topic1.pdf - Macroeconomics 33040 Fall 2012 Topic 1 Intro to Macro and Measurement Loukas Karabarbounis University of Chicago Booth School of Business 1

topic1.pdf - Macroeconomics 33040 Fall 2012 Topic 1 Intro...

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Macroeconomics 33040 - Fall 2012 Topic 1: Intro to Macro and Measurement Loukas Karabarbounis University of Chicago, Booth School of Business
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1 What is Macro? 2 GDP and Expenditure Components 3 Real vs. Nominal Variables, Prices and Inflation 4 Interest Rates 5 Unemployment 6 Summary, Readings and Exercises
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What is Macro? Definition Macroeconomics: is the study of the economic performance of national economies and of the policies that affect performance. What causes long-run economic growth? What causes short-run fluctuations of economic activity (business cycles)? What causes unemployment? What causes inflation? What causes imbalances in the allocation of global capital? Can or should governments do something about these? Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 2 / 69
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Long-Run Performance: US Real GDP Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 3 / 69
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Long-Run Performance: US Real GDP per Capita (Online Reading 1.4) Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 4 / 69
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Long-Run Performance: US Real GDP per Hour Worked Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 5 / 69
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Long-Run Performance: US Real GDP per Worker Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 6 / 69
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Business Cycles Definition Business Cycles: are fluctuations of the aggregate economic activity around a long-term trend 1 Aggregate economic activity, not only GDP (e.g. NBER looks at various indicators) 2 Expansions and Contractions 3 Sectoral Comovement 4 Recurrent but not periodic 5 Persistence of macroeconomic variables Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 7 / 69
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Business Cycles vs. Growth Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 8 / 69
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NBER Dating of Recessions A recession is a period between a peak and a trough (declining economic activity) An expansion is a period between a trough and a peak (rising economic activity) Rule of thumb: recession is two consecutive quarters of negative real GDP growth National Bureau of Economic Research Business Cycle Dating Committee ( Online Readings 1.5 and 1.6 ) NBER uses variety of economic variables to date recessions: real GDP measured on the product and income sides economy-wide employment real sales index of industrial production Topic 1 (Intro to Macro & Measurement) Macroeconomics 33040 - Fall 2012 9 / 69
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Business Cycles: Some Definitions A variable X is called procyclical (to GDP) if, on average, it co-moves positively with GDP along the business cycle. I.e. X is procyclical if it increases in expansions and it decreases in recessions. A variable X is called countercyclical if, on average, it co-moves negatively with GDP along the business cycle (i.e. it increases in recessions and it decreases in expansions). Most expenditure components are very procyclical. A famous counterexample is net exports (typically imports decrease more than exports in recessions).
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