The conclusion of DKU ECON204 2020 spring intermediate macroeconomics

1. INTERMEDIATE
MACROECONOMICS
FINAL CONCLUSION OF ECON204
TE LAI

2. TE LAI
• Te Lai is a senior student in Duke Kunshan University
majoring in political economy. My major academic interests
are politics, political philosophy, and economics. I'd love to
talk to you about politics and financial markets.
• Te is good at using STATA for data collating and mapping.
He have managed the European patent data, which is a data
volume of ten million levels. In addition, he can use LaTeX
to make academic paper and PPT. What’s more,Te has
passed the FRM level 1 exam.
Email: tl243@duke.edu
WeChat: ajsbdnqm
Linkin: 赖特 | LinkedIn

3. DEDICATION AND ACKNOWLEDGMENT
• I‘d like to give my first thank to Professor Luyao. It is Professor Luyao who gives special
attention to me and help me learn more than I can learn only from course. It is her
humor and enthusiasm make this class wonderful and interesting.
• My second thank is for the founder of LQTY, Robert Lauko. It is my honor to listen to his
inspiring speech, about stable coin LQTY.
• Finally, I want to give thanks to my classmates and those who support me. Without them,
it would be hard to be successful in this course.

4. PROLOGUE:THE COURSE SCHEDULE

5. CONTENTS
• 1.Problem Set I: Macroeconomics Briefings
• 2.Problem Set II: Addressing Economic Growth: An Interdisciplinary Approach
• 3.Problem Set III: Simulate Rational Expectation Theory: Inflation and Interest Rate
• 4.Problem Set IV: Macroeconomics in Business Practice: a field trip to Liquity
• 5.Future Perspective: Decentralized Monetary Policy

6. ECON204 PROBLEM SET 1:
MACROECONOMICS BRIEFINGS
1. What is macroeconomics?
2. What are macro data?
3. What is a macro model?
4. Why study macroeconomics

7. WHAT IS MACROECONOMICS?
• Definition
• Macroeconomics is one kind of economics that uses macro statistics, such as
national income and employment rate to analyse the law of economy
• Example
• Macroeconomist studies what government can do to increase income, reduce
inflation and increase jobs.
• Macroeconomist does not study how individuals and companies make decisions.

8. WHAT ARE MACRO DATA?
• This is a map of the world with population data for 2019. We can see that Asia has
the largest population and there is a positive correlation between population and
country size.
Source: Population, total | Data (worldbank.org)

9. WHAT ISA MACRO MODEL?
• where i is the Saving andY is the
Consumption. In this case. Saving and
Consumption are endogenous variable.And
exogenous variables are GDP, economic
crisis, interest rate and income.
Exogenous Variables Effects on Saving Effects on Consumption
Growth in GDP Rises Rises
Economic crisis Rises Decreases
Increasing in interest rate Rises Decreases
Increasing in income Rises Rises

10. WHY STUDY MACROECONOMICS?
• Macroeconomics affects every aspect of our lives. GDP growth means that people
are making more money this year. The economic slowdown this year will make it
harder for college students to find jobs. In addition, learning macroeconomics
enables us to realize the correlation between different indicators. When we realize
that GDP is growing fast this year, we will know that investment and exports are
likely to grow fast this year. It would also give us a better sense of correlated risk
when investing.

11. PROBLEM SET II:ADDRESSING ECONOMIC
GROWTH:AN INTERDISCIPLINARY APPROACH
1.The importance of GDP per capita and its limitations
2.The convergence of Short-Term Economic Growth
3.The steady state per capita GDP
4.The drive for long-term economic growth
5.Inspirations and new views

