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Lecture 1 Chap01 02
Lecture 1 Chap01 02
Lecture 1 Chap01 02
Ondřej Krčál
Department of Economics
Office 611
Consultation hours: Monday 17:00 – 18:30
E-mail: krcalo@mail.muni.cz
N. GREGORY MANKIW
PowerPoint® Slides by Ron Cronovich
© 2008 Worth Publishers, all rights reserved
Learning Objectives
First oil
30,000
price shock
long-run upward trend…
20,000
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 The Science of Macroeconomics slide 8
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 9
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 10
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 11
Why learn macroeconomics?
2. The macroeconomy affects your well-being.
5 5
In most years, wage growth falls
In most years, wage growth falls
3
1
2
1 -1
0
-3
-1
-5
-2
-3 -7
1965 1970 1975 1980 1985 1990 1995 2000 2005
1 The Science
unemployment
CHAPTER rate ofinflation-adjusted
Macroeconomics mean wage (right scale) slide 12
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 13
Economic models
demand equation: P
Price
Q d
D (P ,Y ) of cars
supply equation: P
Price
s
Q S (P , Ps ) of cars S
P
Price
of cars S
equilibrium
price
D
Q
Quantity
of cars
equilibrium
quantity
An increase in income
increases the quantity P2
of cars consumers P1
demand at each price… D2
D1
Q
…which increases Q1 Q2
Quantity
the equilibrium price of cars
and quantity.
An increase in Ps
reduces the quantity of P2
cars producers supply P1
at each price…
D
N. GREGORY MANKIW
PowerPoint® Slides by Ron Cronovich
© 2008 Worth Publishers, all rights reserved
In this chapter, you will learn…
Expenditure
Expenditure equals
equals income
income because
because
every
every dollar
dollar spent
spent byby aa buyer
buyer
becomes
becomes income
income toto the
the seller.
seller.
Labor
Households Firms
Goods
Expenditure
($)
CHAPTER 1 The Science of Macroeconomics slide 28
The expenditure components of
GDP
consumption
investment
government spending
net exports
$ billions % of GDP
$ billions % of GDP
stock flow
a person’s
a person’s wealth
annual saving
$ billions % of GDP
0 0%
billions of dollars
percent of GDP
-200 -2%
-400 -4%
-600 -6%
-800 -8%
1950 1960 1970 1980 1990 2000
NX ($ billions) NX (% of GDP)
An important identity
Y = C + I + G + NX
aggregate
value of expenditure
total output
Suppose a firm
produces $10 million worth of final goods
but only sells $9 million worth.
8,000
Real GDP
6,000 (in 2000 dollars)
4,000
Nominal GDP
2,000
0
1950 1960 1970 1980 1990 2000
CHAPTER 1 The Science of Macroeconomics slide 48
GDP Deflator
Nominal GDP
GDP deflator = 100
Real GDP
GDP Inflation
Nom. GDP Real GDP
deflator rate
Cost of Inflation
basket CPI rate
2002 $350 100.0 n.a.
2003 370 105.7 5.7%
2004 400 114.3 8.1%
2005 410 117.1 2.5%
Medical care
Recreation
Education 15,1%
Communication
12%
Percentage change
9%
6%
3%
0%
-3%
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005