Transcript Macroeconomics: An Introduction

Macroeconomics
An Introduction
Microeconomics and Macroeconomics

Microeconomics: Study of the behavior of
economic units such and households and
firms

Macroeconomics: Study of economic
aggregates such as national income and
the overall price level
PPC Revisited
Macroeconomic Objectives
Good a
•Full employment
•Stable Prices
•Steady Growth
F
G
U
•Achieving macroeconomic goals
in a market economy
•The market’s self-correcting
H mechanism
•Imperfect and slow market
adjustments
Good B
0
Business Cycles

The Great Depression: 1929

The Keynesian Solution

The Act 1946: The Federal government is
to intervene in the economy to prevent
declines in output and employment
Recent Macroeconomic Experiences

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The 1950s: The Post-war recovery
The1960s: Continued growth with some inflation
The 1970s’ stagflation
Controlling inflation and supply side economics
in the 1980s
Prosperity in 1990s (Low inflation and low
unemployment)
Slow down in 2000-2001; mild recovery in the
following years
Macroeconomic Concerns

Unemployment
The unemployment rate is often regarded as the
key indicator of the health of the economy.

Inflation/deflation
Although high inflation (or sever deflation) has not
been a common occurrence in the US some other
countries have had long period of very high inflation.

Slow economic growth
Recessions are periods (lasting two consecutive
quarters) during which aggregate output declines.
A prolonged deep recession is called “depression.”
Macroeconomic Policy Tools

Fiscal policy
 Taxation
 Government
expenditures
 Trade policies

Monetary policy
 Money
and interest rates
 Foreign exchange policies

Growth or supply-side policy
Business Cycle
GDP: A measure of economic output
Nominal GDP
 Real GDP
 Potential (real) GDP
 Business cycle: trough – expansion – peak
– recession

Business Cycle
RGDP
Peak
Trough
Time