0% found this document useful (0 votes)
32 views

Lecture 1 - ST

This document provides an overview of macroeconomics topics including key variables like GDP and inflation, macroeconomic issues like unemployment and economic growth, what macroeconomists do like forecasting and research, and reasons for disagreements between classical and Keynesian schools of thought. It defines macroeconomics as the study of national economies and government policies at an aggregated level.

Uploaded by

zaim ilyasa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
32 views

Lecture 1 - ST

This document provides an overview of macroeconomics topics including key variables like GDP and inflation, macroeconomic issues like unemployment and economic growth, what macroeconomists do like forecasting and research, and reasons for disagreements between classical and Keynesian schools of thought. It defines macroeconomics as the study of national economies and government policies at an aggregated level.

Uploaded by

zaim ilyasa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 18

MACROECONOMICS 1

MACROECONOMIC ISSUES

1
MACROECONOMICS
• Macroeconomics: the study of the structure and
performance of national economies and government
policies that affect economic performance
• Behaviour of the economy as a whole.
• Differences amongst schools of macroeconomists:
Classical versus Keynesians.

2
MACROECONOMICS
• Issues addressed by macroeconomists:
• Long-run economic growth
• Business cycles
• Unemployment
• Inflation
• The international economy
• Macroeconomic policy
• Aggregation: from microeconomics to
macroeconomics

3
KEY VARIABLES
• Gross Domestic Product (GDP) – A measure of all
currently produced final goods and services.

• Unemployment rate – The number of unemployed


persons expressed as a percentage of the labour
force.4

4
KEY VARIABLES
• Inflation rate – The percentage rate of change in the
price index (measures the aggregate price level
relative to a base year) over a given period.
• Consumer price index (CPI) – A measure of the retail
prices of a fixed “market basket” of several thousand
goods and services purchased by households.
• Federal budget deficit – Federal government tax
revenues minus outlays.
• Trade deficit – The excess of imports over exports

5
MACROECONOMICS ISSUES
• Short-term problems:
• Unemployment
• Inflation

• Long-term problems:
• Long-run economic growth
• Balance of payments

6
MACROECONOMICS ISSUES
• Unemployment:
• the number of people who are available for work
and actively seeking work but cannot find jobs
• Recessions cause the unemployment rate to rise

• Inflation
• Deflation: when prices of most goods and services
decline
• Inflation rate: the percentage increase in the level
of prices
• Hyperinflation: an extremely high rate of inflation

7
MACROECONOMICS ISSUES
• Long-run economic growth
• Two main sources of growth
• Population growth
• Increases in average labour productivity -
Output produced per employed worker

• Business cycles
• Business cycle: Short-run contractions and
expansions in economic activity
• Downward phase is called a recession

8
MACROECONOMICS ISSUES
• The international economy
• Open vs closed economies
• Open economy: an economy that has extensive
trading and financial relationships with other
national economies
• Closed economy: an economy that does not
interact economically with the rest of the world
• Trade imbalances
• Trade surplus: exports exceed imports
• Trade deficit: imports exceed exports

9
MACROECONOMICS ISSUES
• Macroeconomic Policy
• Fiscal policy: government spending and taxation
• Effects of changes in the federal budget

• Monetary policy: growth of money supply;


determined by the central bank.

10
MACROECONOMICS ISSUES
• Aggregation
• Aggregation: summing individual economic
variables to obtain economywide totals
• Distinguishes microeconomics (disaggregated)
from macroeconomics (aggregated)

11
WHAT MACROECONOMISTS DO
• Macroeconomic forecasting
• Relatively few economists make forecasts
• Forecasting is very difficult

• Macroeconomic analysis
• Private and public sector economists—analyze
current conditions
• Public sector employs many macroeconomic
analysts who provide policy advice

12
WHAT MACROECONOMISTS DO
• Macroeconomic research
• Goal: to make general statements about how the
economy works
• Theoretical and empirical research are necessary
for forecasting and economic analysis
• Economic theory: a set of ideas about the
economy, organized in a logical framework
• Economic model: a simplified description of some
aspect of the economy

13
WHAT MACROECONOMISTS DO
• Usefulness of economic theory or models
depends on the reasonableness of assumptions,
the possibility of being applied to real problems,
empirically testable implications, theoretical
results consistent with real-world data
• Data development—very important for making
data more useful

14
WHY MACROECONOMISTS
DISAGREE
• Positive vs normative analysis
• Positive analysis: examines the economic
consequences of a policy
• Normative analysis: determines whether a policy
should be used

15
WHY MACROECONOMISTS
DISAGREE
• Classicals vs. Keynesians
• The classical approach
• The economy works well on its own
• The “invisible hand”: the idea that if there are free
markets and individuals conduct their economic affairs in
their own best interests, the overall economy will work
well
• Wages and prices adjust rapidly to get to equilibrium
• Equilibrium: a situation in which the quantities
demanded and supplied are equal
• Changes in wages and prices are signals that
coordinate people’s actions
• Result: Government should have only a limited role in the
economy

16
WHY MACROECONOMISTS
DISAGREE
• Classicals vs Keynesians
• The Keynesian approach
• The Great Depression: Classical theory failed
because high unemployment was persistent
• Keynes: Persistent unemployment occurs
because wages and prices adjust slowly, so
markets remain out of equilibrium for long
periods
• Conclusion: Government should intervene to
restore full employment

17
WHY MACROECONOMISTS
DISAGREE
• Classicals vs Keynesians
• The evolution of the classical–Keynesian debate
• Keynesians dominated from W WI I to 1970
• Stagflation led to a classical comeback in the
1970s
• Last 30 years: excellent research with both
approaches

18

You might also like