topic 1 - intro to macroeconomics

7/31/2019 Topic 1 - Intro to Macroeconomics

1/22

TOPIC 1

ABC: Ch. 1

Introduction to

Macroeconomics

1


2/22

OUTLINE

What Macroeconomics Is About

Leading Macroeconomists

2


3/22

WHAT MACROECONOMICS IS ABOUT

Macroeconomics:

The study of structure and performance of nationaleconomies and government policies that affect economicperformance

Issues addressed by macroeconomists: Long-run economic growth

Business cycles

Unemployment

Inflation

The international economy

Macroeconomic policy

3


4/22


Long-run economic growth

The extremes of rich and poor

World Bank:DR of Congo has the second-lowest GDP per head of $163

in the world, and a quarter of the population live on less

than $1.25 a dayMonaco has the highest GDP per head in the world -

$211,501, according to 2008 figures

4


5/22


5


Long-run growth makes a huge difference


6/22



Growth of output over time

Figure 1.1: Output of United States since 1869

6


7/22

Figure 1.1 Output of the U.S. economy, 1869-2008

7


8/22


Long-run economic growth Main source of growth

Increases in average labor productivity

Average labor productivity

Output produced per unit of labor input

Figure 1.2

8


9/22

Figure 1.2 Average labor productivity in the UnitedStates, 1900-2008

9


10/22


Business cycles Business cycle: short-run contractions and

expansions in economic activity

Downward phase is called a recession

Unemployment

Unemployment: the number of people who are

available for work and actively seeking work but

cannot find jobs

U.S. experience shown in Fig. 1.3

10


11/22

Figure 1.3 The U.S. unemployment rate, 1890-2008

11


12/22


Percentage change in the level of prices

Inflation rate: the percentage increase in the average

level of prices over a year

Hyperinflation: an extremely high rate of inflation

Deflation: when prices of most goods and services

decline

U.S. experience shown in Fig. 1.4

12


13/22

Figure 1.4 Consumer prices in the UnitedStates, 1800-2008

13


14/22


Example: hyperinflation in Zimbabwe

14


15/22

AUSTRALIAVS. US

15


16/22


Macroeconomic Policy

Fiscal policy: government spending and taxation

U.S. experience in Fig. 1.6

Monetary policy: growth of money supply;determined by central bank; the Fed in U.S.

16


17/22

Figure 1.6 U.S. Federal government spendingand tax collections, 1869-2008

17


18/22


Big questions Thinking about the economy as a whole. General

Equilibrium

What determine output and long-run economic growth?

What are the causes of business cycles? Can governmenthelp to stabilize the macroeconomy?

Why causes unemployment, and why does theunemployment rate fluctuate so much?

What causes inflation? Can central banks controlinflation?

18


19/22


A Model of Macroeconomy:

Three markets: labor, goods, and assets (money and bonds)

Three prices: the wage, the price level, and the interestrate

Three equations: The aggregate supply curve (equilibrium in the labor market)

The IS curve (equilibrium in the goods market)

The LM curve (equilibrium in the asset market)

Keynesian vs. Classical How quickly does the economy adjust to shocks?

19


20/22

LEADING KEYNESIAN

MACROECONOMISTS

John Maynard Keynes (18831946)

Created the field of macroeconomics

Sir John Hicks (19041989)

Nobel Prize winner in 1972. Developed the IS-LM

model as a way of explaining Keynes ideas

James Tobin (19182002)

Nobel Prize winner in 1981. Tried to reconcile

Keynesian macroeconomics with modern

microeconomic theory

20


21/22

LEADING NEW CLASSICAL

MACROECONOMISTS

Robert E. Lucas, Jr., Thomas J. Sargent

Leaders of the new classical revolution in the

1970s. Lucas won the Nobel Prize in 1995.

Finn E. Kydland, Edward C. Prescott

Nobel Prize winners in 2004. Pioneers of real

business cycle theory

21


22/22

NEXTTOPIC:

The Labor Market and the FE line

Chapter 3, Section 9.1, Appendix 9.B.

22

topic 1 - intro to macroeconomics

Documents