PROGRAM RECOGNITION OF PRIOR LEARNING

ASSOCIATED CERTIFIED PUBLIC ACCOUNTANT OF INDONESIA

Materi :
PENGANTAR EKONOMI MAKRO DAN MIKRO
(PEMM)

Oleh:
Muhammad Halley Yudhistira, Ph.D.

Senin, 23 Oktober 2023

(melalui Daring Via Zoom)
 PENGANTAR
EKONOMI MIKRO
ECONOMICS PROBLEM AND DEFINITION

It has become a truism that Thus, society cannot produce

society resources is limited anything what they have wished

We often called this

situation as scarcity

Which brings us to the definition of the economics:

Economics is the study of how society manages its scarce resource to

optimize welfare
10 PRINCIPLES OF ECONOMICS

1. People Face Trade-Offs

In To get something that we like, we usually have to give up something else that we also
like. Making decisions requires trading off one goal against another.
Equality Efficiency
the property of society getting the VS the property of distributing
most it can from its scarce economic prosperity efficiently
resources equally among the members of society

The concept of trade-off is kind of similar with the concept above, we must choose a choice
because we can’t choose everything once at the same time (because we have limited resource)
10 PRINCIPLES OF ECONOMICS

2. The Cost of Something is what to give up to get it

Because people face trade-offs, making decisions requires comparing the costs and
benefits of alternative courses of action.
Opportunity Cost: The cost of whatever we have to give up to obtain something. When
making any decision, decision makers should take into account the opportunity costs of
each possible action. In fact, they usually do.
3. The Cost of Something is what to give up to get it
Economists use the term marginal change to describe a small incremental adjustment
to an existing plan of action. Rational people make decisions by comparing marginal
benefits and marginal costs.
10 PRINCIPLES OF ECONOMICS

4. People Respond to Incentives

Incentives: Something that induces a person to act (can be money or easing policy)
Incentives play a central role in the study of economics because rational people make
decisions by comparing costs and benefits and they respond to incentives.

5. Trade can make everyone better off

Trade can benefit anyone because it could provide the better quality of products or
services through specialization.
In society more specialization means more variety of goods and services could be
provided (better off).
This also applies to international trade, respective country could benefit from
specialization through better quality and relatively cheap from abroad.
10 PRINCIPLES OF ECONOMICS

6. Market are usually a good way to organize economics activity

Market are usually regulated themselves to the efficient point, we often called it market
mechanism. (trough supply and demand equilibrium)

7. Government can sometimes improve market outcomes

Promote efficiency by avoiding market failures caused by Externalities and Market
Power
Promote equality through government poverty reduction program and Usage of tax
and subsidy to change how the economy “pie” divided
10 PRINCIPLES OF ECONOMICS

Country standard living depends on ability to produce goods

8.
and services
The country ability to produce goods and service is the determinant of country standard
living.
More goods and services means more productivity (per capita)
Productivity is determined by equipment, skills, and technology
10 PRINCIPLES OF ECONOMICS

9. Price rise when the government prints too much money

The value of money is determined by money market mechanism (supply and demand).
Print to much money leads to decrease the value of money and people respond this
depreciation by increasing price.
10. Society faces a short-run trade off between inflation and unemployment

Increasing the amount of money in the economy stimulates the overall level of
spending and thus the demand for goods and services.
Higher demand may over time cause firms to raise their prices, but in the meantime, it
also encourages them to hire more workers and produce a larger quantity of goods
and services.
More hiring workers means lower unemployment.
 DEFINITION & BRANCHES
OF ECONOMICS
Branches of Economics

Microeconomics Macroeconomics

Definition Microeconomics is the study of decisions made Macroeconomics is a branch of economics

by people and businesses regarding the that studies how an overall economy—the
allocation of resources, and prices at which market or other systems that operate on a
they trade goods and services large scale—behaves.

- “Small Picture” of Study

Key Study Area - “Big Picture” at Dynamics of Economy
- Study of Individual Units
- Inflation
- Individual Decision Making (Consumer &
- Unemployment
Producer)
- Economics Growth
- Market.
Circular Flow Diagram
(Microeconomics)

Circular flow represent how the economy

works by showing the dynamics of money
flow.

Firms buy factor of production (labor) to

produce goods and services (money
outflow) and sell goods & services to the
household (money inflow)

Household sell factor of production to

firms (money inflow) and buy goods &
services from the firms (money outflow)
Market Mechanism: Demand

The Law of Demand :

Other things being equal, when the price of a good rises, the quantity demanded of the good falls,
and when the price falls, the quantity demanded rises. Demand also show the willingness to pay
of consumer on market.

Demand curve
a graph show of the negative
relationship between the
price of a good and the
quantity demanded
Market Mechanism: Demand

Movement Along the Demand Curve :

When the price of the good changes and
other things remain the same, the quantity
demanded changes and there is a movement
along the demand curve.
Market Mechanism: Demand

Shifting the Demand Curve :

When some influence on buying plans other than the
price of the good changes, there is a change in
demand for that good. The quantity of the good that
people plan to buy changes at each and every price, so
there is a new demand curve.
Factor that Influence Shifting of Market Demand
1. Price of Income (Shift, in Normal condition Positive
Relation, but in inferior condition negative relation)
2. Prices of Related Goods (Shift, Depends on
Substitute or Complement)
3. Tastes (Shift)
4. Expectations Price (Shift, Positive Relation)
5. Number of Buyers (Shift, Positive Relation)
Market Mechanism: Supply

The Law of Supply:

Other things being equal, when the price of a good rises, the quantity supplied of the good increase,
and when the price falls, the quantity supplied decrease. Supply also show the willingness to sell of
producers on market.

Supply curve
a graph show of the positive
relationship between the
price of a good and the
quantity supplied
Market Mechanism: Supply

Movement Along the Supply Curve :

When the price of the good changes and
other things remain the same, the quantity
supplied changes and there is a movement
along the supply curve.
 Market Mechanism: Supply

Shifting the Supply Curve :

When some influence on selling plans other than the
price of the good changes, there is a change in supply
of that good. The quantity of the good that producers
plan to sell changes at each and every price, so there is
a new supply curve.

