Macroeconomics is the study of the economy as a whole, including issues like growth, inflation, and unemployment. Economists use models to help explain and address these issues. Models make simplifying assumptions, like whether prices are flexible or sticky in the short-run. The chapter introduces concepts like endogenous and exogenous variables. It provides an example model of supply and demand for cars and how it can be used to analyze changes. The chapter outlines the topics that will be covered in the macroeconomics textbook, including classical theory, growth theory, and business cycle theory.
This document provides an overview of key concepts in international macroeconomics and the open economy model. It introduces accounting identities that apply to an open economy, where spending does not necessarily equal output and saving does not necessarily equal investment due to trade flows. It then presents the small open economy model, where the domestic economy is too small to affect global interest rates. In this model, the trade balance and exchange rate are determined by the interaction of domestic saving and investment with the exogenous world interest rate. Fiscal and monetary policies can influence the trade balance and exchange rate through their impact on saving and investment.
This document discusses the natural rate of unemployment and its causes. It begins by defining the natural rate of unemployment as the average rate around which the actual unemployment rate fluctuates over the business cycle. It then presents a model showing how the natural rate is determined by the rates of job separation and job finding. Frictional unemployment results from the time it takes to search for and transition between jobs, while structural unemployment stems from wage rigidities that prevent wages from adjusting downward to clear the labor market. The document explores factors like minimum wages, unions, efficiency wages, and sectoral shifts that contribute to real wage rigidity and the natural rate of unemployment.
This document provides an overview of aggregate supply and the short-run tradeoff between inflation and unemployment known as the Phillips curve. It discusses three models of aggregate supply - the sticky-wage model, imperfect-information model, and sticky-price model - and how they each imply a positive relationship between output and the price level in the short run. The Phillips curve relationship is then derived from the aggregate supply relationship. The document also discusses concepts like adaptive expectations, inflation inertia, cost-push vs demand-pull inflation, and the sacrifice ratio.
This document provides an overview of key macroeconomic statistics including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. It discusses how GDP can be measured through expenditures, income, and value added. The components of GDP expenditures are defined as consumption, investment, government spending, and net exports. Real GDP is introduced to control for inflation. The GDP deflator and inflation rates are also explained.
This document provides an overview of several prominent theories of consumption, including:
1) John Maynard Keynes' theory that current consumption depends on current income. Later theories found problems with Keynes' prediction that consumption would grow more slowly than income over time.
2) Irving Fisher's intertemporal choice theory, which assumes consumers maximize lifetime satisfaction subject to an intertemporal budget constraint. This theory formed the basis for later work on consumption.
3) Franco Modigliani's life-cycle hypothesis, which proposes consumption depends on lifetime resources and income varies systematically over a consumer's life cycle, allowing saving to achieve smooth consumption. This theory helped solve the "consumption puzzle."
4)
1) The chapter uses the IS-LM model to analyze the effects of fiscal and monetary policy shocks on aggregate output and the interest rate in the short run.
2) Fiscal policy like increases in government spending or tax cuts shift the IS curve right, raising output. Monetary policy like increases in the money supply shift the LM curve down, lowering interest rates and raising output.
3) Shocks like increases in wealth from a stock market boom shift the IS curve right, raising output, while shocks that increase money demand like credit card fraud shift the LM curve left, lowering output.
4) In the long run, price adjustments return output to potential as the price level falls to accommodate any short
This document provides an overview of a macroeconomic model that examines national income. It discusses how total output is determined by factors of production like capital and labor. It then explains how factor prices, like wages and rental rates, are set through supply and demand in factor markets. The model shows how total national income is distributed to factor payments. It also outlines the components of aggregate demand, like consumption, investment, and government spending, and how their equilibrium in the goods market determines total output.
The document provides an overview of key concepts in macroeconomics, including:
1. The IS-LM model which determines income and interest rates in the short-run when prices are fixed. It combines the IS curve, representing goods market equilibrium, and the LM curve, representing money market equilibrium.
2. The IS curve shows combinations of interest rates and income where planned expenditure equals actual expenditure. It slopes downward because lower interest rates increase investment and expenditure.
3. The LM curve shows combinations of interest rates and income where money demand equals supply. It slopes upward because higher income increases money demand, requiring higher interest rates to balance the money market.
4. The intersection of the IS and LM curves
This document provides an overview of key concepts in international macroeconomics and the open economy model. It introduces accounting identities that apply to an open economy, where spending does not necessarily equal output and saving does not necessarily equal investment due to trade flows. It then presents the small open economy model, where the domestic economy is too small to affect global interest rates. In this model, the trade balance and exchange rate are determined by the interaction of domestic saving and investment with the exogenous world interest rate. Fiscal and monetary policies can influence the trade balance and exchange rate through their impact on saving and investment.
This document discusses the natural rate of unemployment and its causes. It begins by defining the natural rate of unemployment as the average rate around which the actual unemployment rate fluctuates over the business cycle. It then presents a model showing how the natural rate is determined by the rates of job separation and job finding. Frictional unemployment results from the time it takes to search for and transition between jobs, while structural unemployment stems from wage rigidities that prevent wages from adjusting downward to clear the labor market. The document explores factors like minimum wages, unions, efficiency wages, and sectoral shifts that contribute to real wage rigidity and the natural rate of unemployment.
This document provides an overview of aggregate supply and the short-run tradeoff between inflation and unemployment known as the Phillips curve. It discusses three models of aggregate supply - the sticky-wage model, imperfect-information model, and sticky-price model - and how they each imply a positive relationship between output and the price level in the short run. The Phillips curve relationship is then derived from the aggregate supply relationship. The document also discusses concepts like adaptive expectations, inflation inertia, cost-push vs demand-pull inflation, and the sacrifice ratio.
This document provides an overview of key macroeconomic statistics including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. It discusses how GDP can be measured through expenditures, income, and value added. The components of GDP expenditures are defined as consumption, investment, government spending, and net exports. Real GDP is introduced to control for inflation. The GDP deflator and inflation rates are also explained.
