Ch5 SH - Econ201 Spring 2010 Principles of Macroeconomics...

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Econ201, Spring 2010 Principles of Macroeconomics Mon. and Wed from 3.30 to 4.45pm Tydings 0130 Text: Principles of Macroeconomics, Case, Fair, Oster, Prentice Hall, 9th edition, 2009. MEL Course website: XL0F-H1IB-001Y-1LD2
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Introduction to Macroeconomics Microeconomics Examines the functioning of individual industries and the behavior of individual decision-making units—firms and households. Macroeconomics Deals with the economy as a whole. Macroeconomics focuses on the determinants of total national income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
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Macroeconomic Concerns Three of the major concerns of macroeconomics are: Output growth Unemployment Inflation and deflation
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Brief History of Macroeconomics
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Adam Smith: 1776: “Wealth of Nations” Clear understanding of: The working of markets: “Invisible hand” Gains from trade Gains from division of labor The “Classical View” of Macroeconomics:1800’s - 1929 Prices adjust to clear markets Economy is at full employment No Unemployment Quantity of money determines prices Brief History of Macroeconomics
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The Great Depression, 1929-1933 Before the Great Depression Most work was on microeconomics Macroeconomic questions were considered to be solved The Great Depression The period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s. Worldwide economic crisis. In the US, output down by 33%, unemployment up to 25% Events were opposite of what classical theory predicted – crisis in macroeconomics!
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John Maynard Keynes 1936: “The General Theory of Employment, Interest, and Money” Replaces classical theory by model based on: Aggregate Demand Wage and price rigidities Slow adjustments Birth of macroeconomics as a field separate from microeconomics
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John Maynard Keynes Much of the framework of modern macroeconomics comes from the works of John Maynard Keynes, whose General Theory of Employment, Interest and Money was published in 1936.
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John Maynard Keynes – is back! Keynes believed governments could intervene in the economy and affect the level of output and employment.
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