Factor that Influence Shifting of Market Supply

1. Input Price (Shift, Negative Relation)
2. Technology (Shift, Positive Relation)
3. Expectation Price (Shift, Negative Relation)
4. Number of Seller (Shift, Positive Relation)
 Market Equilibrium

➢ At the equilibrium price, the quantity of the good that

buyers are willing and able to buy exactly balances the
Pd = Ps Qd = Qs
quantity that sellers are willing and able to sell.

➢ The equilibrium price is sometimes called the market-

clearing price

➢ When the market price is not at equilibrium, Two

condition will happen :

1) Shortage is a condition that consumers are unable to

buy all they want at the going price (P< P*)
2) Surplus is a condition that producers are unable to sell
all they want at the going price (P>P*)
Change in Market Equilibrium

Changes in Demand Curve

Trivia Question:
What Happened to the Price &
Quantity of Coffee if:
a. Price of Tea (a substitution of
coffee) increase?
b. Price of Sugar (a complement
of coffee) increase?
Change in Market Equilibrium

Changes in Supply Curve

Trivia Question:
What Happened to the Price &
Quantity of Coffee if:
a. Technological process of
making coffee more
easier?
b. Farmers are failed to
harvest due to flooding?
Change in Market Equilibrium

Changes in Both Demand & Supply Curve

Trivia Question:
What Happened to the Price &
Quantity of Coffee if:
a. Technological process of
making coffee more easier
and price of tea increase?
b. Farmers are failed to
harvest due to flooding
and price of tea decrease?
Change in Market Equilibrium

Changes in Both Demand & Supply Curve

Trivia Question:
What Happened to the Price &
Quantity of Coffee if:
a. Farmers are failed to harvest
due to flooding and price of
tea increase?
b. Technological process of
making coffee more easier
and price of tea decrease?
 Change in Market Equilibrium
Tax Policy
Tax on Sellers Tax on Buyers
Supply decreases Demand decreases
Change in Market Equilibrium
Tax Policy

When Government Imposes Tax

Market fail to allocate efficient output → Dead Weight Loss
Floor Price & Ceiling Price Policy

➢ Ceiling Price is a a legal maximum on the ➢ Floor Price is a legal minimum on the
price at which a good can be sold price at which a good can be sold
➢ When the government imposes a binding ➢ When the government imposes a binding
price ceiling on a competitive market, a price Floor on a competitive market, a
shortage of the good arises. surplus of the good arises.
 Elasticity

➢ Elasticity measures how much one variable responds to changes in another

variable.
➢ In this section, elasticity is a numerical measure of the responsiveness of 𝑸𝒅
or 𝑸𝑺 to one of its determinants.

Price Elasticity of demand

%∆𝑄𝑑 ∆𝑄𝑑 𝑃0
𝐸𝑑 = 𝐸𝑑 = ×
%∆𝑃 ∆𝑃 𝑄𝑑0
Price Elasticity of Demand

➢ If the percentage change in the quantity demanded is smaller than the percentage change
in price (%∆𝑸 < %∆𝑷) ,the price elasticity of demand is less than 1 𝑬𝒅 < 𝟏 and the
good has inelastic demand.
➢ If the percentage change in the quantity demanded is greater than the percentage change
in price (%∆𝑸 > %∆𝑷) , the price elasticity of demand is greater than 1 𝑬𝒅 > 𝟏 and
the good has elastic demand.

23%

-55%
Price Elasticity of Demand

➢ If the percentage change in the quantity ➢ If the quantity demanded do not ➢ If the price do not change,
demanded equals the percentage change, percentage change in the percentage change in the price
quantity demanded equals to zero, equals to zero, the price elasticity
change in price, the price elasticity of the price elasticity of demand of demand equals to infinite
demand equals 1 𝑬𝒅 = 𝟏 and the equals 0 (𝑬𝒅 = 𝟎) and the good 𝑬𝒅 = ∞ and the good has
good has unit elastic demand. has perfectly inelastic demand perfectly elastic demand curve.
curve. The demand curve is The demand curve is horizontal.
vertical.
Price Elasticity of Demand
There are some factors that influences the price elasticity of demand.
1. Availability of Close Substitutes
A good with close substitutes tends to have more elastic demand because it is easier for consumers to
switch from that good to others.

2. Necessities vs Luxuries
Necessities tend to have inelastic demands, whereas luxuries have elastic demands.

3. Definition of Market
Narrowly defined markets tend to have more elastic demand than broadly defined markets because it
is easier to find close substitutes for narrowly defined goods.

4. Proportion of Income Spent on the Good

The greater the proportion of income spent on a good, the more elastic demand.

5. Time Horizon
Goods tend to have more elastic demand over longer time horizons.
Total Revenue & Price Elasticity
of Demand

➢ The total revenue from the sale of a good or service equals the price of the good
multiplied by the quantity sold.
➢ when the price changes, total revenue also changes.
➢ But a rise in price doesn’t always increase total revenue.