This document provides an overview of several prominent theories of consumption, including:
1) John Maynard Keynes' theory that current consumption depends on current income. Later theories found problems with Keynes' prediction that consumption would grow more slowly than income over time.
2) Irving Fisher's intertemporal choice theory, which assumes consumers maximize lifetime satisfaction subject to an intertemporal budget constraint. This theory formed the basis for later work on consumption.
3) Franco Modigliani's life-cycle hypothesis, which proposes consumption depends on lifetime resources and income varies systematically over a consumer's life cycle, allowing saving to achieve smooth consumption. This theory helped solve the "consumption puzzle."
4)
1) The chapter uses the IS-LM model to analyze the effects of fiscal and monetary policy shocks on aggregate output and the interest rate in the short run.
2) Fiscal policy like increases in government spending or tax cuts shift the IS curve right, raising output. Monetary policy like increases in the money supply shift the LM curve down, lowering interest rates and raising output.
3) Shocks like increases in wealth from a stock market boom shift the IS curve right, raising output, while shocks that increase money demand like credit card fraud shift the LM curve left, lowering output.
4) In the long run, price adjustments return output to potential as the price level falls to accommodate any short
This document provides an overview of a macroeconomic model that examines national income. It discusses how total output is determined by factors of production like capital and labor. It then explains how factor prices, like wages and rental rates, are set through supply and demand in factor markets. The model shows how total national income is distributed to factor payments. It also outlines the components of aggregate demand, like consumption, investment, and government spending, and how their equilibrium in the goods market determines total output.
The document provides an overview of key concepts in macroeconomics, including:
1. The IS-LM model which determines income and interest rates in the short-run when prices are fixed. It combines the IS curve, representing goods market equilibrium, and the LM curve, representing money market equilibrium.
2. The IS curve shows combinations of interest rates and income where planned expenditure equals actual expenditure. It slopes downward because lower interest rates increase investment and expenditure.
3. The LM curve shows combinations of interest rates and income where money demand equals supply. It slopes upward because higher income increases money demand, requiring higher interest rates to balance the money market.
4. The intersection of the IS and LM curves
Here are the key impacts of an increase in investment demand in a small open economy:
- Investment demand I(r*) increases.
- Saving S does not change.
- Net capital outflow decreases as domestic investment increases and saving remains the same.
- Net exports NX decrease as the trade balance deteriorates to finance the higher investment through net capital inflows.
So in summary, an increase in investment demand leads to a deterioration in the trade balance (lower NX) and lower net capital outflow, while saving remains unchanged.
CHAPTER 5 The Open Economy slide 23
Policymakers debate whether monetary and fiscal policy should be active or passive in response to economic fluctuations, and whether policy should be set by rule or at the discretion of officials. Arguments for active policy include reducing economic hardship during recessions, while critics argue policies have long and variable lags. Policy rules aim to increase credibility and reduce time inconsistency problems, like central banks targeting an inflation rate or following the Taylor rule. The optimal approach remains an open debate among economists.
This document summarizes key concepts from Chapter 8 of an economics textbook on economic growth. It discusses how to incorporate technological progress into the Solow growth model by including a variable for labor efficiency that grows exogenously over time. It then reviews empirical evidence on growth, including balanced growth, conditional convergence between countries, and the relationship between factor accumulation and production efficiency. Finally, it examines policy issues such as evaluating a country's saving rate and how to increase savings and allocate investment between different types of capital.
This document summarizes key concepts from Chapter 12 of Mankiw's Macroeconomics textbook on open economy macroeconomics. It introduces the Mundell-Fleming model, which uses the IS-LM framework to analyze the effects of fiscal and monetary policy in a small open economy. It discusses the implications of floating versus fixed exchange rates and how this determines the effectiveness of different policies. It also examines the impacts of interest rate differentials and trade policies. The summary slides provide a concise overview of the model and the main policy conclusions.
This chapter introduces the Solow growth model, which examines how capital accumulation and population growth impact economic growth and living standards over the long run. The key aspects covered include:
- The Solow model framework of production, consumption, investment, and capital accumulation over time.
- How economies converge to a steady state level of capital per worker and output per worker.
- How factors like the saving rate can impact the steady state level and long-run growth.
- The "Golden Rule" concept of finding the optimal saving rate and capital stock that maximizes long-run consumption per person.
This document summarizes key points from a chapter about government debt. It discusses several topics:
1. The size of government debt in various countries, with Japan having the highest debt-to-GDP ratio at 159% and the U.S. at 64%.
2. Traditional and Ricardian views on the effects of government debt. The traditional view is that debt crowds out investment, while the Ricardian view is that debt has no real effects due to forward-looking consumers.
3. Problems in measuring budget deficits, such as not accounting for inflation, capital assets, or future liabilities for programs like Social Security. Correcting for these issues can significantly change deficit estimates.
The document discusses the Mundell-Fleming model of the open economy and exchange rate regimes. It provides an overview of the key assumptions and components of the Mundell-Fleming model, including the IS* and LM* curves. It then analyzes the effects of fiscal policy, monetary policy, and trade policy under both floating and fixed exchange rate systems. The document concludes with two case studies on financial crises in Mexico and Southeast Asia that illustrate the model.
This document provides an overview of classical theories of inflation and the quantity theory of money. It defines key concepts like money, inflation, the money supply, and velocity. The quantity theory of money posits that inflation is primarily caused by increases in the money supply that outpace economic growth. It predicts a direct relationship between money growth and inflation. The document uses graphs and international data to show this relationship generally holds in practice and discusses implications for interest rates.
This document provides an overview of the Solow growth model, which examines how economic growth and standards of living are determined in the long run. It introduces key concepts such as the production function, saving rate, depreciation rate, capital accumulation, and steady state. The steady state is the level of capital where investment just offsets depreciation and capital remains constant. The model predicts that countries with higher saving and investment rates will have higher levels of capital and income per worker in the long run. It also discusses finding the optimal saving rate and capital stock, known as the Golden Rule, which maximizes consumption.
