ECON102_SCHULZE_3 - #3 Introduction to Macroeconomics...

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#3 01/03/2007 22:56:00 Introduction to Macroeconomics Microeconomics Examines the behavior of individual decision-making units – business firms  and households Macroeconomics Deals with the economy as a whole.  Macroeconomists focus on the  determinants of national income, deals with aggregates such as aggregate  consumption and investment, and looks at the overall level of prices instead  of individual prices Aggregate Behavior The behavior of all households and firms together Sticky Prices Prices that do not always adjust rapidly to attain equality between quantity  supplied and quantity demanded. Microeconomic Foundations of Macroeconomics The microeconomic principles underlying the macroeconomic analysis The Roots of Macroeconomics The Great Depression
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Period of severe economic contraction and high unemployment that began in  1929 and continued throughout the 1930s Classical Models Classical economists applied microeconomic models, or “marketing clearing”  models, to economy wide problems Simple classical models failed to explain the prolonged existence of high  unemployment during the Great Depression.  This provided the impetus for  the development of Macroeconomics. The Keynesian Revolution In 1936, John Keynes Maynard Keynes published  The General Theory of  Employment, Interest, and Money Much of the macroeconomics has roots in Keynes’s work.  According to  Keynes, it is not prices and wages that determine the level of unemployment,  as classical models have suggested, but instead the level of aggregate  demand for goods and services. Recent Microeconomic Activity Fine Tuning in the 1960s Fine tuning  the phrase used by Walter Heller to refer to the government’s  role in regulating inflation and unemployment. Disillusionment in the 1970s and Early 1980s Stagflation  occurs when the overall price level rises rapidly (inflation) during  periods of recession or high and persistent unemployment (stagnation) Good Times in the 1990s,  Pause in 2000-2001,  and Recovery 2002-2005 The strong economy in the 1990s and recovery in 2002-2005 did not lead to  the convergence of views of macroeconomists about how the macroeconomy  works.  The discipline of macroeconomics is still flux, and many important  issues have yet to be solved
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Macroeconomic Concerns Three of the Major Concerns of Macroeconomics Are: Inflation Output Growth Unemployment Inflation and Deflation Inflation An increase in the overall price level Hyperinflation A period of very rapid increases in the overall price level
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ECON102_SCHULZE_3 - #3 Introduction to Macroeconomics...

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