Chapter 1 - CHAPTER 1: INTRODUCTION TO MACROECONOMICS...

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Unformatted text preview: CHAPTER 1: INTRODUCTION TO MACROECONOMICS INTRODUCTION The purpose ofthis chapter is to give you a general introduction to the main concepts in macroeconomics. In Section 1.1, the major issues in economics are discussed-growth, business cycles, unemployment, inflation, the international economy, macroeconomic policy, and aggregation. Section 1.2 discusses the major things that macroeconomists do-c-forecasting, analysis, research, and data development. Then Section 1.3 covers the subject ofwhy economists disagree and talks about the textbook's approach to covering material, given that there's so much disagreement. Though many instructors will blow through this chapter quickly, you shouldn't. You should spend some time looking at all the data in this chapter and trying to understand what it's all about. This will help you later on when you go through the rest ofthe textbook. You should know that most macroeconomists are very motivated by looking at data. They want to explain how the world works and why the data behave the way they do. Figures like those shown in Section 1.1 provide economists with what they call "stylized facts" about how the economy behaves. Then the economists try to think up models that are consistent with the data. CHAPTER OUTLINE I. What Macroeconomics Is About (Sec. 1.1) A. Long-run economic growth 1. Growth of output in Canada over time 2. Sources of growth-population, average labour productivity growth B. Business cycles C. Unemployment; Canadian experience D. Inflation (the percentage increase in the average level of prices over a year) 1. Canadian experience 2. Deflation (falling prices) 3. Inflation rate E. The international economy 1. Open vs. closed economies 2. Trade imbalances; the trade deficit F. Macroeconomic policy 1. Fiscal policy 2. Monetary policy; the Bank of Canada G. Aggregation; from microeconomics to macroeconomics II. What Macroeconomists Do (Sec. 1.2) A. Macroeconomic forecasting 1. Relatively few economists make forecasts 2. Long-range forecasting is very difficult B. Macroeconomic analysis 1. Private and public sector economists-analyze current conditions 2. Does having lots of economists ensure good macroeconomic policies? No, since politicians, not economists, make major decisions C. Macroeconomic research 1. Goal: to make general statements about how the economy works 2. Theoretical and empirical research are necessary for forecasting and economic analysis 3. Economic theory: a set of ideas about the economy, organized in a logical framework 4. Economic model: a simplified description ofsome aspect ofthe economy 5. Usefulness of economic theory or models depends on reasonableness of assumptions, 2 Chapter 1 possibility of being applied to real problems, empirically testable implications, theoretical results consistent with real-world data D. Data development-very important for making data more useful III. Why Macroeconomists Disagree (Sec. 1.3) A. Positive vs. normative analysis B. Classicals vs. KeynesiansClassicals vs....
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This note was uploaded on 10/20/2010 for the course MATH 100 taught by Professor A during the Spring '10 term at Wilfred Laurier University .

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Chapter 1 - CHAPTER 1: INTRODUCTION TO MACROECONOMICS...

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