and discourage foreign investment.

28
PoE - Macro ECO1003/ECO1030

* Speculation is increased (movements of 'hot money').

* Lack of discipline. The need to maintain an exchange rate imposes a discipline upon a government. A floating exchange rate can allow
such problems as inflation to be ignored until they become a crisis.
* Where the demand for exports and imports is inelastic a fluctuating exchange rate can make the balance of payments situation worse.

Marshall - Leaner condition ex  em  1

only if this is fulfilled, will depreciation of a currency improve the balance of payments. For example, suppose that balance of payments
deficit because UK's demand for imports is greater than supply of exports i.e. demand £ > supply £
If currency depreciates and exports become cheaper, the balance of payments will only be rectified if demand for UK exports rises and
demand for imports in UK from abroad falls. BUT if demand for UK exports is inelastic, cheaper prices result in less revenue earned and a worse
balance of payments.

A fixed exchange rate system such as the Gold Standard pre 1931 involved a government guaranteeing the nation’s exchange rate. Thus, traders
have a good idea what the value of their merchandise expressed in a foreign currency is worth.

The advantages of fixed exchange rates include:

* Certainty, which results in little or no disruption to trade. This is the key advantage. Trade is seen as a central pillar of economic growth.
* Reduce speculation provided the rate is considered correct otherwise they may encourage it.
* Impose discipline on a country's domestic economic policies.

The disadvantages of fixed exchange rates include:

* No automatic mechanism for correcting balance of payments deficits. In a free market the exchange rate would depreciate. As this is
not allowed the Government must pursue other economic policies to support the exchange rate.

The government could correct a balance of payments deficit by:-

* use reserves of foreign currencies to buy £ - only a short term measure

* Introduce exchange controls, i.e. limit the quantity of foreign currencies that can be bought but this might restrict trade
* limit imports by tariffs and quotes (invites retaliation)
* raise interest rates to encourage inflows of foreign currency this creating a demand for £'s but imposed higher costs on the domestic
economy.
* deflate the economy through monetary, fiscal and direct controls i.e. settling a deficit on balance of payments implies shipping gold out
of a country. Less gold means less money supply i.e. money supply linked to quantity of gold in an economy. Deflation would reduce AD for
home produced and foreign goods and should divert goods to the export market, bringing balance of payments into equilibrium.

If all these fail then the only other solution is to DEVALUE i.e. fix the value of a currency at a lower level with other foreign currencies.

The equilibrium exchange rate - the purchasing power parity theory (PPP)
There is no completely satisfactory theory explaining how the exchange rate is determined. Why does the exchange rate occur at the
level it does? Purchasing power parity theory suggests that the exchange rate would be in equilibrium if a situation existed where the same
'basket' of goods in the UK (cost £100) cost $300 in the USA. i.e. the exchange rate would be £1 = $3. To do this it is necessary to allow for
transport costs and tariffs.

ppp = US Consumer Price Index

UK Consumer Price Index

So if the general price level in the UK doubled whilst the US price level remained constant then the exchange rate would fall by a half.
But this does not work in practice, why?
* 'Basket' of goods which determines domestic price levels is different to those goods traded internationally i.e. housing, bread, rail fares
do not influence trade.
* Exchange rates are influenced by many factors like capital movements speculation and interest rates.
* Confidence is also a very significant factor in determining exchange rates.

The exchange rate regimes in UK since 1945

Between 1947 - 1972 the system of fixed exchange rates agreed at Bretton Woods in 1944 known as an Adjustable Peg System was followed..
Member countries agreed to fix their currencies and not let their value vary by more than 1% either side of parity. E.g. 1949-1967 £1 = $2.80
Sterling could rise to £1 = $2.82 or depreciate to £1 = $2.78. 1967-1972 $2.40=£1. The system was termed adjustable because a country was
allowed to revalue and devalue to prevent serious balance of payments problems. Each currency was tied to the US Dollar and the Dollar was tied
to gold at £35/ounce.