This chapter discusses how government policies like price controls and taxes can affect market outcomes. Price ceilings, which set a legal maximum price, typically cause shortages by creating a gap between the maximum price and the market equilibrium price. Price floors, which set a legal minimum price, typically cause surpluses by creating a gap between the minimum price and the market equilibrium price. Taxes can be levied on buyers or sellers, but they have similar effects by driving a wedge between the price buyers pay and sellers receive. The incidence of a tax, or how the burden is shared, depends on the elasticities of supply and demand.
measuring the cost of living
Consumer Price Index
How the CPI Is Calculated
Problems with the CPI
Contrasting the CPI and GDP Deflator
Correcting Variables for Inflation:
This chapter introduces the concepts of the business cycle, aggregate demand, aggregate supply, and the model of aggregate demand and aggregate supply. It discusses how the economy behaves differently in the short-run versus long-run. In the short-run, many prices are sticky so the aggregate supply curve is horizontal, but in the long-run prices are flexible so the aggregate supply curve is vertical. The model can be used to analyze how shocks like changes in the money supply, velocity, or supply shocks impact output and inflation in both the short-run and long-run. An example is given of the 1970s oil shocks, which were adverse supply shocks that increased costs and shifted the short-run aggregate supply curve
1. The document discusses using the IS-LM model to analyze the effects of shocks, fiscal policy, and monetary policy. It provides examples of analyzing different policy changes using the IS-LM diagram.
2. It then discusses how the IS-LM model can be used to derive the aggregate demand curve and analyze short-run and long-run effects of shocks. Price level adjustments move the economy from short-run to long-run equilibrium.
3. The document contains an example analyzing the 2001 US recession using the IS-LM framework, examining the effects of stock market decline, 9/11, accounting scandals, and fiscal and monetary policy responses.
The document discusses key concepts related to measuring economic activity including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. It explains that GDP measures total output, income, and expenditure in an economy. The CPI is used to measure inflation and the cost of living. Different methods for calculating GDP, the GDP deflator, and chained weighted GDP are also outlined.
1. The document discusses the differences between the short run and long run in macroeconomics and introduces the aggregate demand and aggregate supply model.
2. In the short run, prices are sticky and output can deviate from full employment, while in the long run prices are flexible and output depends only on supply.
3. The model shows how shocks like changes in money supply, velocity, or oil prices can affect output and inflation in the short and long run.
This document provides an overview of key concepts relating to money supply and money demand from Chapter 18 of Mankiw's Macroeconomics textbook. It discusses how fractional-reserve banking allows banks to create money by lending out deposits. It also examines the three tools the Federal Reserve uses to control the money supply and explains why the Fed cannot precisely control the money supply. Finally, it summarizes theories of money demand, including a portfolio theory and the Baumol-Tobin transactions model.
Mankiew chapter 7 Consumers, Producers, and the Efficiency of MarketsAbd ELRahman ALFar
What is consumer surplus? How is it related to the demand curve?
What is producer surplus? How is it related to the supply curve?
Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?
This document discusses demand and supply and the price system. It explains that price rationing occurs when quantity demanded exceeds quantity supplied in the market. The price system acts to allocate goods in a way that maximizes benefits. Alternative rationing mechanisms imposed by governments or firms, such as price ceilings, often result in shortages. The document uses examples like lobsters, gasoline, and concert tickets to illustrate how supply and demand interact in markets.
This chapter discusses two modern theories of business cycles:
1) Real Business Cycle theory assumes flexible prices and that fluctuations result from optimal responses to productivity shocks.
2) New Keynesian theory explains why prices and wages are sticky in the short-run, causing recessions as coordination failures when firms do not lower prices together. It incorporates insights from both schools to better understand economic fluctuations.
This chapter discusses the determination of national income and its distribution in a closed economy. It introduces the production function and factors of production, capital and labor. It explains that total output is determined by factor supplies and technology. Factor prices, the wage rate and rental rate, are determined by supply and demand in factor markets. Total income is distributed to factors based on their marginal products. The chapter then covers the components of aggregate demand - consumption, investment, and government spending. It presents the loanable funds market model to show how interest rates adjust to equilibrate saving and investment.
Macroeconomics is the study of the economy as a whole, including issues like economic growth, inflation, and unemployment. Economists use various models to examine different macroeconomic issues in both the short-run and long-run. Models with flexible prices describe the long-run, while models with sticky prices are used for the short-run. Macroeconomic outcomes emerge from individual microeconomic actions.
This chapter introduces macroeconomics and the tools used in macroeconomic analysis. It discusses important macroeconomic issues like unemployment, inflation, and recessions. Economists use models to study these issues; models simplify reality by stripping out irrelevant details. A model of supply and demand for cars is presented to illustrate how endogenous and exogenous variables work in a model. The chapter outlines the rest of the book and distinguishes between models that assume flexible prices, describing the long-run economy, versus sticky prices, describing the short-run.
Here are the key impacts of an increase in investment demand in a small open economy:
- Investment demand I(r*) increases.
- Saving S does not change.
- Net capital outflow decreases as domestic investment increases and saving remains the same.
- Net exports NX decrease as the trade balance deteriorates to finance the higher investment through net capital inflows.
So in summary, an increase in investment demand leads to a deterioration in the trade balance (lower NX) and lower net capital outflow, while saving remains unchanged.
CHAPTER 5 The Open Economy slide 23
Policymakers debate whether monetary and fiscal policy should be active or passive in response to economic fluctuations, and whether policy should be set by rule or at the discretion of officials. Arguments for active policy include reducing economic hardship during recessions, while critics argue policies have long and variable lags. Policy rules aim to increase credibility and reduce time inconsistency problems, like central banks targeting an inflation rate or following the Taylor rule. The optimal approach remains an open debate among economists.
This document summarizes key concepts from Chapter 8 of an economics textbook on economic growth. It discusses how to incorporate technological progress into the Solow growth model by including a variable for labor efficiency that grows exogenously over time. It then reviews empirical evidence on growth, including balanced growth, conditional convergence between countries, and the relationship between factor accumulation and production efficiency. Finally, it examines policy issues such as evaluating a country's saving rate and how to increase savings and allocate investment between different types of capital.