12. THE IMPORTANCE OF GDP PER CAPITA AND ITS
LIMITATIONS
• GDP per capita is a means but not a result what we
want. However, it connected to many factors which
are more associated with our life, such as food
production, life expectation, health care, spare time
and happiness. As it is showed in the figure, higher
GDP per capita can explain why some countries can
have more food or healthier food. It also has its
limitation. Higher PER capita GDP does not mean
that many people in the country enjoy benefits,
because the country may have higher income
inequality, or people live under great stress. Nor does
GDP reflect a country’s degree of liberal democracy.
Source: http://data.worldbank.org/data-
catalog/world-development-indicators

13. THE CONVERGENCE OF SHORT-TERM ECONOMIC
GROWTH
• General Conclusion: The initial variable, K and L, can make a difference in a short
term, but it will not affect the outcome at last
k = 100, l=100 k = 200, l=200
Although k and l in the second picture are 100 more than that in the first
one, the final situation is the same for them.

14. THE STEADY STATE PER CAPITA GDP
• General Conclusion: Higher saving rate s, Lower depreciation rate δ, Lower
population growth n can create a higher steady state per capita capital and income.

15. THE STEADY STATE PER CAPITA GDP
The n = 2 The n = 3
When population growth rate increases from 2 to 3, the K decreases. It means the
increasing of population can decrease the GDP per capita.

16. THE DRIVE FOR LONG-TERM ECONOMIC GROWTH
• General Conclusion: ∆y/y = ∆A/A = a. The changing rate in GDP per capita is the
same as the changing rate of technology level. In theory, A does not have an upper
limit.

17. THE DRIVE FOR LONG-TERM ECONOMIC GROWTH
We can find that when a2 is a little bigger than a1, it makes a
huge difference at year of 8.

18. INSPIRATIONSAND NEW VIEWS
• It is an interesting topic and also an excited class this week. It is amazing that we go
from some simple and easy-understand conclusions and models. Then, we develop
and connect those models. And we come out something reflecting GDP growth. In
this week, we know initial situation of K and L will not decide the final situation. I
believe there will be more factors can influence GDP growth. For example, if we
consider net export and government spending and investment, the model we get at
last will be more interesting.

19. PROBLEM SET III: RATIONAL EXPECTATIONTHEORY:
INFLATION AND INTEREST RATE
• 1. Logic Diagram created by Lucid Chart
• 2. Executive Summary for General Results of the Rational Expectation Theory you Learned
• 3. Simulate the Equilibrium of Monetary Market
• 4. Simulate A Change in Monetary Supply
• 5. Simulate A Change in Monetary Demand
• 6. Simulate A Change in Monetary Demand from Real GDP
• 7. Price Level Targeting and Endogenous Money
• 8. Simulate Inflation and Real Interest Rate
• 9.Simulate Government Revenue by Printing More Money
• 10. Discuss the Limitations of the Rational Expectation Theory

20. LOGIC DIAGRAM CREATED BY LUCID CHART

21. EXECUTIVE SUMMARY FOR GENERAL RESULTS OF
THE RATIONAL EXPECTATIONTHEORY
• Expectation = Reality. The reality is the same as people expect.
• Demand of money is determined by price level, payment technology, interest rate and
GDP. Supply of money determined by the central bank.
Increasing in Demand in money
Price level Goes up
Interest rate Goes down
GDP Goes up
Payment technology Goes down

22. SIMULATE THE EQUILIBRIUM
OF MONETARY MARKET
• I change the i from 0.05 to 0.1, meaning that
interest rate increases from 5% to 10%.We can
find that price level increases from 5 to 10.
• When interest rate increases, people are willing
to save money in banks instead of using it. So the
real money demand will decease.

23. SIMULATE A CHANGE IN
MONETARY SUPPLY
• I change the money supply from 1000 to 200
• In this case, governments can buy back their
bonds and Banks buy back their own loans in
droves. These actions reduce the money
supply and liquidity in the market.

24. SIMULATE A CHANGE IN
MONETARY DEMAND
• I change the money demand from 1 to 0.5.
When technology for making financial
transactions improves, for example m
decreases from 1 to 0.5, the equilibrium price
level P increases from 5 to 10.

