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    Lecture 1 - ST

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    zaim ilyasa
    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.

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    Lecture 1 - ST

    Uploaded by

    zaim ilyasa
    25 views18 pages
    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.

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    Lecture 1 - St

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    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.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views18 pages

    Lecture 1 - ST

    Uploaded by

    zaim ilyasa
    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.

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    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

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