Unfortunately, many governments were reluctance to devalue and appear to their electorate that they could not manage the nation’s finances. Also
it was found to be a one way bet for speculation operating against weak currencies. If speculators sold the currency in the expectation of a
devaluation and it DID NOT occur, they lost their brokerage fee involved in the transaction. On the other hand, if the devaluation DID occur, they
had a considerable amount of money.
Between 1972 – 1990 we followed a Managed Flexibility approach or Dirty Floating. Here exchange rates are determined mainly by the laws of
demand and supply but in which the monetary authorities intervene to stabilise rates or to influence rates- the Bank of England would step in to buy
£ on foreign exchange market in order to prevent it from falling further in value. In dirty floating the decision when to intervene remains arbitrary.
The objective is to have stability in exchange rates and to maintain confidence.

From 1990 to 1992 we were part of the European Exchange Rate Mechanism (ERM). This operated like a fixed exchange rate in that all currencies
were fixed against the European Currency Unit (ECU), but the ECU fluctuated, as all the members did against non-member’s currencies. But the
net effect was that all members were tied to the Deutsche Mark.

The system in theory should lower interest rates and inflation in Europe as speculators believe that there is less of a risk of currency devaluation
and trade unions will moderate their wage demands. In actuality, German reunification and world recession put the system under strain and

29
PoE - Macro ECO1003/ECO1030

speculators began to pick off the weaker currencies causing the Lira and Sterling to leave in 1992 and later in 1993 the permitted band of
fluctuation to expand form 2¼% to 15%. One could argue that a 30% variation is more like a flexible system.

LEARNING DIARY
the ideas of a fixed,
floating, pegged and
crawling exchange rate
regime?

the relationship between

the balance of payments
and the exchange rate?

the relationship between

interest rates and the
exchange rate?

the effect of a
devaluation upon
employment, output,
inflation, and the
balance of payments?

the Bretton Woods

system?

30
PoE - Macro ECO1003/ECO1030

Topic 8 Balance of Payments

Learning outcomes
Following this session you will be able to:
• interpret a balance of payments account and distinguish between the various balances
• describe the various exchange rate regimes and understand their advantages and disadvantages
• explain why external disequilibrium occurs and how it can be corrected
• describe the conditions necessary for a devaluation to work

Read Sloman Garratt Guest Jones Ch27.1 Ch27.3 see Exchange Rates;

Seminar and wider reading:

Begg, Fischer and Dornbusch Ch28.3, 28.5-7
Sloman – Ch15.4, Ch15.5
Griffiths and Wall Ch25
Mulhearn and Vane Ch16.2

PREPARE THE FOLLOWING CASE STUDY / DISCUSSION TOPIC AS DIRECTED BY YOUR TUTOR: How could a government
improve its balance of payments?

The balance of payments shows the record of monetary transactions between UK residents and the rest of the world.

Money inflows - credits  exports

Money outflows - debits  imports

There are three components

1) Current Account:- goods and services
1.1) Visibles (goods) - Balance of Trade e.g. cars
1.2) Invisibles (services) e.g. insurance
2) Transactions in the external assets and liabilities - long and short term investments
2.1) Short term investments - moneys in search of quick high returns/portfolio investments
2.2) Long term investments - moneys for long term investment e.g. building a car factory.
3) Balance for official financing - gold and foreign currency reserve

The three add up to zero, 1+2+3=0. However, if 1+2<0, 3 must make up the difference, i.e. if we run a balance of payments deficit it is
requires the UK government to make good the deficit by selling gold and foreign currency reserves.

There are a number of tactics that one could employ to correct a balance of payments deficit. Firstly, one could devalue the currency

If the exchange rate was $3=£1, when the equilibrium rate was $2=£1, the UK BofP would be in
deficit (q2-q1). If the exchange rate was devalued to $2 the balance of payments would move back
into equilibrium.
$/£
S of £ NB this must comply with the Marshall Lerner condition (see above).
$3

$2
Under a freely floating exchange are the will never be a deficit.