❑ If demand is elastic, a 1 percent price cut increases the quantity sold by more than 1
percent, and total revenue increases.
❑ If demand is inelastic, a 1 percent price cut increases the quantity sold by less than 1
percent, and total revenues decreases.
Cross Price Elasticity of Demand

➢ A measure of how much the quantity demanded of one good responds to a change
in the price of the another good.
%∆𝑄𝑑𝐴 ∆𝑄𝑑𝐴 𝑃0𝐵
𝐸𝑐 = 𝐸𝑐 = 𝐵
× 𝐴
%∆𝑃𝐵 ∆𝑃 𝑄𝑑0

The cross-price elasticity of demand for

a substitute is positive (𝑬𝒄 > 𝟎).
a complement is negative (𝑬𝒄 < 𝟎).
Income Price Elasticity of Demand

➢ A measure of how much the quantity demanded of one good responds to a change
in the income of a consumers.
%∆𝑄𝑑 ∆𝑄𝑑 𝐼0
𝐸𝐼 = 𝐸𝐼 = ×
%∆𝐼 ∆𝐼 𝑄𝑑0
• If the income elasticity of demand is positive, the
good is a normal good. (𝑬𝑰 > 𝟎)
• If the income elasticity of demand is negative, the
good is an inferior good. (𝑬𝑰 < 𝟎)
Price Elasticity of Supply

➢ If the percentage change in the quantity supplied is smaller than the

percentage change in price (%∆𝑸 < %∆𝑷) ,the price elasticity of supply is
less than 1 𝑬𝒔 < 𝟏 and the good has inelastic supply.
➢ If the percentage change in the quantity supplied is greater than the
percentage change in price (%∆𝑸 > %∆𝑷) , the price elasticity of supply is
greater than 1 𝑬𝒔 > 𝟏 and the good has elastic supply.
%∆𝑄𝑠
𝐸𝑠 =
%∆𝑃

∆𝑄𝑠 𝑃0
𝐸𝑠 = ×
∆𝑃 𝑄𝑠0
Price Elasticity of Supply

➢ Supply is perfectly inelastic if the supply curve is vertical and the price elasticity of supply
is 0 𝑬𝒔 = 𝟎 .
➢ Supply is unit elastic if the price elasticity of supply is 1. 𝑬𝒔 = 𝟏 .
➢ Supply is perfectly elastic if the supply curve is horizontal and the elasticity of supply is
infinite. 𝑬𝒔 = ∞ .
 Market Structure

Perfect Competition Market Monopolistic Competition Market

A Market with many buyers and sellers that are well

A Market with many buyers and sellers. In this market,
informed about prices. In this market, identical products
differentiated products are traded and firms have small
(homogenous products) are traded. Firms have no market
market power but can freely enter or exit (small barriers).
power and freely enter or exit the market (no barriers).

Oligopoly Market Monopoly Market

A Market with only several sellers. Each sellers have

A Market with only single sellers that selling an unique
interdependence relation and selling homogenous or
products (no close substitutions for this products). Firms
identical products (homogenous products). Firms have
have a perfect market power and new firms highly difficult
market power and new firms are relatively difficult to enter
to enter the market (due to a high barriers).
the market (due to a relative high barriers).
Comparing Each Market Structure
Market Structure
No Characteristics
Perfect Competition Monopolistic Competition Oligopoly Monopoly
1 Number of Firms Many Many Small Numbers Single
Differentiated or Unique
2 Types of Product Homogenous Differentiated
Homogenous (No Close Substitution)
Ability of Firms to Set
3 No Yes, but relatively small Yes Yes
The Price
Barriers to entry the
4 No Small Barriers relatively High Very High
market
Economic Profit Economic Profit Economic Profit Economic Profit
Short Run Equlibrium
5 Zero Economic Profit Zero Economic Profit Zero Economic Profit Zero Economic Profit
Condition
Economic Loss Economic Loss Economic Loss Economic Loss
Long Run Equilibrium
6 Zero Economic Profits Zero Economic Profits Economic Profits Economic Profits
Condition
Relative High (Advertising, No, but can applied Price
7 Non Price Competition No Game Theory
Services) Discrimination
Excess Capacity and Mark Up
8 Efficiency Very Efficient Not Efficient Not Efficient
Price
Electricity Market
9 Example Rice Market Clotching Market Airplane Market
(Ind: PLN)
 PENGANTAR
EKONOMI MAKRO
 RECALL
10 PRINCIPLES OF ECONOMICS

Country standard living depends on ability to produce goods

8.
and services
The country ability to produce goods and service is the determinant of country standard
living.
More goods and services means more productivity (per capita)
Productivity is determined by equipment, skills, and technology
 RECALL
10 PRINCIPLES OF ECONOMICS

9. Price rise when the government prints too much money

The value of money is determined by money market mechanism (supply and demand).
Print to much money leads to decrease the value of money and people respond this
depreciation by increasing price.
10. Society faces a short-run trade off between inflation and unemployment

Increasing the amount of money in the economy stimulates the overall level of
spending and thus the demand for goods and services.
Higher demand may over time cause firms to raise their prices, but in the meantime, it
also encourages them to hire more workers and produce a larger quantity of goods
and services.
More hiring workers means lower unemployment.
RECALL:
DEFINITION & BRANCHES OF ECONOMICS

Branches of Economics

Microeconomics Macroeconomics

Definition Microeconomics is the study of decisions made Macroeconomics is a branch of economics

by people and businesses regarding the that studies how an overall economy—the
allocation of resources, and prices at which market or other systems that operate on a
they trade goods and services large scale—behaves.

- “Small Picture” of Study

Key Study Area - “Big Picture” at Dynamics of Economy
- Study of Individual Units
- Inflation
- Individual Decision Making (Consumer &
- Unemployment
Producer)
- Economics Growth
- Market.
Basic Macroeconomics
& Circular Flow Diagram
Macroeconomics: The study of economywide phenomena: inflation, unemployment, and economic growth
Gross Domestic Product
Gross domestic product (GDP) is the market value of all final goods and services produced
within a country in a given period of time.

How to Calculate GDP?

1. Production Approach
Y = σ(𝑃 × 𝑄)
𝑃 = Price
𝑄 = quantity final output produced
The value of the final goods already includes the value of the
intermediate goods, so including intermediate and final goods
in GDP would be double-counting.

𝐘 = σ 𝒗𝒂𝒍𝒖𝒆 𝒂𝒅𝒅𝒆𝒅 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏

𝐘 = σ(𝒐𝒖𝒕𝒑𝒖𝒕 𝒗𝒂𝒍𝒖𝒆 − 𝒊𝒏𝒑𝒖𝒕 𝒗𝒂𝒍𝒖𝒆)
Gross Domestic Product

How to Calculate GDP?

