Williamson_3e_IM_01 - Chapter 1 Introduction Teaching Goals...

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Chapter 1 Introduction ± Teaching Goals Macroeconomics primarily studies economic growth and business cycles. Over time, there is a prevailing upward trend in the standard of living. However, such growth can be rather erratic. There are some periods of very rapid growth, some periods of rather anemic growth, and also some periods of temporary economic decline. Explanations for the overall upward trend in standards of living are the subject of economic growth analysis. Explanations of variations in growth over shorter time horizons are the subject of business cycle analysis. Students should be able to distinguish between microeconomic topics and macroeconomic topics. Students should understand the distinction between growth analysis and business cycle analysis. Although microeconomics and macroeconomics are separate branches of study, both branches are guided by the same set of economic principles. Standard economic theory is guided by the assumption of maximizing behavior. As a first approximation, we therefore view the macroeconomy as a collection of markets with maximizing participants. These participants are price-taking agents and the economy is closely approximated by a competitive equilibrium. Because the economy as a whole is extremely complex, macroeconomists must rely on somewhat abstract models. Although the structure of such models does not correspond to all of the details of life in a complex society, these models offer the best hope of providing simple, yet accurate descriptions of how the macroeconomy works, and how government policies may affect macroeconomic outcomes. Economists are in broad consensus about the mechanisms of economic growth. There is less agreement about the causes and consequences of business cycles. Careful study concludes that most business cycles are very similar in many ways. Therefore, macroeconomists are in search of a logically consistent paradigm for the typical business cycle. Currently popular explanations of the “typical” business cycle include Keynesian sticky-price models, money supply surprise models, real business cycle models, and Keynesian coordination failure models. ± Classroom Discussion Topics One good way to get the ball rolling is to list some macroeconomic concerns like stagnant economic growth, unemployment, inflation, government budget deficits, tax burdens, balance of trade deficits, financing of Social Security, and the like. Draw on current news or look at various policy proposals discussed in Washington. Ask or poll students as to whether they are personally concerned about such problems and what original prejudices they might have about causes and effects. Sometimes students express concerns about topics that are perhaps more microeconomic in nature, like inequality in the distribution of income and environmental concerns. Emphasize that economic growth may provide enough extra resources to help deal with these issues.
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2 Williamson • Macroeconomics, Third Edition Students often have conflicting ideas about the current state of the economy. Sometimes their perspectives
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This note was uploaded on 03/03/2010 for the course ECON 1001 taught by Professor Donaldberry during the Spring '09 term at UCL.

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Williamson_3e_IM_01 - Chapter 1 Introduction Teaching Goals...

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