This document summarizes key concepts from Chapter 12 of Mankiw's Macroeconomics textbook on open economy macroeconomics. It introduces the Mundell-Fleming model, which uses the IS-LM framework to analyze the effects of fiscal and monetary policy in a small open economy. It discusses the implications of floating versus fixed exchange rates and how this determines the effectiveness of different policies. It also examines the impacts of interest rate differentials and trade policies. The summary slides provide a concise overview of the model and the main policy conclusions.
This chapter introduces the Solow growth model, which examines how capital accumulation and population growth impact economic growth and living standards over the long run. The key aspects covered include:
- The Solow model framework of production, consumption, investment, and capital accumulation over time.
- How economies converge to a steady state level of capital per worker and output per worker.
- How factors like the saving rate can impact the steady state level and long-run growth.
- The "Golden Rule" concept of finding the optimal saving rate and capital stock that maximizes long-run consumption per person.
This document summarizes key points from a chapter about government debt. It discusses several topics:
1. The size of government debt in various countries, with Japan having the highest debt-to-GDP ratio at 159% and the U.S. at 64%.
2. Traditional and Ricardian views on the effects of government debt. The traditional view is that debt crowds out investment, while the Ricardian view is that debt has no real effects due to forward-looking consumers.
3. Problems in measuring budget deficits, such as not accounting for inflation, capital assets, or future liabilities for programs like Social Security. Correcting for these issues can significantly change deficit estimates.
The document discusses the Mundell-Fleming model of the open economy and exchange rate regimes. It provides an overview of the key assumptions and components of the Mundell-Fleming model, including the IS* and LM* curves. It then analyzes the effects of fiscal policy, monetary policy, and trade policy under both floating and fixed exchange rate systems. The document concludes with two case studies on financial crises in Mexico and Southeast Asia that illustrate the model.
This document provides an overview of classical theories of inflation and the quantity theory of money. It defines key concepts like money, inflation, the money supply, and velocity. The quantity theory of money posits that inflation is primarily caused by increases in the money supply that outpace economic growth. It predicts a direct relationship between money growth and inflation. The document uses graphs and international data to show this relationship generally holds in practice and discusses implications for interest rates.
This document provides an overview of the Solow growth model, which examines how economic growth and standards of living are determined in the long run. It introduces key concepts such as the production function, saving rate, depreciation rate, capital accumulation, and steady state. The steady state is the level of capital where investment just offsets depreciation and capital remains constant. The model predicts that countries with higher saving and investment rates will have higher levels of capital and income per worker in the long run. It also discusses finding the optimal saving rate and capital stock, known as the Golden Rule, which maximizes consumption.
This chapter discusses how government policies like price controls and taxes can affect market outcomes. Price ceilings, which set a legal maximum price, typically cause shortages by creating a gap between the maximum price and the market equilibrium price. Price floors, which set a legal minimum price, typically cause surpluses by creating a gap between the minimum price and the market equilibrium price. Taxes can be levied on buyers or sellers, but they have similar effects by driving a wedge between the price buyers pay and sellers receive. The incidence of a tax, or how the burden is shared, depends on the elasticities of supply and demand.
measuring the cost of living
Consumer Price Index
How the CPI Is Calculated
Problems with the CPI
Contrasting the CPI and GDP Deflator
Correcting Variables for Inflation:
This chapter introduces the concepts of the business cycle, aggregate demand, aggregate supply, and the model of aggregate demand and aggregate supply. It discusses how the economy behaves differently in the short-run versus long-run. In the short-run, many prices are sticky so the aggregate supply curve is horizontal, but in the long-run prices are flexible so the aggregate supply curve is vertical. The model can be used to analyze how shocks like changes in the money supply, velocity, or supply shocks impact output and inflation in both the short-run and long-run. An example is given of the 1970s oil shocks, which were adverse supply shocks that increased costs and shifted the short-run aggregate supply curve
1. The document discusses using the IS-LM model to analyze the effects of shocks, fiscal policy, and monetary policy. It provides examples of analyzing different policy changes using the IS-LM diagram.
2. It then discusses how the IS-LM model can be used to derive the aggregate demand curve and analyze short-run and long-run effects of shocks. Price level adjustments move the economy from short-run to long-run equilibrium.
3. The document contains an example analyzing the 2001 US recession using the IS-LM framework, examining the effects of stock market decline, 9/11, accounting scandals, and fiscal and monetary policy responses.
The document discusses key concepts related to measuring economic activity including Gross Domestic Product (GDP), the Consumer Price Index (CPI), and the unemployment rate. It explains that GDP measures total output, income, and expenditure in an economy. The CPI is used to measure inflation and the cost of living. Different methods for calculating GDP, the GDP deflator, and chained weighted GDP are also outlined.
1. The document discusses the differences between the short run and long run in macroeconomics and introduces the aggregate demand and aggregate supply model.
2. In the short run, prices are sticky and output can deviate from full employment, while in the long run prices are flexible and output depends only on supply.
3. The model shows how shocks like changes in money supply, velocity, or oil prices can affect output and inflation in the short and long run.
This document provides an overview of key concepts relating to money supply and money demand from Chapter 18 of Mankiw's Macroeconomics textbook. It discusses how fractional-reserve banking allows banks to create money by lending out deposits. It also examines the three tools the Federal Reserve uses to control the money supply and explains why the Fed cannot precisely control the money supply. Finally, it summarizes theories of money demand, including a portfolio theory and the Baumol-Tobin transactions model.
Mankiew chapter 7 Consumers, Producers, and the Efficiency of MarketsAbd ELRahman ALFar
What is consumer surplus? How is it related to the demand curve?
What is producer surplus? How is it related to the supply curve?
Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?
This document discusses demand and supply and the price system. It explains that price rationing occurs when quantity demanded exceeds quantity supplied in the market. The price system acts to allocate goods in a way that maximizes benefits. Alternative rationing mechanisms imposed by governments or firms, such as price ceilings, often result in shortages. The document uses examples like lobsters, gasoline, and concert tickets to illustrate how supply and demand interact in markets.
This chapter discusses two modern theories of business cycles:
1) Real Business Cycle theory assumes flexible prices and that fluctuations result from optimal responses to productivity shocks.