The effects would be both on imports and exports. Imports become more expensive and so reduce,
but if they are necessary the cost/unit of imports (of raw materials) increases, pushing up the
D for £
finished cost/unit, and hence the price, of domestically produced goods, it can cause increased
inflation. Seen in reverse, a high exchange rate can REDUCE INFLATION. Exports become
0 cheaper to foreigners and so increase. To produce more exports more workers are required. This
Q of £
q1 q q2
suggests that, to avoid WAGE INFLATION, there must be some UNEMPLOYMENT.

If the government is concerned about unemployment, a devaluation would increase demand for exports, which leads to more work in export
sectors. Thus, the government could use the exchange rate to manipulate unemployment or inflation, in the same way as aggregate demand, but
aggregate demand must support that exchange rate anyway so it does not mean the governments can pursue an independent internal and external
policy.

But to be successful other nations must not follow suit. Speculators must be reassured that the new exchange rate is sustainable. It is often the case
that repegging only encourages speculation that a further devaluation is possible.

In theory, it is difficult for a nation to impose Tariffs and Quotas under the General Agreement of Tariffs and Trade (GATT) and its replacement
body, the World Trade Organisation (WTO), but in practice it is fairly easy. Voluntary Export Restraints (VERs) are quotas that are commonly
imposed. For example the UK has a VER with Japan over car imports (11% of the market).

So far the discussion has ignored the issue of non-price factors such as quality. If a good is of excellent quality it tends to have a low price elasticity
of demand (price insensitive) and a high-income elasticity of demand. If, as Tony Thirlwall maintains, we produce poorer quality goods than our
competitors these two can have some effect on the balance of trade.
* If we have the same positive rate of inflation as our overseas competitors and our goods are more price sensitive than our competitors, our exports
are more affected than theirs, i.e. we move into a currents balance deficit.

31
PoE - Macro ECO1003/ECO1030

* If our income grows at the same rate as our competitors our increase in demand for their exports will be faster than their increase in demand for
our exports, i.e. we move into a balance of trade deficit.
In other words, if we produce poor quality goods we must grow more slowly and have a lower rate of inflation than our overseas competitors to
maintain a current account balance.
Interest rates can really only be used in the short run against speculators. Interest rates alter the costs and benefits of speculating. But on a simple
basis, if the UK’s exchange rate is in equilibrium with the $ at a rate of $2=£1 and the interest rates in each country are the same, say 5% which
currency would speculators prefer to hold. They are not indifferent as the UK has a worse record of currency stability. To offset this greater
likelihood the UK government must offer a higher rate of return (on its government stock) of say 6%.

In the event of adverse speculation of a devaluation, the government could raise this interest rate to 7 or 8%, so enhancing the benefit of holding
sterling. This affects the short term capital account. The down-side to this is that if interest rates are being used for exchange rate reasons they
cannot be used for domestic reasons. If the interest rate rises, the cost of borrowing increases, fewer people borrow to buy, aggregate demand falls
and so the following indicators change. Unemployment will RISE and economic growth and inflation will FALL.

If people are poorer they cannot afford to buy imports in the same volumes they did when they were richer. The government can reduce people’s
spending power by cutting government expenditure, increasing taxes and raising interest rates. The down side of this EXPENDITURE
REDUCING policy is that unemployment will RISE and economic growth and inflation will FALL.

If people are encouraged to buy British goods through a heavy advertising campaign, EXPENDITURE will be SWITCHED from imports to
domestically produced goods. This implies that there should be some unemployment in the UK economy to produce the extra goods.

