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Important Issues in Macroeconomics
Important Issues in Macroeconomics
Important Issues in Macroeconomics
macroeconomics
Macroeconomics, the study of the economy as
a whole, addresses many topical issues:
slide 1
9/11/2001
First oil
price shock
30,000
Great
Depression
Second oil
price shock
10,000
World War II
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
CHAPTER 1
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CHAPTER 1
In
In most
most years,
years, wage
wage growth
growth falls
falls
when
when unemployment
unemployment is
is rising.
rising.
slide 6
U rate
inflation rate
1976
7.7%
5.8%
1980
7.1%
13.5%
Reagan (R)
1984
7.5%
4.3%
Reagan (R)
1988
5.5%
4.1%
Bush I (R)
1992
7.5%
3.0%
Clinton (D)
1996
5.4%
3.3%
Clinton (D)
2000
4.0%
3.4%
Bush II (R)
2004 1
CHAPTER
elec. outcome
Carter (D)
5.5%
3.3%
Bush II (R)
The
Science of Macroeconomics
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Economic models
are simplified versions of a more complex reality
irrelevant details are stripped away
are used to
show relationships between variables
explain the economys behavior
devise policies to improve economic
performance
CHAPTER 1
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Example of a model:
Variables:
Q d = quantity of cars that buyers demand
Q s = quantity that producers supply
P = price of new cars
Y = aggregate income
Ps = price of steel (an input)
CHAPTER 1
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CHAPTER 1
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Digression: functional
notation
CHAPTER 1
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D (P ,Y )
P
Price
of cars
CHAPTER 1
Q
Quantit
y of
cars
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P
Price
of cars
CHAPTER 1
Q
Quantit
y of
cars
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equilibrium
price
Q
equilibrium
quantity
CHAPTER 1
Quantit
y of
cars
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Q d D (P ,Y )
Price
of cars
An increase in income
increases the quantity
of cars consumers
demand at each price
P2
P1
D1
which increases
the equilibrium price
and quantity.
CHAPTER 1
Q1 Q2
D2
Q
Quantit
y of
cars
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P
Price
of cars
An increase in Ps
reduces the quantity of
cars producers supply
at each price
which increases the
market price and
reduces the quantity.
CHAPTER 1
S2
S1
P2
P1
D
Q2 Q1
Q
Quantit
y of
cars
slide 16
P , Qd , Q s
Y , Ps
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A multitude of models
CHAPTER 1
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A multitude of models
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CHAPTER 1
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Chapter Summary
CHAPTER 1
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Chapter Summary
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