2) New Keynesian theory explains why prices and wages are sticky in the short-run, causing recessions as coordination failures when firms do not lower prices together. It incorporates insights from both schools to better understand economic fluctuations.
This chapter discusses the determination of national income and its distribution in a closed economy. It introduces the production function and factors of production, capital and labor. It explains that total output is determined by factor supplies and technology. Factor prices, the wage rate and rental rate, are determined by supply and demand in factor markets. Total income is distributed to factors based on their marginal products. The chapter then covers the components of aggregate demand - consumption, investment, and government spending. It presents the loanable funds market model to show how interest rates adjust to equilibrate saving and investment.
Macroeconomics is the study of the economy as a whole, including issues like economic growth, inflation, and unemployment. Economists use various models to examine different macroeconomic issues in both the short-run and long-run. Models with flexible prices describe the long-run, while models with sticky prices are used for the short-run. Macroeconomic outcomes emerge from individual microeconomic actions.
This chapter introduces macroeconomics and the tools used in macroeconomic analysis. It discusses important macroeconomic issues like unemployment, inflation, and recessions. Economists use models to study these issues; models simplify reality by stripping out irrelevant details. A model of supply and demand for cars is presented to illustrate how endogenous and exogenous variables work in a model. The chapter outlines the rest of the book and distinguishes between models that assume flexible prices, describing the long-run economy, versus sticky prices, describing the short-run.
This chapter introduces macroeconomics and the key issues it addresses such as economic growth, unemployment, inflation, and recessions. It discusses the tools macroeconomists use like economic models to study these issues and simplify complex realities. Models can have flexible or sticky prices to examine long-run or short-run economic behavior. The chapter provides an overview of the topics that will be covered in the book.
chap 1.Economic model and macro iindicators Mankiw.pptwaleedlink96
This chapter introduces macroeconomics and the key variables of GDP, inflation, and unemployment. The objective is to develop an analytical framework to explain trends in these variables and how government policies can affect them. Models are used to simplify complex economic relationships and analyze how changes in factors like income, prices, and supply/demand influence equilibrium outcomes. The chapter discusses the supply and demand model of the car market as an example and notes the importance of distinguishing endogenous and exogenous variables. It also introduces the concept of price flexibility versus stickiness and how this impacts the economy in the short versus long run.
chap 1.Economic model and macro iindicators Mankiw (1).pptmaaidahussain1
This chapter introduces macroeconomics and the goals of the course. It will develop an analytical framework to explain economic growth, unemployment, inflation, and how government policies can impact these factors. Important macroeconomic issues include why inflation and costs of living increase, why unemployment remains high even during economic recoveries, and what causes recessions and if governments can combat them. Models are used to simplify complex economic realities and show relationships between variables to explain economic behavior and develop policies. Key macroeconomic variables that will be examined are GDP, inflation rates, and unemployment rates.
Macroeconomics is the study of the economy as a whole, including growth, prices, and unemployment. Economists use models to understand different economic issues, with flexible price models describing the long run and sticky price models for the short run. This chapter introduced macroeconomics and economic models, explaining how models simplify reality to show relationships between variables and inform policies. It also outlined the topics to be covered in the book.
This document provides an overview and outline of macroeconomics topics covered in a textbook. It discusses the key issues macroeconomists study like recessions, inflation, and unemployment. It introduces economic models as simplified representations of reality used to study relationships between variables and devise policies. The document outlines different models used to examine short-run issues when prices are sticky versus long-run issues when prices are flexible. It concludes with a summary of macroeconomics as the study of the overall economy and growth.
This chapter introduces macroeconomics and its key concepts. It discusses how macroeconomists study issues like economic growth, unemployment, and inflation at an aggregate level. The chapter also outlines the tools macroeconomists use, including economic models that simplify complex realities. It provides an example supply and demand model of the car market and discusses the distinction between endogenous and exogenous variables. The chapter concludes with an outline of the book's contents and a summary of macroeconomics as the study of the economy as a whole.
Macro economics, G.mankiw, 1-The Science of MacroeconomicsDr. Arifa Saeed
This document provides an introduction to macroeconomics. It discusses important issues studied in macroeconomics like inflation, unemployment, and economic growth. It also introduces some key tools used in macroeconomic analysis, including economic models. An example model of supply and demand for cars is presented to illustrate how macroeconomists use simplified models to show relationships between variables and explain economic behavior. The document emphasizes that different models are needed to study different macroeconomic issues.
This chapter introduces macroeconomics and the issues it addresses, such as economic growth, unemployment, and inflation. It discusses how macroeconomists use models to study these topics. Models make simplifying assumptions about factors like flexible vs. sticky prices to examine long-run versus short-run economic behavior. The chapter outlines the structure of the macroeconomics textbook in examining classical theory, growth theory, business cycles, and policy debates.
1. The chapter introduces macroeconomics and the tools used by macroeconomists to study issues like economic growth, unemployment, inflation, and the effects of government policies.
2. Macroeconomic models use simplified representations of the economy to show relationships between variables and explain economic behavior. Assumptions about price flexibility impact whether a model applies to short-run or long-run analysis.
3. Macroeconomics analyzes the whole economy and links microeconomic decisions of households and firms to macroeconomic outcomes. Different models address different issues over different time periods.
This document provides an overview of macroeconomics concepts from a textbook. It discusses what macroeconomists study, including issues like recessions, government spending, and inflation. It also covers the tools macroeconomists use, such as economic models, and key concepts around prices being flexible or sticky in the short and long run. The document outlines the chapters in the textbook, which cover classical economic theory, growth theory, business cycles, and macroeconomic policy.
This chapter introduces macroeconomics and the issues studied in the field. It discusses important macroeconomic concepts like GDP, unemployment, inflation, and recessions. The chapter explains that economists use different models to study different macroeconomic questions in both the short-run when prices are sticky and long-run when prices are flexible. It provides an example model of supply and demand for cars and how the model can be used to analyze the effects of changes in income and costs.
