Introduction to Macroeconomics

Сентябрь 11, 2022

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Introduction to Macroeconomics

Содержание

2. Intro individual decision-making Microeconomics examines the behavior of units—business firms and households. Macroeconomics deals with the
3. Intro When we study the consumption behaviour or equilibrium of a consumer; the production pattern &
4. Intro Microeconomists generally conclude that markets work well. Macroeconomists, however, observe that some important prices often
5. Intro Macroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or the microeconomic foundations of
6. The Roots of Macroeconomics The Great Depression was a period of severe economic contraction and high
7. The Roots of Macroeconomics Classical economists applied microeconomic models, or “market clearing” models, to economy-wide problems.
8. The Roots of Macroeconomics In 1936, John Maynard Keynes published The General Theory of Employment, Interest,
9. Recent Macroeconomic History Fine-tuning was the phrase used by Walter Heller to refer to the government’s
10. Why to Study Macroeconomics? Macroeconomics is the study of the nation’s economy as a whole. We
11. Macroeconomic Concerns Three of the major concerns of macroeconomics are: Inflation Output growth Unemployment
12. Inflation and Deflation Inflation is an increase in the overall price level. Hyperinflation is a period
13. Inflation
14. Output Growth: Short Run and Long Run The business cycle is the cycle of short-term ups
15. The Business cycle is the rise and fall of economic activity relative to the long-term growth
16. Ups and downs of the Business Cycle Peak: at the peak of the business cycle, Real
17. Recent Macroeconomic History Stagflation occurs when the overall price level rises rapidly (inflation) during periods of
18. Stagflation Stagflation is a contraction of a nation’s output accompanied by inflation Staglation is generally a
19. Output Growth: Short Run and Long Run A recession is a period during which aggregate output
20. Unemployment The unemployment rate is the percentage of the labor force that is unemployed. The unemployment
21. Unemployment
22. Government in the Macroeconomy There are three kinds of policy that the government has used to
23. Government in the Macroeconomy Fiscal policy refers to government policies concerning taxes and spending. Monetary policy
24. The Components of the Macroeconomy The circular flow diagram shows the income received and payments made
25. The Components of the Macroeconomy
26. The Components of the Macroeconomy
27. The Components of the Macroeconomy Transfer payments are payments made by the government to people who
28. The Three Market Arenas Households, firms, the government, and the rest of the world all interact
29. The Three Market Arenas Households and the government purchase goods and services (demand) from firms in
30. The Three Market Arenas In the money market – sometimes called the financial market – households
31. Financial Instruments Treasury bonds, notes, and bills are promissory notes issued by the federal government when
32. The Methodology of Macroeconomics Connections to microeconomics: Macroeconomic behavior is the sum of all the microeconomic
33. Aggregate Supply and Aggregate Demand Aggregate demand is the total demand for goods and services in
34. Expansion and Contraction: The Business Cycle An expansion, or boom, is the period in the business
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Intro
individual decision-making Microeconomics examines the behavior of units—business firms and households.
Macroeconomics

deals with the economy as a whole; it examines the behavior of economic aggregates such as aggregate income, consumption, investment, and the overall level of prices.
Aggregate behavior refers to the behavior of all households and firms together.

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Intro
When we study the consumption behaviour or equilibrium of a consumer;

the production pattern & equilibrium of a firm, the entire analysis is ‘micro’ in nature……because
we study a UNIT and not the SYSTEM in which it is operating

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Intro
Microeconomists generally conclude that markets work well.
Macroeconomists, however, observe that some

important prices often seem “sticky”
Sticky prices are prices that do not always adjust rapidly to maintain the equality between quantity supplied and quantity demanded.

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Intro
Macroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or

the microeconomic foundations of macroeconomics

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The Roots of Macroeconomics
The Great Depression was a period of severe

economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.

Stock Markets crashed!
9000 banks filed for bankruptcy
Banks that survived stopped giving loans.
People cut down spending
Large amounts of inventories started piling up
Businesses stopped production….layoffs!( 25% unemployment)
Purchasing power declined
Hawley – Smoot tariff imposed on imports in 1930
Decline in world trade & economic retaliation.

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The Roots of Macroeconomics
Classical economists applied microeconomic models, or “market clearing”

models, to economy-wide problems.
However, simple classical models failed to explain the prolonged existence of high unemployment during the Great Depression. This provided the impetus for the development of macroeconomics

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The Roots of Macroeconomics
In 1936, John Maynard Keynes published The General

Theory of Employment, Interest, and Money.
Keynes believed governments could intervene in the economy and affect the level of output and employment.
During periods of low private demand, the government can stimulate aggregate demand to lift the economy out of recession.

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Recent Macroeconomic History
Fine-tuning was the phrase used by Walter Heller to

refer to the government’s role in regulating inflation and unemployment.
The use of Keynesian policy to fine-tune the economy in the 1960s, led to disillusionment in the 1970s and early 1980s.

