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INTRODUCTION
ECON204 (A01)
Intermediate Macroeconomics
September 05, 2012
1 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque
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Text
N.G. Mankiw and W.M. Scarth, Macroeconomics, Fourth Canadian Edition, Worth Publishers Inc., 2011
Organization of the Book
2 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque
Part I: Introduction(Ch 1-2)
Part II: Economy in the Long run
(Ch 3-6)
Part III:Economy in the very
long run (Ch 7-8)
Part IV:Economy in SR/ Business
Cycle (Ch 9-13)
Part V:Govt & Economy
(Ch 14-15)
Part VI:Microfoundation
(Ch 16-19)
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Our Course Outline
Introduction Ch 1: The Sciences of MacroeconomicsCh 2: The Data of Macroeconomics
The Economy in the Long-run
Ch 3: National IncomeCh 4: Money and InflationCh 5: The Open EconomyCh 6: Unemployment
The Economy in the Short- run
Ch 9: Introduction to Economic FluctuationCh 10: AD I: Building the IS-LM ModelCh 11: AD II: Applying the IS-LM ModelCh 12: Open Economy Revisited: The Mundell-Fleming Model and the ER regime
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The Economy in the Very Long-run
Ch 7: Economic Growth I: Capital Accumulation and Population Growth
Ch 8: Economic Growth II: Technology, Empirics, and Policy
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Chapter One
THE SCIENCE OF MACROECONOMICS
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Issues...
What is Macroeconomics?
Why do we study Macroeconomics?
What and how Macroeconomists Study?
Macroeconomic modeling
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What is Economics?Economics is the study of the use of scarce resources to satisfy unlimited human wants.
Macroeconomics?The study of the economy as a whole; or
“Macroeconomics is the study of the determination of economic aggregates, such as total output, total employment, the price level, and the economic growth”.
Issues in MacroeconomicsDeterminants of economic aggregates: output, unemployment, price level
Behaviour of an economy over time:7 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque
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short-run fluctuations and long-run economic trend (i.e., growth rate)
Drivers of MacroeconomicsEconomic policiesFiscal policy: GovernmentMonetary Policy: Monetary Authority
Examples: Aggregate production - Growth Aggregate price level - Inflation Unemployment rate Exchange rate
How do economists think?
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Macroeconomic Modeling: Short run vs Long run
Cycle (about short run) and Trend (about long run)
oBusiness cycle: fluctuation of macroeconomic variables around their long run trends
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Trend Growth — long run growth path 10 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque
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Determined by longer term issues such as savings and investment (capital accumulation)
Population and education (labour force and human capital accumulation)
Resources; and
Economic and political environment
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Figure: Real GDP per Person in the Canadian Economy
Figure: Inflation/Deflation in Canadian economy
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Figure: Unemployment rate in Canada
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2. Economic Variables
Endogenous Variables – explained by the model14 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque
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Exogenous Variables – taken as given by the model
Let’s construct a model of the market for pizza
What determines the demand for pizza?
QD = f (P, Y)
What determines the supply of pizza?
QS = f (P, Pm)
Condition for market equilibrium
QD =QS
Figure: Model of Supply and Demand
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Which variables are exogenous?- Income (Y) and the price of materials (Pm)
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Which variables are endogenous?- The price of pizza (P) and the quantity exchanged (Q)
What is the impact of a change in exogenous variables? What happens if
Y changesor
Pm changes?
Is this model realistic?
Macroeconomics Models
Why are there many models in macroeconomics?
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No single model answers all questions Which models will we develop and use?
The assumption about Flexible vs. Sticky prices
Microeconomic thinking behind the macroeconomic model
Micro foundation of Macroeconomic
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