Macroeconomics is the study of the economy as a whole. Economists use models to examine issues like unemployment, inflation, and growth. Models simplify reality and show relationships between variables. Gross Domestic Product is a key statistic that measures total expenditure and income in the economy. It has components like consumption, investment, government spending, and net exports. Other important statistics include the Consumer Price Index for inflation and the unemployment rate.
Macroeconomics is the study of the economy as a whole. Economists use models to examine issues like unemployment, inflation, and growth. Models simplify reality and show relationships between variables. Gross domestic product is a key statistic that measures total expenditure and income in the economy. It has components like consumption, investment, government spending, and net exports. Other important statistics include inflation using the Consumer Price Index and the unemployment rate.
This course provides students with an understanding of macroeconomic analysis and application of microeconomic theory. The tentative course outline covers topics such as aggregate supply and demand, money supply and inflation, and unemployment. Students will complete a term paper and presentation analyzing a macroeconomic issue. Assessment includes exams, assignments, and the paper/presentation.
This chapter introduces macroeconomics and the tools used by macroeconomists. It discusses important macroeconomic issues like economic growth, unemployment, inflation, and recessions. Macroeconomists study indicators like GDP, inflation, and unemployment rates. The chapter outlines the structure of the book, which will cover classical economic theory, growth theory, and business cycle theory. It explains that macroeconomists use models to examine different issues and that these models vary in their treatment of price flexibility.
This document introduces macroeconomics and the tools used by macroeconomists. It discusses important macroeconomic issues like GDP, inflation, unemployment and recessions. It explains that macroeconomists use simplified models to study relationships between economic variables and to explain overall economic behavior. Models can have flexible or sticky prices, affecting how the economy functions in the short and long run. The goal of macroeconomics is to understand and improve the overall economy.
This document provides an overview and introduction to the scope and method of economics. It discusses the following key points in 3 sentences:
Economics is the study of how individuals and societies make choices with scarce resources. The document outlines why economics is studied, including to learn a way of thinking, understand society and global affairs, and be an informed voter. It also describes the scope of economics in terms of microeconomics, macroeconomics, and diverse fields, as well as the method which involves theories, models, and empirical testing of economic concepts.
This document provides an overview and introduction to economics. It discusses the scope of economics, including microeconomics and macroeconomics. It also covers the reasons to study economics, such as to learn a way of thinking and to understand society and global affairs. Additionally, it summarizes the method of economics, including theories, models, and empirical testing. Economic policy goals like efficiency, equity, growth and stability are also briefly outlined.
Similar to Gregory mankiw macroeconomic 7th edition chapter (1) (20)
“Amidst Tempered Optimism” Main economic trends in May 2024 based on the results of the New Monthly Enterprises Survey, #NRES
On 12 June 2024 the Institute for Economic Research and Policy Consulting (IER) held an online event “Economic Trends from a Business Perspective (May 2024)”.
During the event, the results of the 25-th monthly survey of business executives “Ukrainian Business during the war”, which was conducted in May 2024, were presented.
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eCommerce vs mCommerce. Know the key differencespptxE Concepts
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ADVICE TO ALL EMPLOYEES
1. Build a home earlier. Be it rural home or urban home. Building a house at 50 is not an achievement. Don't get used to government houses. This comfort is so dangerous. Let all your family have good time in your house.
2. Go home. Don't stick at work all the year. You are not the pillar of your department. If you drop dead today, you will be replaced immediately and operations will continue. Make your family a priority.
3. Don't chase promotions. Master your skills and be excellent at what you do. If they want to promote you, that's fine if they don't, stay positive to your personal.
development.
4. Avoid office or work gossip. Avoid things that tarnish your name or reputation. Don't join the bandwagon that backbites your bosses and colleagues. Stay away from negative gatherings that have only people as their agenda.
5. Don't ever compete with your bosses. You will burn your fingers. Don't compete with your colleagues, you will fry your brain.
6. Ensure you have a side business. Your salary will not sustain your needs in the long run.
7. Save some money. Let it be deducted automatically from your payslip.
8. Borrow a loan to invest in a business or to change a situation not to buy luxury. Buy luxury from your profit.
9. Keep your life,marriage and family private. Let them stay away from your work. This is very important.
10. Be loyal to yourself and believe in your work. Hanging around your boss will alienate you from your colleagues and your boss may finally dump you when he leaves.
11. Retire early. The best way to plan for your exit was when you received the employment letter. The other best time is today. By 40 to 50 be out.
12. Join work welfare and be an active member always. It will help you a lot when any eventuality occurs.
13.Take leave days utilize them by developing yr future home or projects..usually what you do during yr leave days is a reflection of how you'll live after retirement..If it means you spend it all holding a remote control watching series on Zee world, expect nothing different after retirement.
14. Start a project whilst still serving or working. Let your project run whilst at work and if it doesn't do well, start another one till it's running viably. When your project is viably running then retire to manage your business. Most people or pensioners fail in life because they retire to start a project instead of retiring to run a project.
15. Pension money is not for starting a project or buy a stand or build a house but it's money for your upkeep or to maintain yourself in good health. Pension money is not for paying school fees or marrying a young wife but to look after yourself.
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17. Don't retire just because you are finished or you are now a burden to the company and just wait for your day t
2. CHAPTER 1 The Science of Macroeconomics slide 2
Learning Objectives
This chapter introduces you to
the issues macroeconomists study
the tools macroeconomists use
some important concepts in macroeconomic
analysis
3. CHAPTER 1 The Science of Macroeconomics slide 3
Important issues in
macroeconomics
Why does the cost of living keep rising?
Why are millions of people unemployed,
even when the economy is booming?
What causes recessions?
Can the government do anything to combat
recessions? Should it?
Macroeconomics, the study of the economy as
a whole, addresses many topical issues:
4. CHAPTER 1 The Science of Macroeconomics slide 4
Important issues in
macroeconomics
What is the government budget deficit?
How does it affect the economy?
Why does the U.S. have such a huge trade
deficit?
Why are so many countries poor?
What policies might help them grow out of
poverty?
