ch01 - 1 What is Macroeconomics? 3 2 Macroeconomic Accounts...

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Unformatted text preview: 1 What is Macroeconomics? 3 2 Macroeconomic Accounts 21 PART I Introduction to Macroeconomics Part I of this textbook sets the stage for macroeconomics as a subject. Chapter 1 explains the objectives and methods of macroeconomics, its history and usefulness, as well as its controversies and open questions. It provides a number of essential definitions and offers a preview of what will follow. Chapter 2 introduces the national income accounts, the language economists use to describe and communicate the economic activities of a region or a nation, as well as the balance of payments, which summarizes its dealings with the rest of the world. MA4C01.qxd 29/11/2004 15:34 Page 1 MA4C01.qxd 29/11/2004 15:34 Page 2 What is Macroeconomics? 1.1 Overview 4 1.1.1 Income, Economic Growth, and Business Cycles 4 1.1.2 Unemployment 6 1.1.3 Factors of Production and Income Distribution 7 1.1.4 Ination 7 1.1.5 Financial Markets and the Real Economy 9 1.1.6 Openness 10 1.2 Macroeconomics as a Discipline 10 1.2.1 The Genesis of Macroeconomics 10 1.2.2 Macroeconomics and Microeconomics 11 1.2.3 Macroeconomics and Economic Policy 13 1.2.4 Demand and Supply 13 1.3 The Methodology of Macroeconomics 14 1.3.1 What is to be Explained? 14 1.3.2 Theory and Realism 14 1.3.3 Positive and Normative Analysis 15 1.3.4 Testing Theories: The Role of Data 15 1.3.5 Macroeconomic Modelling and Forecasting 15 1.4 Preview of the Book 17 1.4.1 Structure 17 1.4.2 Controversies and Consensus 17 1.4.3 Rigour and Intuition 17 1.4.4 Data and Institutions 17 1.4.5 Europe 18 1 MA4C01.qxd 29/11/2004 15:34 Page 3 PART I INTRODUCTION TO MACROECONOMICS 4 1.1 Overview Whether we like it or not, economic themes tend to dominate the news. A day seldom passes that we dont hear about unemployment, ination, economic growth, stock markets, interest rates, or foreign exchange rates. We hear and read so much about these phenomena because, directly or indir- ectly, they a 3 ect our well-being. It is perhaps mostly for this reason that macroeconomics, the study of these economy-wide phenomena, is so exciting. Macroeconomics is more than just head- lines, however; it is a fascinating intellectual adven- ture. The breadth of issues it covers is evidence enough of its inherent complexity. All the same, we will see that simple economic reasoning can take us a long way. And it is often surprising how well a few simple ideas fit complex situations. Macroeconomics can also be useful. The economic well-being of all consumers, rich or poor, is a 3 ected by movements in interest rates, exchange rates, and the rate of ination. Businesses stand to gain or lose considerable amounts of money when their economic environment changes, regardless of how well they are managed. Being prepared for such changes in fortunes can have considerable value; more generally, it makes us all better citizens able to grasp the complex challenges that our societies face. Macroeconomics is relevant to voters who wonder what their governments are up to, and can...
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This note was uploaded on 02/07/2010 for the course ECONOMICS econ301 taught by Professor Mankiw during the Spring '10 term at American College of Computer & Information Sciences.

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ch01 - 1 What is Macroeconomics? 3 2 Macroeconomic Accounts...

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