2. Income Approach
The income approach measures GDP (𝒀) by summing the incomes that firms pay households for the
factors of production they hire—wages for labor (𝒘), interest for capital (𝒊), rent for land (𝒓), and
profit (𝝅) for entrepreneurship
𝒀 = 𝒓 + 𝒊 + 𝝅 + 𝒘

3. Expenditure Approach
The expenditure approach measures GDP as the sum of expenditure from each agents in the Economy. It
includes Household consumption expenditure (𝑪), investment (𝑰), government expenditure on goods and
services (𝑮), and net exports (𝑵𝑿).
𝒀 = 𝑪 + 𝑰 + 𝑮 + (𝑿 – 𝑴)
𝒀 = 𝑪 + 𝑰 + 𝑮 + 𝑵𝑿
Other Measures
of National Income: GNP

Gross National Product (GNP):

Total income earned by the nation’s factors of production, regardless of where located.

Gross Domestic Product (GDP):

Total income earned by domestically-located factors of production, regardless of nationality.

(GNP – GDP) = (factor payments from abroad) – (factor payments to abroad)

 Real vs Nominal GDP

Nominal GDP: the production of goods and

services valued at current prices

Real GDP: the production of goods and

services valued at constant prices

GDP Deflator: a measure of the price level

calculated as the ratio of nominal GDP to
real GDP times 100
 Is GDP a Good Measure of Economic Well Being?

Real GDP measures the value of goods and services that are bought in markets. Some of the
factors that influence the standard of living and that are not part of GDP are
▪ Non-market activity, such as the child care a parent provides at home
▪ Underground economic activity
▪ Leisure time
▪ Environmental quality
▪ An equitable distribution of income
 Cost of Living:
Consumer Price Index

σ(𝑃𝑡 × 𝑄𝑡 )
𝐶𝑃𝐼𝑡 = × 100
σ(𝑃0 × 𝑄0 )

CPI could be use to measure the inflation rate

over the year

𝐶𝑃𝐼𝑡 − 𝐶𝑃𝐼𝑡−1
𝑖𝑛𝑓𝑡 = × 100
𝐶𝑃𝐼𝑡−1
Correcting Variables for Inflation

Inflation makes it harder to compare dollar amounts from

different times.
For example: The minimum wage is $200 in 2008 and $250 in
2018.
Did the purchasing power in 2018 higher than 2008?
min wage have more purchasing power in Dec 1963 or Dec 2013?
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒𝑡
𝑅𝑒𝑎𝑙 𝑉𝑎𝑙𝑢𝑒𝑡 = × 𝐶𝑃𝐼𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
We need find the CPI in 2008 and 2018 to compare the 𝐶𝑃𝐼𝑡
Purchasing power.
Suppose CPI 2008 = 100, and CPI 2018 = 150.

Purchasing Power (Real Income) in 2008

$200 Purchasing
× 100 = $200 Power in 2018 is
100
lower than in
Purchasing Power (Real Income) in 2018 2008
$250
× 100 = $𝟏𝟔𝟔, 𝟔𝟕
150
Correcting Variables for Inflation

Another Example: Interest rate

The nominal interest rate → the interest rate not corrected for inflation. It reflects the rate of growth in the
dollar value of a deposit or debt
•The real interest rate → the interest rate is corrected for inflation. It reflects the rate of growth in the
purchasing power of a deposit or debt

𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒𝑡 = 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒𝑡 − 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒𝑡

Example: Suppose Nominal Interest rate in 2020 is 4,5% and the inflation rate is 2,5%. How much the real
interest rate value?

𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒2020 = 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒2020 − 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑟𝑎𝑡𝑒2020

𝑅𝑒𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒2020 = 4,5% − 2,5%
𝑹𝒆𝒂𝒍 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒓𝒂𝒕𝒆𝟐𝟎𝟐𝟎 = 𝟐%
 Economic Growth

• A sustained expansion of production possibilities • Growth rate tells us how rapidly the total
measured as the increase in real GDP over a economy is expanding but does not tell us
given period. about changes in the standard of living.
Living standards measured by real GDP per
person.
Computing Economic growth rate

Economic Growth =
 Productivity:
Its Role and Determinants

How Productivity is Determined?

Why Productivity is so important?

➢

➢
Determinant of Productivity

Physical Capital per worker (K/L) Human Capital per Worker (H/L)

The stock of equipment and structures that The economist’s term for the knowledge
are used to produce goods and services.
and skills that workers acquire through
education, training, and experience.

Natural Resources per Worker (N/L) Technological Knowledge (A)

The inputs into production that nature Society’s understanding of the best ways
provides, such as land, sea, rivers, and to produce goods & services
mineral deposits
Economic Growth & Public Policy

Government policies that raise productivity and living standards:

❖Encourage saving and investment.
❖Encourage investment from abroad.
❖Encourage education and training.
❖Establish secure property rights and maintain political stability.
❖Promote free trade.
❖Promote research and development.
❖Population Growth
Economic Growth & Public Policy

1. Raise Saving and Investment

• Increase K → require investment → reduce Consumption → Increase Saving → Production of investment goods
• K rises → productivity and living standards rise → diminishing return to capital
Diminishing Returns
If a government implements a policy that can increase the savings rate,
the capital stock will accumulate. As the capital stock increases, the
additional output of each capital will decrease.
In the long run, the higher saving rate leads to a higher level of
productivity and income but not to higher growth in these variables.
Catch-up Effect
As a result of diminishing returns, an initially poor country will find it
easier and faster to grow. The impact on this initial condition is known
as the catch-up effect
Economic Growth & Public Policy

2. Investment from Abroad

Investment from abroad takes several forms:
• Foreign Direct Investment: Capital investment owned and operated by a foreign entity
• Foreign Portfolio Investment: Investments financed with foreign money but operated by domestic residents
❑ Encourage FDI & FPI → raise K/L → raise productivity, wages, and living standard

3. Education
One way the government can enhance the standard of living is to provide schools and encourage the population to take
advantage of them.
❑ Promote education → Investment in human capitals (H)
❑ Education has positive externalities: higher human capital → more productive economy.

