Professional Documents
Culture Documents
The Science of Macroeconomics: Acroeconomics
The Science of Macroeconomics: Acroeconomics
CHAPTE
R
The Science of
Macroeconomics
First oil
30,000
price shock
long-run upward trend…
20,000
Great
Depression Second oil
price shock
10,000
World War II
0
1930
2000
1900
1910
1920
1940
1950
1960
1970
1980
1990
CHAPTER 1 The Science of Macroeconomics slide 5
U.S. inflation rate
(% per year)
25
20
15
10
-5
-10
-15
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
CHAPTER 1 The Science of Macroeconomics slide 6
U.S. unemployment rate
(% of labor force)
25
20
15
10
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
CHAPTER 1 The Science of Macroeconomics slide 7
Why learn macroeconomics?
1. The macroeconomy affects society’s well-being.
U.S. Unemployment and
Social Property
problems Crime homelessness,6000
like Rates
Social problems like homelessness,
10
domestic
domestic violence,
violence, crime,
crime,
propertyand
and
crime
100,000 population
percent of labor force
8 poverty
poverty are
are linked
linked to
to the economy.
(right
the scale)
economy. 5000
crimes per
6 For
For example…
example…
4000
4 unemployment
3000
2 (left scale)
0 2000
1970 1 The Science
CHAPTER 1980 of Macroeconomics
1990 2000
slide 8
Why learn macroeconomics?
2. The macroeconomy affects your well-being.
In
In most
most years,
years, wage
wage growth
growth falls
falls
5
CHAPTER 1 The Science of Macroeconomics slide 9
Why learn macroeconomics?
3. The macroeconomy affects politics.
Unemployment & inflation in election years
year U rate inflation rate elec. outcome
1976 7.7% 5.8% Carter (D)
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 5.5%
The 3.3%
Science of Macroeconomics Bush II (R) slide 10
Economic models
demand equation: P
Price
Q d
= D (P ,Y ) of cars
supply equation: P
Price
Q = S (P , Ps )
s
of cars S
P
Price
of cars S
equilibrium
price
D
Q
Quantit
y of
equilibrium cars
quantity
An increase in income
increases the quantity P2
of cars consumers P1
demand at each price… D2
D1
Q
…which increases Q1 Q2
Quantit
the equilibrium price y of
and quantity. cars
An increase in Ps
reduces the quantity of P2
cars producers supply P1
at each price…
D