Below is data taken from the Reserve Bank of India Aug 27, 2009 : II. Economic Review

Table 2.75: Balance of Payments : Key Indicators

Item/Indicator 1990-91 2001-02 2004-05 2005-06 2006-07 2007- 2008-
08PR 09P
1 2 3 4 5 6 7 8
Items (US $ billion)
i) Trade Balance -9.4 -11.6 -33.7 -51.9 -61.8 -91.6 -119.4
ii) Invisibles, net -0.2 15 31.2 42 52.2 74.6 89.6
iii) Current Account Balance -9.7 3.4 -2.5 -9.9 -9.6 -17 -29.8
iv) Capital Account 7.1 8.6 28 25.5 45.2 108 9.1
v) Foreign Exchange Reserves* 1.3 -11.8 -26.2 -15.1 -36.6 -92.2 20.1
(Increase -/Decrease +)
Indicators (in Per cent)
1 Trade
i) Exports/ 5.8 9.4 12.1 13 14.1 14.2 15.1
GDP
ii) Imports/ 8.8 11.8 16.9 19.4 20.9 22 25.5
GDP
iii) Trade Balance /GDP -3 -2.4 -4.8 -6.4 -6.8 -7.8 -10.3
iv) Export Volume 11 3.9 17.5 11.8 15.8 5.4 ..
Growth
2 Invisibles
i) Invisibles Receipts/ 2.4 7.7 9.9 11.1 12.5 12.7 14
GDP
ii) Invisibles Payments/ 2.4 4.6 5.5 5.9 6.8 6.3 6.3
GDP
iii) Invisibles (Net)/GDP -0.1 3.1 4.4 5.2 5.7 6.4 7.7

3 Current Account
i) Current 8 16.9 21.9 24 26.6 26.8 29.1
Receipts@/GDP
ii) Current 11.2 16.3 22.4 25.3 27.7 28.3 31.8
Payments/GDP
Iii) Current Receipts 6.6 4.5 29.3 26 25.1 29.3 7.4
Growth@
iv) Current Account -3.1 0.7 -0.4 -1.2 -1.1 -1.5 -2.6
Balance/GDP
4 Capital Account
i) Foreign Investment to - 1.7 2.2 2.6 3.3 5.4 1.8
India(net) /GDP
ii) Capital 2.2 1.8 4 3.1 4.9 9.2 0.8
Flows(net)/GDP
iii) Capital Inflows/GDP 7.2 9.1 14 17.9 25.4 36.9 26.1
iv) Capital Outflows/GDP 5 7.3 10 14.7 20.5 27.7 25.3
5 Others

32
PoE - Macro ECO1003/ECO1030

i) Debt - GDP Ratio 28.7 21.1 18.5 17.2 18.1 19 22

ii) Debt - Service Ratio 35.3 13.7 6.1 9.9 4.7 4.8 4.6
iii) Liability - Service 35.6 14.9 7.1 11.2 6.1 5.9 5.5
Ratio
iv) Import Cover of 2.5 11.5 14.3 11.6 12.5 14.4 10.3
Reserves (in months)
PR: Partially Revised. P : Preliminary. @ : Excluding official transfers. - : Negligible
* : Excluding valuation. .. : Not Available.

LEARNING DIARY
why countries trade
internationally?

what is meant by, and

determinants of, the
balance of trade, the
current and capital
accounts?

how an imbalance on
the external account
could occur?

how to resolve a balance

of payments deficit in
the short and long run?

the recent UK record?

The idea of a J-curve

effect?

33
PoE - Macro ECO1003/ECO1030

Digital Learning Resources (https://learning.lincoln.ac.uk/resources-hub/)

In addition to the above it is recommended you make use of the digital learning
resources to support your learning on this module:

34
PoE - Macro ECO1003/ECO1030

35
 Appendix a: Assessment Brief ECO1030
NOTE: All Assessment Briefings should be made available prior to the
commencement of the module, clearly signposted on the module Blackboard site
as well as included in any module handbook or briefing document.

Module Code & Title: ECO1030

Contribution to Final Module Mark: 100%
Description of Assessment Task and Purpose:
Essay (with reflection)

A falling unemployment rate indicates that output is rising. Discuss.