4. Health and Nutrition

• Healthier workers tend to be more productive
• The right investments in the health of the population provide one way for a nation to increase productivity and raise living
standards.
❑ More health care expenditure → investment in human capital → healthier workers → more productive
Economic Growth & Public Policy

5. Property Rights and Political Stability

• Property rights refer to the ability of people to exercise authority over the resources they own
❑ Stabilize politics → certainty in protection of property rights (the ability of people to exercise authority over the resources
they own) → more incentives to invest & do economic activity efficiently → higher living standard

6. Free Trade
• A country that eliminates trade restrictions will experience the same kind of economic growth that would occur after a
major technological advance.
• Inward-oriented: Raising living standards by avoiding interaction with other countries, ex. tariffs, quota, etc.
• Outward-oriented: Promoting integration with the world economy, ex: free trade
❑ Has similar effects as discovering new technologies → improves productivity and standards of living

7. Research and Development

• The advance of technological knowledge has led to higher standards of living.
• Government can encourage the development of new technologies through research grants, tax breaks, and the patent
system.
❑ Investment in R&D → Technological progress → Rising standards of living in the long run
Economic Growth & Public Policy

8. Population Growth
Population growth interacts with other factors of production:
❑ Stretching natural resources
❑ Diluting the capital stock
Bigger population → higher L → lower K/L → lower
productivity & living standards
❑ Promoting technological progress
More people → more scientists, inventors, etc. → more
discoveries → faster technological progress & economic
growth
 Financial System

Y = Output / Income
C = Consumption
Recall that The formula to calculate GDP is:
I = Investment
𝑌 = 𝐶 + 𝐼 + 𝐺 + (𝑋 − 𝑀) G = Government Expenditure
X = Export
M = Import
GDP merupakan total pendapatan dan total pengeluaran dalam suatu negara.

Note
1. Asumsi perekonomian adalah perekonomian tertutup (closed economy), sehingga akan
menghilangkan variabel net export (X-M) dari persamaan GDP.
2. Term ‘investment’ dalam pengantar ekonomi tidak sama dengan bentuk-bentuk investasi
yang populer. Investasi dalam makroekonomi adalah pembelian asset tetap / barang –
barang modal
EMPLOYMENT

• Employed: paid employees, self-employed, and

unpaid workers in a family business

• Unemployed: people not working who have looked for

work during previous 4 weeks

• Not in the labor force: everyone else, such as full-time

students, homemakers, and retirees

•The labor force is the total # of workers, including the

employed and unemployed.
EMPLOYMENT
EMPLOYMENT

Notes:
• Unemployment rate bisa tidak akurat apabila ada discouraged workers (putus asa tidak dapat pekerjaan,
tidak lagi mencari)
• Labor force participation rate = meskipun tingkat pengangguran rendah dilihat
discouraged worker terlibat dahulu, kalau TPAK turun artinya discourage workernya naik
EMPLOYMENT

Adult population of the U.S.

by group, June 2016

# of employed 151.1 million

# of unemployed 7.8 million

not in labor force 94.5 million

Labor force = employed + unemployed = 151.1 + 7.8 = 158.9 million

U-rate = (unemployed)/(labor force) x 100% = 7.8/158.9 x 100% = 4.9%
Population = labor force + not in labor force = 158.9 + 94.5 = 253.4 million
LF partic. Rate = (labor force)/(population) x 100% = 158.9/253.4 x 100% = 62.7%
UNEMPLOYMENT

Selalu ada pengangguran, meskipun u-rate

berfluktuasi dari tahun ke tahun.

Natural rate of unemployment

Normal rate of unemployment around which

the actual unemployment rate fluctuates

Cyclical unemployment

-Deviation of unemployment from its

natural rate
-Associated with business cycles, which
we’ll study in later chapters
 UNEMPLOYMENT

Bahkan saat perekonomian sedang baik, akan selalu ada pengangguran, meliputi:
Pengangguran friksional (transisi)
a. Terjadi saat pekerja menghabiskan waktu untuk mencari pekerjaan yang paling sesuai dengan
keterampilan dan seleranya.
b. Dalam jangka pendek untuk kebanyakan pekerja.

Pengangguran struktural

a. Terjadi saat terdapat sedikit pekerjaan daripada pekerjanya (Demand > Supply)
b. Biasanya dalam jangka panjang
MINIMUM WAGE POLICY

a. Upah minimum dapat melebihi upah keseimbangan untuk least skilled or experienced workers.
b. Meskipun least skilled or experienced workers adalah bagian kecil dari angkatan kerja, upah
minimum dapat menyebabkan pengangguran struktural.
 MONEY

Money is the set of assets in an economy that people regularly use to buy goods and services
from other people.

1. Medium of Exchange
an item that buyers give to sellers when they want to purchase goods and services. Money
acts as a medium of exchange because people with something to sell will always accept
money in exchange for it
2. Unit of Account
the yardstick people use to post prices and record debts. Money acts as unit of account
because the value of a goods and services are easily known if expressed in terms of money.
3. Store of Value
an item that people can use to transfer purchasing power from the present to the future.

Economists use the term liquidity to describe the ease with which an asset can be converted into the
economy’s medium of exchange. Because money is the economy’s medium of exchange, it is the most liquid
asset available.
 MONEY

Fiat Money
Commodity Money
money without intrinsic value that
money that takes the form of a
is used as money by government
commodity with intrinsic value.
Decree.
Ex. Gold, Cloves, etc.
Ex. Rupiah, Dollar, etc.

Intrinsic value : that the item would have value even if it were not used as money
 MONEY

The quantity of money available in the economy.

