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INTRODUCTION

ECON204 (A01)

Intermediate Macroeconomics

September 05, 2012

1 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque

Text

N.G. Mankiw and W.M. Scarth, Macroeconomics, Fourth Canadian Edition, Worth Publishers Inc., 2011

Organization of the Book


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)

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


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


Chapter One

THE SCIENCE OF MACROECONOMICS


Issues...

What is Macroeconomics?

Why do we study Macroeconomics?

What and how Macroeconomists Study?

Macroeconomic modeling


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

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?


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


Trend Growth — long run growth path 10 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque

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


Figure: Real GDP per Person in the Canadian Economy

Figure: Inflation/Deflation in Canadian economy


Figure: Unemployment rate in Canada


2. Economic Variables

Endogenous Variables – explained by the model14 Lecture 1: Introduction. ECON204 (A01) Fall 2012. Ahmed A Hoque

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


Which variables are exogenous?- Income (Y) and the price of materials (Pm)


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?


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


web.uvic.caweb.uvic.ca/~aahoque/chapter 1 intro.docx · web view“macroeconomics is the study of...

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