lecture 1 - Macroeconomics An Overview Economics has two...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Macroeconomics - An Overview Economics has two branches, microeconomics and macroeconomics. Macroeconomics evolved in response to the failure of microeconomics to provide answers to a number of important questions. Thus, these and related questions are the subject of macroeconomic analysis. In order of appearance in this course they are: 1) What determines total (aggregate) spending on final goods in an economy? For example, in 1980, total spending in the U.S. (annually) was $2.626 trillion dollars. By 1990, total spending had risen to $5.522 trillion. In 2002, it was over $10 trillion and last year (2008) it was $14.4 trillion. So the question is: what causes spending, or equivalently, aggregate nominal income to change like this? Also, what effect will government policy have on spending? More specifically, how will government spending , income taxation , the government's deficit , and the money supply affect total spending? 2) What effect does total spending have on an economy's output ? This is perhaps a more important question than 1). If we look at quarterly data from the U.S. between 1947 and 2008, we would notice some correlation between spending and output (output in a period is the final goods produced by an economy in that period. Economists measure how output changes using real gross domestic product , also known as GDP adjusted for inflation). What is particularly striking is that when spending falls, output usually falls too. Thus, the question that immediately arises is whether or not a positive relationship between spending and output exists. Of particular interest is the possibility that changes in spending (changes that can be effected through government policy) cause changes in output. 3) What causes unemployment ? Again if we look at the data we see marked changes in the U.S. unemployment rate over time. For example, in 1982 the U.S. unemployment rate was 9.7%. By 1990 it had fallen to 5.5 % but rose to 7.5% two years later. After that it began to fall. In 2000 it was 4% and currently, it is almost 10%. These observations raise the question: why does unemployment rise and fall? And if an economy's unemployment rate is for all pratical purposes constant, why is it one rate rather than another? Our analysis of this phenomenon will help us understand what government policies can be instrumental in lowering the unemployment rate, if any. 4) What determines the rate of interest in an economy? This is as much a microeconomic question as a macroeconomic question.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/03/2011 for the course ECON 2020 taught by Professor Mukherjee during the Spring '08 term at Western Michigan.

Page1 / 3

lecture 1 - Macroeconomics An Overview Economics has two...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online