There are 2 assets that should be considered as a part of the money supply:
1. Currency: the paper bills and coins in the hands of the (non-bank) public

2. Demand Deposits: balances in bank accounts that depositors can acces on

demand by writing a check
 MONEY

1. M1 (Uang Beredar dalam Arti Sempit)

➢ Kewajiban sistem moneter terhadap sektor swasta domestik yang terdiri atas uang kartal dan uang giral
M1 = Uang Kartal/Currency (C) + Uang Giral / Demand Deposit (D)

2. M2 (Uang Beredar dalam Arti Luas)

➢ Kewajiban sistem moneter terhadap sektor swasta domestic yang terdiri atas uang kartal, uang giral, dan
uang kuasi
M2 = Uang Kartal (C) + Uang Giral (D) + Uang Kuasi (T)
Uang Kuasi (T) = Uang yang disimpan dalam rekening tabungan (saving deposit) dan deposito berjangka (time
deposit)
Source: Modul Kebanksentralan Bank Indonesia (https://www.bi.go.id/id/bi-institute/policy-mix/Documents/Uang_BINS.pdf)
 MONEY MARKET

• Kurva permintaan akan uang dipengaruhi oleh tingkat

suku bunga. Kurva ini berbentuk downward sloping.
• Suku bunga (interest rate) → opportunity cost of
holding money.
• Reasons why people holds money (J.M. Keynes):
1. Transaction
2. Speculative
3. Precautionary

Shifting:
❖ Real GDP (+)
❖ Financial innovation (depends,
generally +)
❖ Inflation (+)
MONEY MARKET
The Quantity Theory of Money

A theory that explains how the price level is determined and

why it might change over time.
The quantity theory of money available in the economy
determines the value of money, and the primary cause of
inflation is the growth in the quantity of money
 The Quantity Theory of Money

Price level rises → the value of money falls.

The speed at which the typical dollar bill

Where: V = Velocity travels around the economy from wallet to
wallet.
P = Price level
Y = The quantity of output
M = The quantity of money supply
APPENDIX
Financial System & Market
Financial System & Market

Pasar saham Obligasi negara (SBR009)

 The Flow of Goods: Export, Import, and Net Export
Net Export (NX) = Value of a country’s export (X) - Value of a country’s import (M). Recall that GDP
In trading goods, economies interact in the output market. Y = C + I + G + NX

Trade Balance
Trade Surplus Trade Deficit Balanced Trade
Occurs when Occurs when
Occurs when
Export > Import Export < Import
Export = Import
And thus have a positive net And thus have a negative net
And net export equals zero.
export. export.

Factors that influence import, export, and net exports:

1. consumer taste for goods and services
2. the prices of goods at home and abroad
3. the exchange rate people use to buy foreign currency
4. the incomes at home and abroad
5. the cost of transport
6. government policies.
 The Flow of Capital: Net Capital Outflow
Net Capital Outflow (NCO) = Purchase of foreign asset by domestic residents (Capital Outflow) - Purchase of domestic assets by
foreigners (Capital Inflow). Net Capital Outflow

Positive Forms Negative

Occurs when Occurs when
NCO
Purchase of foreign asset by Purchase of foreign asset by
domestic residence domestic residence
> <
Purchase of domestic assets by FDI FPI Purchase of domestic assets by
foreigners foreigners
Contoh: orang asing Contoh: orang asing
membuka pabrik di membeli saham
Indonesia. perusahaan Indonesia

Factors that influences NCO are:

1. real interest rate of foreign asset
2. real interest rate of domestic asset
3. economic and political risk of having assets abroad
4. government policies surrounding foreign ownership of domestic asset.
Exchange Rate
Nominal exchange rate is the rate at which a person trades one currency for another currency.

Foreign Currency In domestic Domestic Currency In foreign

currency (IDR) currency (USD) IDR Terapresiasi
USD/IDR IDR/USD USD Terdepresiasi
Selama satu bulan terakhir

In many textbook, we expressed the nominal exchange

rate as units of foreign currency per domestic currency

Apresiasi Revaluasi
Penguatan nilai dari suatu mata uang karena Penguatan nilai dari suatu mata uang karena intervensi
mekanisme pasar valuta asing, dihitung dengan jumlah bank sentral/pemerintah, dihitung dengan jumlah mata
mata uang lain yang bisa dibeli. uang lain yang bisa dibeli.

Depresiasi Devaluasi
Pelemahan nilai dari suatu mata uang karena Pelemahan nilai dari suatu mata uang karena intervensi
mekanisme pasar valuta asing, dihitung dengan jumlah bank sentral/pemerintah, dihitung dengan jumlah mata
mata uang lain yang bisa dibeli. uang lain yang bisa dibeli.
Exchange Rate
rate at which a person can trade the goods and services of one country for the goods and services of another.

Understanding Real Exchange Rate (RER) is important

because it is the key determinant of how much a country
imports/exports.

Example

Harga beras di Indonesia = Rp 12.000 / kg Apresiasi

Harga beras di AS = $5 / Kg
Nominal exchange rate = 1$/Rp15.000 Apresiasi dalam Indo RER berarti barang Indo akan semakin
Dengan base currency IDR (Rp), Maka, mahal → Mengurangi konsumsi dari barang Indo dan
$1 meningkatkan konsumsi barang negara lain → Ekspor Indo turun
(𝑅𝑝15.000)×𝑅𝑝12.000/𝑘𝑔_𝑏𝑒𝑟𝑎𝑠_𝐼𝑛𝑑𝑜 dan impor Indo naik → NX dari Indo akan menurun.
𝑅𝐸𝑅 =
$5/𝑘𝑔_𝑏𝑒𝑟𝑎𝑠_𝐴𝑆 Depresiasi
RER = 0,16 kg beras AS/beras Indo
Depresiasi dari Indo RER berarti barang Indo akan semakin
1 kg beras di Indonesia setara dengan 0,16 kg beras di AS. murah → Meningkatan konsumsi dari barang Indo dan
mengurangi konsumsi barang negara lain → Ekspor Indo naik dan
RER measures the price of a basket of goods & service available domestically Impor impor turun → NX dari Indo akan meningkat.
relative to a basket of goods and services available abroad.
 Purchasing Power Parity
a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

Basic Logic
“ a good must sell for the same price in all locations.” – The law of one price
Jika terdapat perbedaan harga, maka akan terjadi arbitrage. Artinya, kita dapat beli barang di tempat lain dengan harga yang lebih
murah, lalu menjual di tempat lain dengan harga yang lebih mahal.

