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DeLong notes - CHAPTER 1 Introduction to Macroeconomics 1-1...

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1-1 CHAPTER 1 Introduction to Macroeconomics
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1-2 Questions • What is Macro economics • How does macroeconomic policy affect living standards? • What are the prominent features of Canadian economic development?
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1-3 Questions • What contributed to the productivity slowdown of the 1970s? • What are the current macroeconomic conditions in Canada, the U.S. and the rest of the world?
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1-4 Macroeconomics... • is the sub-discipline of economics that tries to answer the last four questions that began this chapter. • is the branch of economics related to the economy as a whole
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1-5 Macroeconomists... • try to figure out why overall economic activity rises and falls • try to understand what determines the level and rate of change of the price level • study other variables that play a major role in determining the overall levels of production, income, employment, and prices
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1-6 . Macroeconomics... • Macroeconomics is also concerned with policies which promote our standards of living. –In order to study these policies, macroeconomist have to incorporate microeconomic theory into their analyses; e.g., the decisions of individual households on consumption and education and the investment decisions of individual firms
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1-7 Economics • is a quantitative science –uses arithmetic to measure economic variables of interest –uses mathematical models to relate economic variables of interest • involves a particular way of thinking about the world using –unique technical language –a specific set of data
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1-8 Macroeconomics versus Microeconomics • Macroeconomists –examine the economy as a whole –focus on the feedback from one component of the economy to another –study the total level of production and employment –believe that imbalances between supply and demand may be resolved by changes in quantities rather than prices
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1-9 . Macroeconomics versus Microeconomics • Microeconomists –study the markets for single commodities and the behavior of individual households and firms –focus on how competitive markets allocate resources to create consumer and producer surplus –assume that imbalances between demand and supply are resolved by changes in prices
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1-10 Macroeconomic Policy • Growth Policy –policies to accelerate or decelerate long- run economic growth –most important policies for the long-run
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1-11 Figure 1.1 - Long-Run Economic Growth: Canada and Argentina, 1900-2000
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1-12 Figure 1.1 - Long-Run Economic Growth: Canada and Argentina, 1900-2000 • At the start of the 20 th century Argentina was as rich as Canada • But economic policies that were mostly bad for long-run growth left Argentina far behind Canada.
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1-13 Macroeconomic Policy • Stabilization Policy –policies to smooth out the business cycle by diminishing the depth of recessions and depressions business cycles are fluctuations in production and employment booms or expansions occur when production grows and unemployment falls recessions or depressions occur when production falls and unemployment rises
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