ECO 13 - 19 JAN - Lecture 13 ECO 100Y5Y 19 January 2009 A....

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Lecture 13 19 January 2009 ECO 100Y5Y A. Cohen 1 E C O N O M I C S PARKIN BADE Lecture 13 19 January 2009 E C O N O M I C S PARKIN BADE Chapter 19 A First Look at Macroeconomics Origins and Issues of Macroeconomics Macroeconomics studies unemployment inflation economic growth and business cycles government budget deficits international deficits continued
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Lecture 13 19 January 2009 ECO 100Y5Y A. Cohen 2 Fallacy of Composition — whole greater than sum of parts Modern macroeconomics born during Great Depression (1929 - 1939) previous theories could not explain unemployment. Based on Say’s Law -- supply creates its own demand. (P/B 530-1) then came John Maynard Keynes’ 1936 book The General Theory of Employment, Interest, and Money continued No theoretical consensus on macroeconomics Fundamental macroeconomic controversy Is the market economy inherently stable, with self-adjusting mechanisms to maintain full employment, stable prices and steady growth? continued Real business cycle theorists say YES. Whole = sum of parts. Macro economy like rational maximizing individual. New Keynesians say NO. Fallacy of composition. Role for government to restore equilibrium. continued
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19 January 2009 ECO 100Y5Y A. Cohen 3 To understand controversy, need history, theory, measurement, policy Important macro variables unemployment inflation GDP (gross domestic product) Figure 19.6 Unemployment in Canada 1925 1955 1975 1985 1995 1965 1945 1935 Year 20 15 10 5 0 Unemployment rate (%) 2005 Jobs and Unemployment Unemployed -- not employed and seeking work Labour force = unemployed + employed Unemployment rate = unemployed / labour force Measurement problems with unemployment rate
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ECO 13 - 19 JAN - Lecture 13 ECO 100Y5Y 19 January 2009 A....

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