Ex: Jika harga 1 kg kopi dengan kualitas sama lebih murah di US dibandingkan di Indonesia, maka akan ada kelompok masyarakat yang
membeli kopi di Meksiko dan Menjualnya di Indonesia. Sehingga:
1. Permintaan kopi di US naik → Harga kopi US naik
2. Penawaran kopi di Indonesia naik → Harga kopi Indo turun

Sehingga, dengan konsep The Law of One Price, untuk setiap 1 rupiah dapat membeli kopi dengan jumlah yang sama di seluruh negara.

Implication
Jika harga 1 kg kopi di US = $10, dan harga 1 kg kopi di Indonesia = Rp100.000 dengan asumsi berlaku the law of one price, maka nilai
tukar nominal (nominal exchange rate) akan bernilai ($1/Rp10.000)
 Savings

Proporsi dari pendapatan (Y) seseorang yang tidak digunakan untuk konsumsi (C) dan
Private Saving
pembayaran pajak (T)
Y-C-T
Public Saving Penerimaan sebuah negara adalah pajak (T), dan pengeluaran sebuah negara adalah
pengeluaran pemerintah (G). Jarak antara keduanya adalah jumlah simpanan (savings)
T-G pemerintah.

National Saving Proporsi dari pendapatan nasional (Y) yang tidak digunakan untuk konsumsi (C) dan
belanja pemerintah (G)
Y-C-G
Note
1. Ketika T>G, maka pemerintah memiliki kelebihan dana dalam anggaran, dan dapat dikatakan bahwa
pemerintah mengalami surplus.
2. Ketikga T<G, maka pemerintah memiliki kekurangan dana dalam anggaran, dan dapat dikatakan bahwa
pemerintah mengalami defisit dan harus dibiayai dengan hutang.
Equality of Net Export and Net Capital Outflow
Persamaan identitas: Net Export = Net Capital Outflow

Recall…. Artinya, setiap transaksi yang mempengaruhi salah satu

Y = C + I + G + NX akan mempengaruhi yang lain.

Y - C - G = I + NX
While…. Implications
S = (Y - T - C) + (T - G)
1. Ketika sebuah negara memiliki surplus NX (NX > 0), maka NCO
S=Y–C-G pasti positif. Artinya, jumlah pembelian aset luar negeri lebih
besar dari pada orang asing beli aset domestik.
thus,
2. Ketika sebuah negara memiliki defisit NX (NX < 0), maka NCO
pasti negatif. Artinya, lebih banyak orang asing membeli aset
S = I + NX
domestik dibandingkan orang domestik membeli aset luar negeri.
NX = NCO

S = I + NCO
 Purchasing Power Parity

Recall….

Purchasing power in domestic

If purchasing power of the dollar is always the same at home and abroad, then the real exchange rate-the relative price of
domestic and foreign goods-cannot change.

the nominal exchange rate between the currencies of two countries must reflect the relative price levels in those countries. Then,
nominal exchange rates change when price levels change.

When the central bank prints large quantities of money, that money loses value both in terms of the goods and services it can buy
and in terms of the amount of other currencies it can buy
The Inflation Tax

When the government raises revenue by printing money, it is said to levy an

inflation tax ― the price level rises, and the dollars
in your wallet become less valuable. It likes a normal tax on everyone who holds
money

The Fisher Equation

A one-to-one adjustment of nominal interest rate to the inflation rate. According to
Fisher effect, when the rate of inflation rises, the nominal interest rate rises by the
same amount but real interest rate remains the same

𝒓=𝒊−𝝅
Multiplier Effect

An increase in government purchases of $20 billion can shift the aggregate-demand curve to the right by
more than $20 billion. This multiplier effect arises because increases in aggregate income stimulate
additional spending by consumers.
 Crowding Out Effect

While an increase in government purchases stimulates the aggregate demand for goods and services, it also
causes the interest rate to rise, reducing investment spending and putting downward pressure on aggregate
demand.
The Phillips Curve
The Phillips Curve

❖In the long run, faster money growth only causes faster inflation
❖There is a trade-off between inflation and unemployment in the short
run, but not in the long run
The Quantity Theory of Money

Rewriting the equation gives the quantity equation:

𝑀 × 𝑉 = 𝑃×𝑌
The quantity equation relates the quantity of money (M) to the nominal value of output (P x
Y). It shows that an increase in the quantity of money in an economy must be reflected in
one of three other variables:
• the price level must rise,
• the quantity of output must rise, or
• the velocity of money must fall
❑ The velocity of money is relatively stable over time and is considered constant
❑ Hence, when the central bank changes the quantity of money, it causes proportionate changes in the
nominal value of output (P x Y)
❑ Because money is neutral (money neutrality), money does not affect output → only the level of price/
inflation
90
Fluktuasi Ekonomi Jangka Pendek

Dalam jangka pendek, PDB berfluktuasi di sekitar trennya.

a.Resesi: periode penurunan pendapatan riil dan meningkatnya pengangguran

b.Depresi: resesi parah (sangat jarang)

Fluktuasi ekonomi jangka pendek sering disebut siklus bisnis.

