macsg05 - 5 [20] Introduction to Macroeconomics C hapter...

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125 5 [20] Introduction to Macroeconomics C hapter objectives: 1. Describe the three main concerns of macroeconomics and provide simple definitions of inflation and unemployment. 2. Describe the behavior of the business cycle. 3. List the four economic sectors and describe how they interact through the three market arenas. 4. Explain how macroeconomic issues relate to the government’s policy decisions. List three policies that the government may use to influence the economy. Indicate the principal tools of each policy. 5. Briefly describe the development of Keynesian macroeconomic theory and place it within the context of then-current economic events. The material skimmed over in this introductory chapter will be explored more completely in subsequent chapters. Think of this chapter as a road map showing major points of interest. ±±± LEARNING TIP: Different economists support different interpretations of how the economy fits together. If you’re grade oriented (or even if you’re not) , it might be a good idea to identify the preferences of your own instructor, even if it’s for no other reason than that it will help you to identify the areas of controversy. ² OBJECTIVE 1: Describe the three main concerns of macroeconomics and provide simple definitions of inflation and unemployment. Major topics of concern in macroeconomics are: growth in aggregate output (and the business cycle); the unemployment rate (the percentage of labor force that is unemployed); and the inflation rate (a general increase in the aggregate price level). In the sputtering economy of the early 2000s, deflation (a general decrease in the aggregate price level) became a plausible threat. (page 98 [410]) Whereas microeconomics concerns itself with the functioning of individual industries, households and firms and particular prices, macroeconomics focuses on the determinants of national income, the overall price level, and aggregate employment. Macroeconomists attempt to measure aggregate output and to detect business cycles, which feature recessions (when aggregate output is shrinking) and expansions.
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126 Study Guide to Principles of Macroeconomics The unemployment rate is a key and widely-reported measure of the economy’s health. The persistence of unemployment seems to imply that the labor market is not in equilibrium. Macroeconomics examines why this might be so. Macroeconomics are also concerned with how the overall price level is changing. If the level increases, there is inflation; if it decreases, there is deflation. Macroeconomics, then, is concerned with aggregate measures whereas microeconomics is concerned with individual measures. ±±± LEARNING TIP: Refer to Chapter 1 to refresh your memory on the distinction between microeconomics and macroeconomics. ² Practice 1. is when there are extremely rapid increases in the overall price level. (a)
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This note was uploaded on 02/13/2010 for the course ECON 1102 taught by Professor Wissink during the Spring '09 term at Cornell University (Engineering School).

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macsg05 - 5 [20] Introduction to Macroeconomics C hapter...

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