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Why to Study Macroeconomics?
Macroeconomics is the study of the nation’s economy

as a whole.
We can use macroeconomic analysis to:
Understand why economies grow.
Understand economic fluctuations.
Make informed business decisions.

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Macroeconomic Concerns
Three of the major concerns of macroeconomics are:
Inflation
Output growth
Unemployment

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Inflation and Deflation
Inflation is an increase in the overall price level.
Hyperinflation

is a period of very rapid increases in the overall price level.
Hyperinflations are rare, but have been used to study the costs and consequences of even moderate inflation.
Deflation is a decrease in the overall price level. Prolonged periods of deflation can be just as damaging for the economy as sustained inflation.

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Inflation

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Output Growth: Short Run and Long Run
The business cycle is the

cycle of short-term ups and downs in the economy.
The main measure of how an economy is doing is aggregate output:
Aggregate output is the total quantity of goods and services produced in an economy in a given period

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The Business cycle is the rise and fall of economic activity

relative to the long-term growth trend of the economy

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Ups and downs of the Business Cycle
Peak: at the peak of

the business cycle, Real GDP is at a temporary high.
Contraction: A decline in the real GDP. If it falls for two consecutive quarters, it is said the economy to be in a recession.
Trough: The Low Point of the GDP, just before it begins to turn up.
Recovery: When the GDP is rising from the trough.
Expansion: when the real GDP expands beyond the recovery
Recession : two consecutive quarter declines in Real DP

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Recent Macroeconomic History
Stagflation occurs when the overall price level rises rapidly

(inflation) during periods of recession or high and persistent unemployment (stagnation).

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Stagflation
Stagflation is a contraction of a nation’s output accompanied by inflation
Staglation

is generally a “supply-side” phenomenon
A dramatic increase in oil prices caused the stagflation of the 1970s

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Output Growth: Short Run and Long Run
A recession is a period during

which aggregate output declines. Two consecutive quarters of decrease in output signal a recession.

A prolonged and deep recession becomes a depression
Policy makers attempt not only to smooth fluctuations in output during a business cycle but also to increase the growth rate of output in the long-run.

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Unemployment
The unemployment rate is the percentage of the labor force that

is unemployed.
The unemployment rate is a key indicator of the economy’s health.
The existence of unemployment seems to imply that the aggregate labor market is not in equilibrium.
Why do labor markets not clear when other markets do?

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Unemployment

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Government in the Macroeconomy
There are three kinds of policy that the

government has used to influence the macroeconomics:
Fiscal policy
Monetary policy
Growth or supply-side policies

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Government in the Macroeconomy
Fiscal policy refers to government policies concerning taxes

and spending.
Monetary policy consists of tools used by the Federal Reserve to control the quantity of money in the economy.
Growth policies are government policies that focus on stimulating aggregate supply instead of aggregate demand.

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The Components of the Macroeconomy
The circular flow diagram shows the income

received and payments made by each sector of the economy.

Everyone’s expenditure is someone else’s
receipt. Every transaction must have two sides.

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The Components of the Macroeconomy

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The Components of the Macroeconomy

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The Components of the Macroeconomy
Transfer payments are payments made by the

government to people who do not supply goods, services, or labor in exchange for these payments.

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The Three Market Arenas
Households, firms, the government, and the rest of

the world all interact in three different market arenas:
Goods-and-services market
Labor market
Money (financial) market

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The Three Market Arenas
Households and the government purchase goods and services

(demand) from firms in the goods-and services market, and firms supply to the goods and services market.
In the labor market, firms and government purchase (demand) labor from households (supply).
The total supply of labor in the economy depends on the sum of decisions made by households.

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The Three Market Arenas
In the money market – sometimes called the

financial market – households purchase stocks and bonds from firms.
Households supply funds to this market in the expectation of earning income, and also demand (borrow) funds from this market.
Firms, government, and the rest of the world also engage in borrowing and lending, coordinated by financial institutions.

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Financial Instruments
Treasury bonds, notes, and bills are promissory notes issued by

the federal government when it borrows money.
Corporate bonds are promissory notes issued by corporations when they borrow money
Shares of stock are financial instruments that give to the holder a share in the firm’s ownership and therefore the right to share in the firm’s profits.
Dividends are the portion of a corporation’s profits that the firm pays out each period to its shareholders.hen they borrow money.

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The Methodology of Macroeconomics
Connections to microeconomics:
Macroeconomic behavior is the sum of

all the microeconomic decisions made by individual households and firms. We cannot understand the former without some knowledge of the factors that influence the latter.

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Aggregate Supply and Aggregate Demand
Aggregate demand is the total demand for goods

and services in an economy.
Aggregate supply is the total supply of goods and services in an economy.
Aggregate supply and demand curves are more complex than simple market supply and demand curves.