Reuters March 30, 2023 U.S. labor force gap mostly due to pre-pandemic trends, study finds
Reuters March 9, 2023 Britain's early retired resist calls to work, despite higher living costs
BBC 6 9 23 Disability and illness benefit changes proposed
This question elements of the work force and how that is influenced by choice and benefits

Knowledge & Skills Assessed:

Communication
Applying Economics Theory

Assessment Submission Instructions:

Your written assignment will be an essay and must comply with the general instructions for the submission of assignments. It must be
submitted on the date as stated in the course calendar. Failure to comply with this instruction may result in a grade of zero.

Date for Return of Feedback: within 3 weeks of submission

Format for Assessment:
Your essay should be a maximum of 2000 words in length (excluding bibliography, tables and diagrams). Please note that your
assignment will be down-graded for excessive quoting, the absence of a bibliography, and unreasonable length. You should use micro
economic analysis when addressing these questions. NB this is not group work. If your work looks like someone else’s, we WILL
SUSPECT plagiarism which, if found to be the case, may result in a failure of the YEAR.

Marking Criteria for Assessment:

Normal grading - range 0-100%

Please note that all work is assessed according to the University of Lincoln Management of
Assessment Policy and that marks awarded are provisional on Examination Board decisions (which
take place at the end of the Academic Year.
Feedback Format:
Blackboard

Additional Information for Completion of Assessment:

Reflection
As a means of training you to engage in self-reflection and to help us understand why you included or excluded certain elements, we
are asking you to provide a 300 word reflection on your assessment. Include things like:
What theories you covered and why. The diagrams tables and figures you inserted and why. The sources and references you used.
The idea is that any student using AI will have a problem with completing a reflection.

36
The reflection will not affect your grade (unless declared otherwise). Failure to submit a reflection will be taken as a sign that there is
something not right.

Assessment Support Information:

Assessment Preparation and Grading
Assessment can be an end and a means to an end. On this programme, the ‘end’ is understanding. Passing the assessments is a
manifestation of that. It is not right that someone is more interested in passing than understanding. The development of critical and
analytical skills is central to your intellectual and academic. Fooling your assessors that you can do something when you can’t
eventually will reveal itself. Economics builds. There is a levelness to modules. Core year 2 modules build on year 1. Year 3 on year 2
and (specialist) Masters on an undergraduate programme.
So the idea is to assess your abilities not your tutor’s or some other author’s or some algorithm through the assessments set .
We are now in the business of coping with ghost writers, writing, proofreading, paraphrasing, summarising or translation software. None
of which are you permitted to use (unless there is explicit permission).
More generally, we are providing assignment briefs to outline what is going to be assessed. To be clear, we expect you to address the
assessment from within the confines of the module descriptor. The syllabus, the learning outcomes and the recommended texts (found
on Worktribe) will be reported in the module handbook.
This means:
You must address the question from within the confines of the module. It must be commensurate with the expected capability a student
and level of the programme.
The references need to be commensurate with the work. All sources used must be cited in text and included in the reference list in
Harvard format. Do not use references that are beyond what you could understand. References in the work should be relevant to the
work. Please - this is an important area for considering use of dishonest means.
You must use definitions drawn from appropriate sources, most likely textbooks
You must utilise appropriate theory. This must be explained. Theory most likely is drawn from a textbook. You must apply the theory as
required (eg using certain cases or examples).
Figures, diagrams, tables must be wherever possible created by you. If they are drawn from another source, preferably from a textbook,
they should be cited appropriately.
If it is specified that you should use a particular source it is incumbent upon you to follow that instruction

Important Information on Dishonesty & Plagiarism:

University of Lincoln Regulations define plagiarism as 'the passing off of another person's thoughts, ideas, writings or images as one's
own... Examples of plagiarism include the unacknowledged use of another person's material whether in original or summary form.
Plagiarism also includes the copying of another student's work'.

