 To intermediate macroeconomics, we now dive into the discussion of the substance of the course. In this segment, we'll have an overview of the key concepts but also setting the stage for the discussion. Given the context of the world that we live in, it seems fitting to think again quickly about how it came to be where we are now. As you all remember, 2008 and 2009 were very challenging years for the global economy and for the U.S. The world economy experienced one of the most severe recessions of the century following the recession and the depression of the 1930s. And we also remember that this is a recession that originated from the financial market. Before that, we had seen a period of prosperity with high growth rates both in developed countries and developing countries. In that context, we have to admit that the public and the policymakers had become a little bit complacent with the strong performance of the financial markets where some economists actually had raised concerns about the fact that the financial system was moving much faster than the real system. And the recession was triggered by unsustainable and imprudent lending by the financial markets, especially in the real estate, in the mortgage sector, where through creative financial engineering, new products were put on the market, which packaged several types of assets, some of which now we know were toxic. At the same time, there was a process of loan pushing on consumers who otherwise would not have qualified for mortgage loans, who nevertheless were approved for lending only to find themselves in tough situations and unable to pay to service the loans when their job prospects were compromised. This reminds us back in the 70s, where during the oil price booms where oil producers were collecting large volumes of export revenue, lots of foreign exchange reserves in those countries who needed to use those reserves. So banks were willing to lend, because there was a lot of money to lend, and these loans were pushed on countries, especially developing countries, only to find themselves in the early 80s in trouble paying back the debts. And we faced the debt crisis of the 80s, which was devastating for developing countries. So what we have now also is a situation where too much and too easy credit drove the financial system into a crisis. But in this particular situation, the crisis and the problems did not remain confined in the financial system. It became in fact an economic crisis, and it's important, it's interesting to understand how do we go from a financial crisis to an economic crisis. The key channels of transmissions were trade. As financial institutions have trouble, their balance sheets become weaker, they were unable to sustain the lines of credit for imports and exports. So trade suffered dramatically. At the same time as consumers were falling into debt crisis, consumption declined, and as consumption declined in the advanced economies, trade exports for developing countries and emerging countries declined, and that slowed down growth also in developing countries. So you have a process of transmission of both the shocks from the financial system to the real sector, but also a process of transmission from the center of the origin of the crisis, developed countries, the U.S., Europe, to developing countries, Africa and Latin America and emerging economies. So basically you have a phenomenon where a financial crisis generates an economic crisis. You have a situation where a crisis in the U.S. and developed countries generates a crisis in developing countries. So we observed basically three rounds of effects. The first round was limited to the financial system, where in many countries in the U.S. you saw the collapse of the big institutions, but also in developing countries and emerging countries, they were affected initially in the financial system where you had a large outflow of capital, of finance from developing countries from South Africa, from Egypt, from Nigeria, from Asian countries, where investors from Europe and the U.S. were repatriating revenue to make up for the losses here at home. So that's the first round effect which was limited to the financial markets where you have major decline in stock value in stock indexes in all markets. But the second round then it was an impact on the real sector through again trade, trade declining, government revenue declining, which means expenditures decline, therefore then you have really a real compression of the real sector. What I meant by the third round effect was a situation where even countries where the banking sector was not the original initiator of the crisis, banks having been exposed to sectors which were hit by the crisis. So for example, the commodity trade oil prices declining reduced profitability for companies that operate in that sector, which made it difficult for those companies to pay back their loans. So the banks that had lent to these particular sectors experienced high defaults. In the case of Nigeria we saw situations where banks had to be bailed out by the central bank because of the weakening of their bottom line. So that was the third round effect. Of course this is going to reinforce the second round effect as banks weaken, they are less able to lend. Now the question is how do we see the prospects in the medium term for the US, for Europe and for developing countries? In the US we are faced with a situation where unemployment is still high and the stability high is not declining enough, which means that many people are still out of work, even people have had to take jobs that pay less. So demand is going to remain below the pre-crisis level and that's going to hold down growth. But in the rest of the world, in Europe we are faced now with countries struggling with their sovereign debt. As you have heard about the case of Greece, other European countries are trying to do the best to keep it afloat because of the understanding of the severe impact that defaulting collapse of the Greek economy would have on the euro and the other economies. But we expect that the growth in the European zone is going to remain very low. Now this means that as growth remains low in the US, remains low in the euro zone, that means that this is going to drag growth in the developing countries and the emerging economies. Growth we expect is going to be supported. The world growth is going to count a lot on performance of the new emerging powerhouses like China, India, Brazil, which have demonstrated much more resilience to the crisis. In talking of resilience, we have seen that in fact developing countries and emerging economies were more resilient than developed countries. For example, in the case of African countries, although the growth rate was reduced severely from an average of just under 6% to 2% during the recession, we still can say that many countries in the continent avoided the recession, which you observed in developed countries. So the question is who is going to pull growth in the next few years, if it's not the US, if it's not Europe? Once again, emerging economies, China, India, Korea, but also developing countries. But the question is, is this sustainable? The answer is not sure because there is no way the emerging economies and developing countries can substitute the large demand from Europe and the US. So the future growth hinges very much on recovery in the US and in Europe. So in the rest of this course, we'll spend a lot of time discussing the behavior of key variables in macroeconomics that occupy our attention. The main one being national output, measured by GDP or GNP, and this we'll look at how GDP is determined in the short run, what determines variations of GDP in the short run, and what determines the trend of GDP in the long run when we do the growth analysis. We'll talk about employment and unemployment, and you may wonder why you care about unemployment and employment. We care about employment because it's basically the determinant of the well-being of households and individuals. The higher the unemployment, the lower the well-being of households. We'll talk about inflation. Inflation is an indicator of people's wealth. The higher the inflation, the lower the real value of assets and income, and that's why public policymakers pay attention to inflation. But of course we'll talk about what are the trade-offs, what are the costs of keeping inflation too low in terms of growth and rising income. We'll also talk about other indicators like the current account deficit when we talk about trade, but also fiscal deficit when we talk about fiscal policy and the financing of the deficit. This will be the main focus of our discussion in the next few weeks. Thank you.