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Expansion and Contraction: The Business Cycle
An expansion, or boom, is the period

in the business cycle from a trough up to a peak, during which output and employment rise.
A contraction, recession, or slump is the period in the business cycle from a peak down to a trough, during which output and employment fall.

The Business cycle is the rise and fall of economic activity relative to the long-term growth trend of the economy

Introduction to Macroeconomics

Содержание

Introindividual decision-making Microeconomics examines the behavior of units—business firms and households.Macroeconomics

IntroWhen we study the consumption behaviour or equilibrium of a consumer;

IntroMicroeconomists generally conclude that markets work well.Macroeconomists, however, observe that some

IntroMacroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or

The Roots of MacroeconomicsThe Great Depression was a period of severe

The Roots of MacroeconomicsClassical economists applied microeconomic models, or “market clearing”

The Roots of MacroeconomicsIn 1936, John Maynard Keynes published The General

Recent Macroeconomic HistoryFine-tuning was the phrase used by Walter Heller to

Why to Study Macroeconomics?Macroeconomics is the study of the nation’s economy

Macroeconomic ConcernsThree of the major concerns of macroeconomics are:InflationOutput growthUnemployment

Inflation and DeflationInflation is an increase in the overall price level.Hyperinflation

Inflation

Output Growth: Short Run and Long RunThe business cycle is the

The Business cycle is the rise and fall of economic activity

Ups and downs of the Business CyclePeak: at the peak of

Recent Macroeconomic HistoryStagflation occurs when the overall price level rises rapidly

StagflationStagflation is a contraction of a nation’s output accompanied by inflationStaglation

Output Growth: Short Run and Long RunA recession is a period during

UnemploymentThe unemployment rate is the percentage of the labor force that

Unemployment

Government in the MacroeconomyThere are three kinds of policy that the

Government in the MacroeconomyFiscal policy refers to government policies concerning taxes

The Components of the MacroeconomyThe circular flow diagram shows the income

The Components of the Macroeconomy

The Components of the Macroeconomy

The Components of the MacroeconomyTransfer payments are payments made by the

The Three Market ArenasHouseholds, firms, the government, and the rest of

The Three Market ArenasHouseholds and the government purchase goods and services

The Three Market ArenasIn the money market – sometimes called the

Financial InstrumentsTreasury bonds, notes, and bills are promissory notes issued by

The Methodology of MacroeconomicsConnections to microeconomics:Macroeconomic behavior is the sum of

Aggregate Supply and Aggregate DemandAggregate demand is the total demand for goods

Expansion and Contraction: The Business CycleAn expansion, or boom, is the period

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Intro
individual decision-making Microeconomics examines the behavior of units—business firms and households.
Macroeconomics

Intro
When we study the consumption behaviour or equilibrium of a consumer;

Intro
Microeconomists generally conclude that markets work well.
Macroeconomists, however, observe that some

Intro
Macroeconomists often reflect on the microeconomic principles underlying macroeconomic analysis, or

The Roots of Macroeconomics
The Great Depression was a period of severe

The Roots of Macroeconomics
Classical economists applied microeconomic models, or “market clearing”

The Roots of Macroeconomics
In 1936, John Maynard Keynes published The General

Recent Macroeconomic History
Fine-tuning was the phrase used by Walter Heller to

Why to Study Macroeconomics?
Macroeconomics is the study of the nation’s economy

Macroeconomic Concerns
Three of the major concerns of macroeconomics are:
Inflation
Output growth
Unemployment

Inflation and Deflation
Inflation is an increase in the overall price level.
Hyperinflation

Output Growth: Short Run and Long Run
The business cycle is the

Ups and downs of the Business Cycle
Peak: at the peak of

Recent Macroeconomic History
Stagflation occurs when the overall price level rises rapidly

Stagflation
Stagflation is a contraction of a nation’s output accompanied by inflation
Staglation

Output Growth: Short Run and Long Run
A recession is a period during

Unemployment
The unemployment rate is the percentage of the labor force that

Government in the Macroeconomy
There are three kinds of policy that the

Government in the Macroeconomy
Fiscal policy refers to government policies concerning taxes

The Components of the Macroeconomy
The circular flow diagram shows the income

The Components of the Macroeconomy
Transfer payments are payments made by the

The Three Market Arenas
Households, firms, the government, and the rest of

The Three Market Arenas
Households and the government purchase goods and services

The Three Market Arenas
In the money market – sometimes called the

Financial Instruments
Treasury bonds, notes, and bills are promissory notes issued by

The Methodology of Macroeconomics
Connections to microeconomics:
Macroeconomic behavior is the sum of

Aggregate Supply and Aggregate Demand
Aggregate demand is the total demand for goods

Expansion and Contraction: The Business Cycle
An expansion, or boom, is the period