Plagiarism is a serious offence and is treated by the University as a form of academic dishonesty. Students are directed to the
University Regulations for details of the procedures and penalties involved.

For further information, see plagiarism.org

37
 Appendix b: Assessment Brief ECO1003
NOTE: All Assessment Briefings should be made available prior to the
commencement of the module, clearly signposted on the module Blackboard site
as well as included in any module handbook or briefing document.

Module Code & Title: ECO1003

Contribution to Final Module Mark: 75%
Description of Assessment Task and Purpose:
Exam

Learning Outcomes Assessed:

Examine the impact of markets on the wellbeing of firms and industries
apply core micro and [macro]economics concepts, principles and tools to the analysis of economic problems (common)
apply economic reasoning to economics policy issues in a way that promotes socially desirable outcomes (common)
write well-structured Economic arguments
quantitatively and visually frame economic concepts (common)

Knowledge & Skills Assessed:

Communication
Framing

Assessment Submission Instructions:

The questions this year may have two parts. You can incorporate part a within part b, so there will be one mark overall.

On the day four of the six questions below will be available, of which you should attempt three. (There is no guarantee of 2+2.)

Date for Return of Feedback: As per exam rules

Format for Assessment:
6 pre released essay questions

1 Why might monopoly be deemed socially undesirable?

Financial Update 23/24 Competition and Contestability
Reuters October 13, 2021Special Report: Amazon copied products and rigged search results to promote its own brands, documents
show
This question is about how monopoly practice is assessed.

2a When is there a shift and when is there a move along a supply and demand schedule?
2b Using illustrative examples given, examine how house prices behaved recently.
BBC 16 6 22 Second homes in Wales: Are owners selling up ahead of tax hikes?
FT.com AUGUST 8 2021 Netherlands grapples with social consequences of soaring house prices
This question asks you to consider shifts and when you move along schedules. It also requires you to apply elasticity of supply to
housing.

3 Examine how shipping lines responded to the need to address harmful emissions recently
Financial Update 23/24 Externalities
Reuters June 12, 2023 Shipping tax could yield $100 bln climate windfall
Reuters August 24, 2021 Maersk orders eight carbon-neutral vessels from Hyundai Heavy
Reuters August 18, 2021 Maersk signs first green methanol deal in step towards dropping fossil fuels
Reuters July 11, 2022 Ships get older and slower as emissions rules bite
This question asks you to focus on MSC and MSB and elasticity.

4a Define types of unemployment and inflation.

4b Assess the contention that one can reduce the rate of inflation by reducing aggregate demand.
OR
4c Assess the contention that one can reduce the rate of unemployment by enhancing aggregate demand.
Reuters March 2, 2023 ECB confronts a cold reality: companies are cashing in on inflation
Bbc 15 2 23 McDonald's puts up prices on five menu items
Reuters June 20, 2023 Australia's unemployment rate needs to rise to curb inflation - top c.banker
Reuters 20 3 23 UK wages failing to keep up with costs - Resolution Foundation
Reuters March 30, 2023 U.S. labor force gap mostly due to pre-pandemic trends, study finds

38
 Reuters March 2, 2023 ECB confronts a cold reality: companies are cashing in on inflation
Reuters May 26, 2022 Asia's war on inflation targets supply, not consumers
This question requires you to display your understanding of types of unemployment and inflation, how they interact and policy issues

5 Examine the implications of the UK experiencing stable output.

Reuters November 15, 2021:Weak investment, innovation and management hamper UK productivity
This question is focused on cases the actual/potential output trends

6a Outline various forms of exchange rate regime

6b Explain how inflation and ‘confidence’ in a national currency are linked
Financial Update 23/24 Exchange Rate
Reuters May 30, 2022 Analysis: Turkey's recurring currency nightmare strikes again
Reuters Argentina sets grocery price controls for 90 days to tame inflation August 19, 2023
Reuters Argentina to freeze crude price at $56/bbl to curb inflation August 18, 2023
This question is focused on cases where ExRates are under pressure. You should be using exchange rate diagrams