Macroeconomics, the study of the economy as
a whole, addresses many topical issues:
5. CHAPTER 1 The Science of Macroeconomics slide 5
0
10,000
20,000
30,000
40,000
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
U.S. Real GDP per capita
(2000 dollars)
Great
Depression
World War II
First oil
price shock
Second oil
price shock
long-run upward trend…
9/11/2001
6. CHAPTER 1 The Science of Macroeconomics slide 6
U.S. inflation rate
(% per year)
-15
-10
-5
0
5
10
15
20
25
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
7. CHAPTER 1 The Science of Macroeconomics slide 7
U.S. unemployment rate
(% of labor force)
0
5
10
15
20
25
30
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
8. CHAPTER 1 The Science of Macroeconomics slide 8
Why learn macroeconomics?
1. The macroeconomy affects society’s well-being.
Each one-point increase in the unemployment rate
is associated with:
920 more suicides
650 more homicides
4000 more people admitted to state mental
institutions
3300 more people sent to state prisons
37,000 more deaths
increases in domestic violence and homelessness
Each one-point increase in the unemployment rate
is associated with:
920 more suicides
650 more homicides
4000 more people admitted to state mental
institutions
3300 more people sent to state prisons
37,000 more deaths
increases in domestic violence and homelessness
9. CHAPTER 1 The Science of Macroeconomics slide 9
Why learn macroeconomics?
2. The macroeconomy affects your well-being.
changefrom12mosearlier
percentchangefrom12mosearlier
In most years, wage growth falls
when unemployment is rising.
In most years, wage growth falls
when unemployment is rising.
10. CHAPTER 1 The Science of Macroeconomics slide 10
Why learn macroeconomics?
Unemployment & inflation in election years
year U rate inflation rate elec. outcome
1976 7.7% 5.8% Carter (D)
1980 7.1% 13.5% Reagan (R)
1984 7.5% 4.3% Reagan (R)
1988 5.5% 4.1% Bush I (R)
1992 7.5% 3.0% Clinton (D)
1996 5.4% 3.3% Clinton (D)
2000 4.0% 3.4% Bush II (R)
2004 5.5% 3.3% Bush II (R)
3. The macroeconomy affects politics.
11. CHAPTER 1 The Science of Macroeconomics slide 11
Economic models
…are simplified versions of a more complex reality
irrelevant details are stripped away
…are used to
show relationships between variables
explain the economy’s behavior
devise policies to improve economic
performance
12. CHAPTER 1 The Science of Macroeconomics slide 12
Example of a model:
Supply & demand for new cars
shows how various events affect price and
quantity of cars
assumes the market is competitive: each buyer
and seller is too small to affect the market price
Variables:
Q d
= quantity of cars that buyers demand
Q s
= quantity that producers supply
P = price of new cars
Y = aggregate income
Ps = price of steel (an input)
13. CHAPTER 1 The Science of Macroeconomics slide 13
The demand for cars
demand equation: Q d
= D (P,Y )
shows that the quantity of cars consumers
demand is related to the price of cars and
aggregate income
14. CHAPTER 1 The Science of Macroeconomics slide 14
Digression: functional notation
General functional notation
shows only that the variables are related.
Q d
= D (P,Y )
A specific functional form shows
the precise quantitative relationship.
Example:
D (P,Y ) = 60 – 10P + 2Y
A list of the
variables
that affect Q d
15. CHAPTER 1 The Science of Macroeconomics slide 15
The market for cars: Demand
Q
Quantity
of cars
P
Price
of cars
D
The demand curve
shows the relationship
between quantity
demanded and price,
other things equal.
demand equation:
( , )=d
Q D P Y
16. CHAPTER 1 The Science of Macroeconomics slide 16
The market for cars: Supply
Q
Quantity
of cars
P
Price
of cars
D
supply equation:
( , )=s
sQ S P P S
The supply curve
shows the relationship
between quantity
supplied and price,
other things equal.
17. CHAPTER 1 The Science of Macroeconomics slide 17
The market for cars: Equilibrium
Q
Quantity
of cars
P
Price
of cars S
D
equilibrium
price
equilibrium
quantity
18. CHAPTER 1 The Science of Macroeconomics slide 18
The effects of an increase in income
Q
Quantity
of cars
P
Price
of cars S
D1
Q1
P1
An increase in income
increases the quantity
of cars consumers
demand at each price…
…which increases
the equilibrium price
and quantity.
P2
Q2
demand equation:
( , )=d
Q D P Y
D2
19. CHAPTER 1 The Science of Macroeconomics slide 19
The effects of a steel price increase
Q
Quantity
of cars
P
Price
of cars S1
D
Q1
P1
An increase in Ps
reduces the quantity of
cars producers supply
at each price…
…which increases the
market price and
reduces the quantity.
P2
Q2
S2
supply equation:
( , )=s
sQ S P P
20. CHAPTER 1 The Science of Macroeconomics slide 20
Endogenous vs. exogenous
variables
The values of endogenous variables
are determined in the model.
The values of exogenous variables
are determined outside the model:
the model takes their values & behavior
as given.
In the model of supply & demand for cars,
endogenous: , ,d s
P Q Q
exogenous: , sY P
21. CHAPTER 1 The Science of Macroeconomics slide 21
Now you try:
1. Write down demand and supply
equations for wireless phones;
include two exogenous variables
in each equation.
2. Draw a supply-demand graph
for wireless phones.
3. Use your graph to show how a
change in one of your exogenous
variables affects the model’s
endogenous variables.
22. CHAPTER 1 The Science of Macroeconomics slide 22
A multitude of models
No one model can address all the issues we
care about.
e.g., our supply-demand model of the car
market…
can tell us how a fall in aggregate income
affects price & quantity of cars.
cannot tell us why aggregate income falls.
23. CHAPTER 1 The Science of Macroeconomics slide 23
A multitude of models
So we will learn different models for studying
different issues (e.g., unemployment, inflation,
long-run growth).
For each new model, you should keep track of
its assumptions
which variables are endogenous,
which are exogenous
the questions it can help us understand,
and those it cannot
24. CHAPTER 1 The Science of Macroeconomics slide 24
Prices: flexible vs. sticky
Market clearing: An assumption that prices are
flexible, adjust to equate supply and demand.
