Transcript ECO285 - Macroeconomics

Basics of
Macroeconomics
peak
contraction
recovery
trough
Dr. Dennis Foster
Economics:
A framework for understanding how we
cope with scarcity.
Micro – focus on individual/firm.
Macro – focus on the overall economy.
Macroeconomic problems
Unemployment
of resources.
Economic growth is slow,
sluggish, negative.
Inflation.
Why is Inflation a problem?
Milton Friedman …
Inflation is always and
everywhere a monetary
phenomenon.
Who controls the money supply?
The Federal Reserve System
(the government!)
Macroeconomic
goals
Full employment of resources.
Sustained economic growth.
Price stability.
Business Cycles
Macro goals are interrelated:
peak
Change in
GDP over
time.
contraction
recovery
trough
time line
Employment
high
falling
low
rising
Prices
rising
falling
stable
stable
Growth
stable
negative
stable
high
Business Cycles - Theories

External shocks

Population pressures [Malthus]

Innovation [Schumpeter]

Underconsumption [Marx]

Erratic anomalies [Classical]

Overproduction [Keynesian]

Central banking [Austrian]
Appendix: Macro Model of Economy
Production Possibilities Frontier
Tons of
Wheat
The Production
Possibilities Curve
A
120
B
1. What is the cost in
going from A to B, B to C,
C to D, et al.?
2. What is the cost in
going from G to F, F to E, et
al.?
3. What point is best?
4. What is wrong with H?
5. Can we produce at I?
Can we consume there?
I
100
C
80
H
60
D
E
40
20
F
G
0
25
35
41 46 49 50
Reference: Investopedia on the PPF:
http://www.investopedia.com/terms/p/productionpossibilityfrontier.asp
Gallons of
Wine
Production Possibilities Frontier
What does it show us?
 Scarcity
 Choice
 Unemployment
 Economic growth
What doesn’t it show us?
 What/How/For Whom to produce
 Inflation
 How variables are related (theory)
Basics of
Macroeconomics
peak
contraction
recovery
trough
Dr. Dennis Foster