Macro_Package 1_Introduction - Macroeconomics Chapter 1...

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1MacroeconomicsProfessor Parul JainZicklin School of BusinessBert W. Wasserman Department of Economics & FinancePackage 1 – IntroductionChapter 1The Science of MacroeconomicsThe Science of MacroeconomicsI-3In this section, you will learn:In this section, you will learn:about the issues macroeconomists studythe tools macroeconomists usesome important concepts in macroeconomicanalysisI-4Important issues inmacroeconomicsWhat causes recessions?What is“government stimulus” and why might ith l ?Macroeconomics, the study of the economy asa whole, addresses many topical issues,e.g.:help?How can problems in the housing marketspread to the rest of the economy?What is the government budget deficit?How does it affect workers, consumers,businesses, and taxpayers?I-5Important issues inmacroeconomicsWhat causes financial crises?How should thegovernment respond to them?Macroeconomics, the study of the economy asa whole, addresses many topical issues,e.g.:Why does the cost of living keep rising?Why are so many countries poor?What policiesmight help them grow out of poverty?I-6U.S. Real GDP per capita(2000 dollars)long-run upward trend…First oilprice shock9/11/2001GreatDepressionWorld War IISecond oilprice shock
2I-7U.S. Inflation Rate(% per year)I-8U.S. Unemployment Rate(% of labor force)I-9Economic models…are simplified versions of a more complexrealityirrelevant details are stripped away…are used toshow relationships between variablesshow relationships between variablesexplain the economy’s behaviordevise policies to improve economicperformanceI-10Example of a model:Supply & demand for new carsshows how various events affect price andquantity of carsassumes the market is competitive: eachbuyer and seller is too small to affect themarket pricemarket priceVariablesQd= quantity of cars that buyers demandQs= quantity that producers supplyP= price of new carsY= aggregate incomePs= price of steel (an input)I-11The demand for carsdemand equation:Qd=D(P,Y)shows that the quantity of cars consumersdemand is related to the price of cars andaggregate incomeI-12Digression:functional notationGeneral functional notationshows only that the variables are related.Qd=D(P,Y)Aspecific functional formshowsthe precise quantitative relationship.Example:D(P,Y) = 60 – 10P+ 2YA list of the variablesthat affectQd
3I-13The market for cars:DemandPPriceof carsdemand equation:Qd=D(P,Y)QQuantityof carsDThedemand curveshows the relationshipbetween quantitydemanded and price,other things equal.I-14The market for cars:SupplyPPriceof carsSsupply equation:Qs=S(P,PS)QQuantityof carsDThesupply curveshows the relationshipbetween quantitysupplied and price,other things equal.I-15The market for cars:EquilibriumPPriceof carsSQQuantityof carsDequilibriumpriceequilibriumquantityI-16The effects of an increase in incomePPriceof carsSAn increase in incomeincreases the quantityP2demand equation:Qd=D(P,Y)QQuantityof carsD1Q1P1of cars consumersdemand at each price……which increasesthe equilibrium price

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Term
Summer
Professor
CAREW
Tags
Economics, Macroeconomics, Inflation, Gdp, gross domestic product

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