25. SIMULATE A CHANGE IN MONETARY
DEMAND FROM REAL GDP
• Y is the GDP in this model and I change the GDP
level from 10 to 100.
• For example, Humans have invented 100% energy
conversion machines that do not generate heat
and have successfully discovered and exploited
dark energy. Human productivity has increased
tenfold.

26. PRICE LEVEL TARGETING
AND ENDOGENOUS MONEY
• If the y changes from 5 to 10 and we want to
keep the price level, we need to increase the
money supply. By doing so, we can detect
unexpected deflation from happening.

27. SIMULATE INFLATION AND REAL INTEREST RATE
• Price level increases from 5 to 5.5
with inflation rate is 10%. Nominal
asserts increases from 100 to 103.
• i – pie=0.07 is the simple version of
real interest rate.
• r(real interest rate)=(i-
pie)/(1+pie)=- 0.06364

28. 4 SIMULATE GOVERNMENT REVENUE BY PRINTING
MORE MONEY
When the rate of money growth is 0.04.The revenue
of the government by printing money is 7.69, about
76.9% of the GDP.

29. DISCUSSTHE LIMITATIONS OFTHE RATIONAL
EXPECTATIONTHEORY
• In reality, the world does not go exactly as people expect.Although the trends in this
figure showing the relation between real CPI and expected CPI are similar, they are
different.

30. PROBLEM SET 4:
MACROECONOMICS IN BUSINESS PRACTICE
• 1. Summarize the Field Trip (including the company information, CEO information,
and content summary of the field trip.)
• 2. Elaborate Stable coin in general and indicate why Liquity is a Stablecoin.
• 3. Discuss how the concept of Stablecoin relates to monetary policies we discuss in
class and how it differs from traditional monetary policies.
• 4. Discuss the business model of Liquity (how their product satisfies people's
unsatisfied needs and how the product generates economic and social value. )
• 5. Reflect on the field trip. Discuss how the experience changed your understanding
of macroeconomics and what's your takeaway for personal and professional growth?

31. FIELD TRIP OVERVIEW
• Liquity: Based on ETH’s interest-free loans, liquity is a decentralized lending platform, in
order to support liquidity.
• Robert Lauko is the founder and CEO of Liquity. Before founding the Liquity,
he was a research associate of DFINITY. Before entering into blockchain, he
used to be a lawyer.
• Robert Lauko talked about the types of stablecoins and reasons why they
are stable. Then he mentioned liquidation mechanism and its business
model.

32. STABLECOIN AND LQTY
• Stablecoin is a stable exchange rate with a currency.This is very similar to the old gold
standard. Stablecoin could have achieved this through a 1:1 reserve ratio, for example, like
Tether, where they guaranteed $1 in bank accounts for every USDT they issued.The second is
to rely on digital collateral. Something like Liquity is a platform for lending based on Ethereum.
• LQTY is stablecoin because he's going to trade at a dollar to a dollar. I think there are three
reasons why he can achieve stability. First, if you don't have more than 110% of your assets in
loans, your digital currency will liquidate its position to pay off the loan. Second, if the LQTY is
worth more or less than $1, then investors can profit by selling or buying the LQTY. The
third reason is that LQTY is an crypto-backed stable coin.

33. STABLECOIN RELATION AND DIFFERENCES
WITH MONETARY POLICIES
• Relation with monetary policies: Stablecoin could also be affected by supply and demand.
If interest rates were to go up now, then more people would come to stable coin to
borrow. If stablecoin is tied to the currency, stablecoin's value would be reduced by
increasing the currency.
• Differences with monetary policies: Stablecoin linked to other cryptocurrencies are less
affected by monetary policy. Stable Coin became a bridge between cryptocurrency and
real money.