 Aggregate Demand

Kurva AD menunjukkan kuantitas semua barang dan jasa yang diminta dalam perekonomian pada
tingkat harga berapa pun.
Mengapa kurva AD downward sloping?
The Wealth Effect The Interest-rate Effect The Exchange-rate Effect

➢ A lower price level

➢ A lower price level reduces the amount of ➢ A lower price level, reduces
raises the real value money that people want the interest rate, so
of money – part of to hold. Investors move their fund
household’s wealth. ➢ People try to lend out overseas.
➢ Then, stimulates their excess money, so ➢ Real value of domestic
interest rate falls currency falls (depreciates)
consumer spending
and Output. ➢ Then, stimulates ➢ Then, stimulates Net
Exports and Output.
Investment spending and
Output.
 Aggregate Demand

Perubahan pada 𝑪
a. Stock market boom/crash
b. Preferensi (tradeoff konsumsi/tabungan)
c. Kenaikan/pemotongan pajak
Perubahan pada 𝑰
a. Perusahaan membeli barang modal (asset tetap) baru.
b. Ekspektasi, optimisme/pesimisme
c. Suku bunga, kebijakan moneter
d. Investment tax credit atau insentif pajak lainnya
Perubahan pada 𝑮
a. Kebijakan Fiskal
Perubahan pada 𝑵𝑿
a.Boom/resesi di negara-negara yang membeli ekspor kita
b.Apresiasi/depesiasi yang dihasilkan dari spekulasi internasional di pasar valuta asing
 Aggregate Supply

Kurva AS menunjukkan kuantitas semua barang dan jasa yang diproduksi dan dijual oleh seluruh
(agregat) perusahaan dalam perekonomian pada tingkat harga berapapun.
Bentuk Kurva AS:
a. Jangka pendek: upward-sloping
b. Jangka panjang: vertikal
Mengapa LRAS vertikal ?
Besarnya output natural ditentukan oleh persediaan
tenaga kerja, barang modal, sumber daya alam, dan
tingkat teknologi/pengetahuan dalam suatu
perekonomian.
Sementara, peningkatan harga tidak memengaruhi
output natural.
Natural Rate of Output (GDP Natural) - 𝒀𝑵
jumlah output yang dihasilkan perekonomian ketika pengangguran berada pada
tingkat alami (Potential output atau full-employment output).
 Aggregate Supply

Perubahan pada L
Apa yang dapat membuat Kurva LRAS bergeser?
a. Imigrasi
b. Baby-boomers retire
c.Kebijakan pemerintah mengurangi tingkat bunga alami
Perubahan pada K atau H
a. Investasi di pabrik (peralatan)
b.Semakin banyak orang mendapatkan gelar sarjana
c. Pabrik dihancurkan oleh badai
Perubahan pada N
a. Penemuan deposit mineral baru
b. Pengurangan pasokan minyak impor
c.Mengubah pola cuaca yang memengaruhi produksi pertanian
Perubahan pada A
a. Peningkatan produktivitas dari kemajuan teknologi
Macroeconomy Equilibrium

Peristiwa: Stock Market Crash

a) Mempengaruhi C – kurva AD
b) C turun – menggeser AD ke kiri
c) Keseimbangan SR pada titik B – P dan Y lebih
rendah, pengangguran lebih tinggi
d) Seiring waktu, 𝑃𝐸 turun, SRAS bergeser ke kanan,
sampai keseimbangan LR pada titik C – Y dan
pengangguran kembali di tingkat initial.

The stock market crash reduces consumers’ wealth, which depresses their spending. The AD curve shifts to the left.

The new short-run equilibrium is at point B, where P and Y are lower, and hence unemployment is higher. (Remember Fact #3 about economic fluctuations: unemployment and
output move in opposite directions.)

At point B, P < PE. Over time, PE falls, wages fall, and sticky prices become flexible and fall. The SRAS curve moves rightward. This process continues until the economy arrives at point C,
where GDP and unemployment are back at their natural rates, and PE = P once again.

Notice that, in the absence of policy intervention, the economy “self-corrects.” Of course, this process takes time, and policymakers may not want to wait. At point B, policymakers could
use fiscal or monetary policy to shift aggregate demand to the right and move the economy back to A.
 Liquidity Preference

John Maynard Keynes proposed this theory to explain the factors that determine an economy’s interest rate
with money market (supply & demand) mechanism.

Money Supply
Supply of Money is controlled (fixed) by The Central Bank.
Then, Money Supply not depend on interest rate

Money Demand

The interest rate is the opportunity cost of holding money.

So, Higher interest rate will increase the opportunity cost of
holding money, and decrease the quantity of money demanded.
Money demand will shift if:
Price level changes → higher price level, increase money demand
Real income changes → higher real income, increase money
demand
 Monetary Policy
Suppose the Central bank apply easy money policy (expansionary monetary policy) by increasing the money
supply.
Impact: Decrease the interest rate and increase the quantity of money.
Because we assume that price level holds constant, increasing interest rate will reduces investment
spending and also reduce the output.
Aggregate Demand will shift to the right.
 Fiscal Policy

Fiscal policy refers to the government’s choices regarding the overall levels of government
purchases and taxes.

Expansionary Fiscal Policy → Increasing Government Spending or Lowering Taxes

Contractionary Fiscal Policy → Lowering Government Spending or Increasing Taxes

Two macroeconomic effects that cause the size of the shift in Aggregate Demand because of change
in Government Purchase: Multiplier Effect & Crowding Out Effect

Multiplier effect: the additional shifts in Aggregate Demand that result when fiscal policy increases
income and thereby increases consumer spending

Crowding-out effect: the offset in Aggregate Demand that results when expansionary fiscal policy
raises the interest rate and thereby reduces investment spending
 Relation between Inflation and Unemployment

SHORT-RUN
“In the short run, society faces a trade-off between inflation and unemployment”

LONG-RUN
In the long run, inflation & unemployment rate are unrelated
❖ Inflation rate depends mainly on growth in money supply
❖ Unemployment depends on the minimum wage, market power of unions, efficiency
wages, and the process of job search
THE PHILLIPS CURVE

(A) Low aggregate demand, low inflation, high u-rate

(B) High aggregate demand, high inflation, low u-rate
 THE PHILLIPS CURVE

Natural-rate hypothesis
Unemployment eventually returns to its normal or “natural” rate, regardless of the
inflation rate (based on the classical dichotomy and the vertical LRAS curve)

Explanation:

❖ Growth in the money supply determines the

inflation rate.
❖ Regardless of the inflation rate, the
unemployment rate gravitates toward its
natural rate.
❖ As a result, the long-run Phillips curve is
vertical
TERIMA KASIH