In the short run, many prices are sticky –
adjust sluggishly in response to changes in
supply or demand. For example,
many labor contracts fix the nominal wage
for a year or longer
many magazine publishers change prices
only once every 3-4 years
25. CHAPTER 1 The Science of Macroeconomics slide 25
Prices: flexible vs. sticky
The economy’s behavior depends partly on
whether prices are sticky or flexible:
If prices are sticky, then demand won’t always
equal supply. This helps explain
unemployment (excess supply of labor)
why firms cannot always sell all the goods
they produce
Long run: prices flexible, markets clear,
economy behaves very differently
26. CHAPTER 1 The Science of Macroeconomics slide 26
Outline of this book:
Introductory material (Chaps. 1 & 2)
Classical Theory (Chaps. 3-6)
How the economy works in the long run, when
prices are flexible
Growth Theory (Chaps. 7-8)
The standard of living and its growth rate over the
very long run
Business Cycle Theory (Chaps. 9-13)
How the economy works in the short run, when
prices are sticky
27. CHAPTER 1 The Science of Macroeconomics slide 27
Outline of this book:
Policy debates (Chaps. 14-15)
Should the government try to smooth business
cycle fluctuations? Is the government’s debt a
problem?
Microeconomic foundations (Chaps. 16-19)
Insights from looking at the behavior of
consumers, firms, and other issues from a
microeconomic perspective
28. Chapter SummaryChapter Summary
Macroeconomics is the study of the economy as
a whole, including
growth in incomes,
changes in the overall level of prices,
the unemployment rate.
Macroeconomists attempt to explain the
economy and to devise policies to improve its
performance.
CHAPTER 1 The Science of Macroeconomics slide 28
29. Chapter SummaryChapter Summary
Economists use different models to examine
different issues.
Models with flexible prices describe the economy
in the long run; models with sticky prices
describe the economy in the short run.
Macroeconomic events and performance arise
from many microeconomic transactions, so
macroeconomics uses many of the tools of
microeconomics.
CHAPTER 1 The Science of Macroeconomics slide 29
Editor's Notes
Dear Colleague,
Thank you for trying these PowerPoints. I have worked hard to make them useful, accurate, and interesting in hopes of saving you prep time and contributing to an effective classroom experience for your students.
To help you get the most from these slides, I have prepared a README file with User Instructions, and I have annotated many individual slides with notes – visible only to you – that appear in this area of your screen.
I will be preparing minor updates about once a year between major revisions of the text, to update the data and correct typos, etc. If you find a typo or have a suggestion, please email it to me and I will consider it for the next update.
My email address is roncron@unlv.nevada.edu.
Sincerely, Ron Cronovich
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This slide and the next contain a list of some topical issues that macro can help students understand. Feel free to substitute others as new issues emerge.
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It might be useful to briefly define the unemployment rate so that students will be able to understand this and the next few slides.
Source: Barry Bluestone and Bennett Harrison, The Deindustrialization of America (New York: Basic Books, 1982), Chapter 3, cited in Robert J. Gordon, Macroeconomics, 4th edition (Boston: Little, Brown and Company), p.334. If you know of more recent estimates, please email me so I can update this slide!!! Thanks! (My email address is roncron@unlv.nevada.edu)
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Macroeconomics helps students understand forces that will affect their financial well-being. Here’s an example.
When the unemployment rate is rising, tens or hundreds of thousands of people are losing their jobs. This affects even those who don’t lose their jobs:
As the graph shows, during most years there is a clear negative relationship between the (12-month) change in unemployment and the annual growth rate of real wages. In plain English, rising unemployment is associated with falling (and often negative) wage growth. So when the economy goes into recession, even if our students get to keep their jobs, they will find it much harder to get a raise, and may have to accept a real wage cut.
Students find this relationship intuitive. When unemployment is rising, the supply of workers is rising faster than demand, so wages grow more slowly or even fall. Conversely, falling unemployment gives workers more bargaining power over wages, as it becomes increasingly hard for employers to replace their workers, and increasingly easy for workers to find good opportunities with other companies.
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I’d also suggest you briefly define the inflation rate (as the percentage increase in the cost of living) to help students understand this slide.
Main point of this data: The state of the economy has a huge impact on election outcomes. When the economy is doing poorly, there tends to be a change in the party that controls the White House.
1976: The rates of inflation () and unemployment (u) both high. Incumbent (Ford, R) loses.
1980: u still high, even higher. Incumbent (Carter, D) loses.
1984: u still high, but much lower. Incumbent (Reagan) wins.
1988: the same, u much lower. Incumbent party wins.
1992: low, but u much higher (and was higher yet in 1991). Incumbent loses.
1996: u much lower, incumbent wins.
2000: Economy doing great, and incumbent party candidate (Gore, D) wins majority of popular vote, but loses electoral college to challenger.
2004: u somewhat higher, but lower than in 2001 recession; low; incumbent wins
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Students will realize that the auto market is not competitive. However, if all we want to know is how an increase in the price of steel or a fall in consumer income affects the price and quantity of autos, then it’s fine to use this model.
In general, making unrealistic assumptions is okay, even desirable, if they simplify the analysis without affecting its validity.
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We often aren’t concerned with the exact quantitative relationship between variables, so we will often just use the general functional notation.
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Endogenous variables: price of wireless phones, quantity of wireless phones
Exogenous variables:
consumer income
price of wireless phone service (a complement)
price of landline phones & phone service (a substitute)
technology
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The portion of the book described on this slide comprises the core material. It is organized around time horizons: the long run (flexible prices), the very long run (growth in capital, the population, and technology itself), and the short run (sticky prices and economic fluctuations).
But wait! There’s more! See the next slide….
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All of the chapters listed on this slide are very good, but some instructors find that the semester isn’t always long enough to cover all of this material. Feel free to select chapters from these parts that best match the needs and interests of you and your students.
*** Are you covering Chapter 2 next? The PowerPoint presentation for Chapter 2 includes some in-class exercises to immediately reinforce concepts as they are presented. These exercises also help break up the lecture into smaller pieces. If you’d like to try them, please ask your students to bring calculators to the next class meeting.
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