34. BUSINESS MODEL OF LIQUITY
• Interest-free loans
• a bridge between cryptocurrency and real money
• Very low guarantee rate, promoting circulation

35. REFLECT ON THE FIELD TRIP
• The first thing I take away from his lecture is we can do whatever we want. Robert used
to be a lawyer but then he became a research associate in DFINITY.And now he is a
CEO and founder of LQTY. It is a huge change from being a layer to stable coin company
founder.
• The second thing I can remember is that we should admit we are not familiar with some
fields, and we can get help from others.There are many members in his team and he
would find some one who is necessary for their companies when he need it.

36. FUTURE PERSPECTIVE:
DECENTRALIZED MONETARY POLICY
• A Lucid Chart Diagram of showing the dynamics of how new monetary products are
created to satisfy people's unsatisfied needs.
• A new research idea on unsatisfied needs that can create economic and social value.

37. A LUCID CHART DIAGRAM

38. A NEW RESEARCH IDEA: PROBLEM
Unsolved Problem:
Although decentralized financial can
solve some problems of traditional
monetary policies, I find out that the
problems of unconventional monetary
policy were not solved.
The problems are:
1. Inflation
2.Wealth inequality
The unsatisfied need:
While we want to balance the demand and
supply of money and to keep economic
growth, we don’t want money to lose power
in a faster way and the increasing of wealth
inequality.
The reason why it happens is that the
money does not go to the place we want it
to flow into.And those money flows into the
field where we do not expect it to go, like
rich people or food, causing wealt inequality
and inflation.

39. A NEW RESEARCH IDEA: POTENTIAL SOLUTION
The planned methodology:
China's recent experiment with a digital
currency issued by the central bank gives me
a glimpse of a possible solution to this
problem.
Because then we can put a mark on the RMB.
So that,We can make currencies trade within
certain industries.After a period of time, the
industry liquidity increases, at this time we
can lift the ban on the use of the scope.
Process of solving problem:
Money can only be used in a specific
area, which makes other areas less
affected. For example, the money
should not be used for food, clothes
or meals. At the same time, less of the
money will go to the rich, because we
can limit the use of the money as an
investment.

40. A NEW RESEARCH IDEA: PROBLEM
• We can limit the money to designated places, but we can't limit the money that already
exists to those places.
• That money could still push up overall prices. For example, we stipulate that factories can
buy materials. But the materials could also be used elsewhere, which could lead to
knock-on effects.
• There will be hyperinflation in certain areas.

41. REFERENCES
• https://github.com/TeLai412/DKU_Econ204
• https://github.com/TeLai412/DKU_Econ204/blob/main/Econ_
204_EconomicGrowth_last_version.ipynb
• https://github.com/TeLai412/DKU_Econ204/blob/main/Te_Lai_Econ204_Rational_Expet
ation_Theory_Inflation_and_Interest.ipynb
• Population, total | Data (worldbank.org)
• http://data.worldbank.org/datacatalog/world-development-indicators

42. EPILOGUE
• Skill learned or improved from this course
• How this course has changed your understanding of macroeconomics and your takeaway
for personal and professional growth.

43. SKILL
• I learn more about python. Actually, in this term, I also learn python in a club. And I can
study it again in this course, because most of them are what I learn in the club like math
numpy, pandas and malplotlib. I really enjoy learning python in this course.
• Second, the stable coin in the new thing I learn. Now I study much about financial risk
management, which reduces or hedge risk by traditional method.And I believe chain
block technology like stable coin will be the new means to help risk management in
financial field.

44. UNDERSTANDING OF MACROECONOMIC AND
PERSONAL GROWTH
• Professor Luyao’s new teaching method and thinking make this macroeconomic different
from what I expected. It was the new time for me to know the macroeconomic can
related to our life so directly and it can connect with new technology like stable coin.
Macroeconomic will be updated by new technology and we need to update our thinking,
too.
• Takeaway: We can usually develop new ideas from old concepts. And it need our creative
thinking. Luyao’s course is a typical example of “old wine in new bottle.” I will never
forget it.