Marking Criteria for Assessment:

All questions carry equal weighting

Please note that all work is assessed according to the University of Lincoln Management of
Assessment Policy and that marks awarded are provisional on Examination Board decisions (which
take place at the end of the Academic Year.
Feedback Format: As per exam rules

Additional Information for Completion of Assessment:

The questions this year may have two parts. This is, in part, recognition that many students fail their assessments because they miss the point
and discuss the wrong or little theory or fail to define terms. So, the first part indicates what must be included. The second part highlights the
case study or area to which the theory should be applied.

On the day four of the six questions below will be available, of which you should attempt three. (There is no guarantee of 2+2.)
You should use something like the references highlighted.

Assessment Support Information:

For questions that are about unfolding issues, you should demonstrate an awareness of events during the period. With your own readings and
the compulsory ones, you will be assessed on the application of empirical evidence to relevant and well-explained theory. Diagrams are
essential. Just describing what has happened WILL NOT DO.

Important Information on Dishonesty & Plagiarism:

University of Lincoln Regulations define plagiarism as 'the passing off of another person's thoughts, ideas, writings or images as one's
own... Examples of plagiarism include the unacknowledged use of another person's material whether in original or summary form.
Plagiarism also includes the copying of another student's work'.

Plagiarism is a serious offence and is treated by the University as a form of academic dishonesty. Students are directed to the
University Regulations for details of the procedures and penalties involved.

For further information, see plagiarism.org

39
 Appendix c: Assessment Criteria

UG Learning
1st 2.1 2.2 3 Minor fail Major fail
Outcome/Criteria
apply core micro and
[macro]economics Strong grasp of how the Reasonable application, Weak application. Little There is a dislocation No theory to speak of
Theory is applied in an
concepts, principles and theory is appropriate as but errors are made, and reference is made to between theory and applied to the case.
original and sophisticated
tools to the analysis of well as where it fails to limitations are not theory with the case at case. Possibly irrelevant Irrelevant material to the
way
economic problems reflect the world explored hand material to the module. module used
(common)
Examine the impact of Strong grasp of how the Reasonable application, Weak application. Little There is a dislocation No theory to speak of
Theory is applied in an
markets on the wellbeing theory is appropriate as but errors are made, and reference is made to between theory and applied to the case.
of firms and industries original and sophisticated
well as where it fails to limitations are not theory with the case at case. Possibly irrelevant Irrelevant material to the
way
reflect the world explored hand material to the module. module used
write well-structured Solid well ordered case
Relevant commentary, Some evidence of
Economic arguments put forward but with Limitations in knowledge,
Very strong case with a showing a solid but structure, but it is likely
some limitations in depth, precision, clarity, Haphazard
persuasive style limited engagement with to be muddled or
knowledge, depth, or style
the subject unclear.
precision, clarity, or style
quantitatively and visually Weak framing. Little There is a dislocation
Strong grasp of how the Reasonable framing, but
frame economic concepts Framing is original and reference is made to between frame and case.
(common) diagram or coefficients errors are made, No Framing to speak of
sophisticated theory diagrammatically Possibly irrelevant
are used quantitatively or visually
or quantitatively material to the module.
apply economic reasoning Theory is applied in an Strong grasp of how the Reasonable application, Weak application. Little There is a dislocation No theory to speak of
to economics policy issues original and sophisticated theory is appropriate as but errors are made, and reference is made to between theory and applied to the case.
in a way that promotes way well as where it fails to limitations are not theory with the case at case. Possibly irrelevant Irrelevant material to the
socially desirable reflect the world explored hand material to the module. module used
outcomes (common)

40
Lincoln International Business School
University of Lincoln Tel: +44 (0)1522 886644
Brayford Wharf East Fax: +44 (0)1522 886974
Lincoln, LN6 7TS Email: [email protected]

41