Intermediate Macroeconomics

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Intermediate Macroeconomics

• Chapter 1
• An Overview of Macroeconomics

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An Overview of Macroeconomics

• What is Macroeconomics
• Macroeconomic Goals
• Economic Theory in Practice

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1. What Is Macroeconomics?

• Microeconomics - study of behavior of individual
  economic agents.
• Macroeconomics - study of aggregate measures of
  the economy

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2. Macroeconomic Goals

• Low Unemployment
• Price Stability
• Economic Growth
• Complementary and Conflicting Goals

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2. Macroeconomic Goals Low Unemployment
Great Depression (1929 - 1933)
World War II (1941 - 1945)
1981 - 1982 recession
1973 - 1975 recession
1990 - 1991 recession
U.S.
Fairfax Co., VA.
Source Bureau of Labor Statistics (www.bls.gov)
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2. Macroeconomic Goals Price Stability
World War 1 1917 - 1918
Iranian Revolution and Oil Price Increase
World War 2 1941 - 1945
Arab oil Embargo 1973 - 1974
Great Depression 1929 - 1933
Source Bureau of Labor Statistics (www.bls.gov)
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2. Macroeconomic Goals Economic Growth
Annual change in U.S. GDP per capita
Nominal GDP
Real GDP (chained 1996 dollars)
Source Bureau of Economic Analysis (www.bea.gov)
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2. Macroeconomic Goals Economic Growth
Long term trend 2.4 per year
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2. Macroeconomic Goals Complementary and
Conflicting Goals

• Complementary Goals
• Low unemployment and high economic growth
• Conflicting Goals
• Low unemployment and low inflation

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3. Economic Theory in Practice

• Economic Theory and Models
• Empirical Applications

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3. Economic Theory in Practice Economic
theory and models

• What makes a good model?
• Accurately explains history
• Makes reasonable predictions about the future

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3. Economic Theory in Practice Economic
theory and models

• Keep models simple
• Occams Razor - eliminate complicating details
  that dont significantly contribute to the model
• Ceteris Paribus - other things being equal

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Economic Theory in PracticeEmpirical time series
applications

• Use Real rather than Nominal values
• Compare Per Capita rather than Totals
• Compare Growth Rates rather than Levels

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3. Economic Theory in Practice Compare
real rather than nominal
Percent increase 1929 2003 Nominal
GDP 10,522 Real GDP 1,100
Real GDP
Nominal GDP
Source Bureau of Economic Analysis, www.bea.gov
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3. Economic Theory in Practice Compare per
capita rather than aggregates
Percent increase 1929 2003 Total Real GDP
1,100 Real GDP per capita 402
Real GDP per capita
Total Real GDP
Source Bureau of Economic Analysis, www.bea.gov
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3. Economic Theory in Practice Compare
growth rates rather than levels
Source Bureau of Economic Analysis, www.bea.gov