Professional Documents
Culture Documents
Important Issues in Macroeconomics
Important Issues in Macroeconomics
CHAPTER 1
slide 0
CHAPTER 1
slide 1
example:
CHAPTER 1
slide 2
CHAPTER 1
slide 3
example:
example:
example 1:
example 1:
example 2:
example 2:
example:
slide 4
CHAPTER 1
slide 5
U rate
7.7% 7.1% 7.5% 5.5% 7.5% 5.4% 4.0%
inflation rate
5.8% 13.5% 4.3% 4.1% 3.0% 3.3% 3.4%
elec. outcome
Carter (D) Reagan (R) Reagan (R) Bush I (R) Clinton (D) Clinton (D) Bush II (R)
slide 6
http://fairmodel.econ.yale.edu
CHAPTER 1
CHAPTER 1
slide 7
Economic models
are simplied versions of a more complex reality irrelevant details are stripped away Used to show the relationships between economic variables explain the economys behavior devise policies to improve economic performance
CHAPTER 1
CHAPTER 1
slide 9
Q d = D (P ,Y )
shows that the quantity of cars consumers demand is related to the price of cars and aggregate income.
Q d = D (P ,Y )
CHAPTER 1
slide 10
CHAPTER 1
slide 11
Q d = D (P ,Y )
A specific functional form shows the precise quantitative relationship: Examples:
1)
= D (P ,Y )
Q d = D (P ,Y ) = 60 10P + 2 Y
2)
Q d = D (P ,Y ) =
0.3 Y
The demand curve shows the relationship between quantity demanded and price, other things equal.
D
Quantity of cars
P
slide 12
CHAPTER 1
CHAPTER 1
slide 13
Q = S (P , Ps )
The supply curve shows the relationship between quantity supplied and price, other things equal.
D
Quantity of cars
equilibrium price
D
Quantity of cars
equilibrium quantity
CHAPTER 1
CHAPTER 1
slide 14
slide 15
Q d = D (P ,Y )
An increase in income increases the quantity of cars consumers demand at each price which increases the equilibrium price and quantity.
CHAPTER 1
Price of cars
Q s = S (P , Ps )
An increase in Ps reduces the quantity of cars producers supply at each price
Price of cars
S2 S1
P2 P1 D1 Q1 Q2 D2
P2 P1 D Q2 Q1
Quantity of cars
Quantity of cars
slide 16
CHAPTER 1
slide 17
How the economy works in the long run, when prices are flexible
The standard of living and its growth rate over the very long run
endogenous:
P , Qd , Qs
exogenous:
CHAPTER 1
Y , Ps
slide 18
How the economy works in the short run, when prices are sticky.
CHAPTER 1
slide 19
CHAPTER 1
slide 20