chapter 1 the science of macroeconomics slide 0 macroeconomics by g.mankiw part 1, chapter 1 : the...
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CHAPTER 1CHAPTER 1 The Science of Macroeconomics The Science of Macroeconomics slide 1
Macroeconomics by G.MankiwMacroeconomics by G.Mankiw
PART 1, CHAPTER 1 :
The Science of Macroeconomics
Lecture 1
Source : Slide Database by Ron Cronovich + Slides by Nathalie Bolh
CHAPTER 1CHAPTER 1 The Science of Macroeconomics The Science of Macroeconomics slide 2
Learning objectivesLearning objectives
This chapter introduces you to
some important concepts in macroeconomic analysis
the issues macroeconomists study
the tools macroeconomists use
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What is Macroeconomics?What is Macroeconomics?
A global definition
Explanations and Policy prescriptions
Macroeconomics+ Microeconomics = Economics
The study of macroeconomic variables
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Important issues in macroeconomicsImportant issues in macroeconomics
3 major indicators of economic performance :
- GDP and Growth
- Unemployment rate
- Inflation rate
3 major economic areas under review : the USA, the EU and Japan
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Recent data in the USA Recent data in the USA
Source:
OECD (Y/Y)
1960-2000
1992-2000
2000/
2001
Output growth rate
3.5 3.7 4.1/
1.1
Unemployment rate
6.1 5.4 4.0/
4.8
Inflation
Rate
5.1 1.7 2.3/
2.1
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Recent Data in the EURecent Data in the EU
Source:
OECD1960-2000
1992-2000
2000/
2001
Output growth rate
3.1 2.1 3.3/
1.7
Unemployment rate
6.5 9.9 8.1/
7.8
Inflation
Rate
5.6 1.7 1.5/
2.5
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Recent Data in JapanRecent Data in Japan
1960-2000
1992-2000
2000/
2001
Output growth rate
5.5 1.2 1.5/
-0.7
Unemployment rate
2.0 3.0 4.7/
5.0
Inflation
Rate
4.5 -0.1 -1.6/
-1.6
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Economic modelsEconomic models
Mathematics
Observation of data => simplified reality
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The example of a model of supply The example of a model of supply and demand for riceand demand for rice
explains the factors that determine the price of Manggo and the quantity sold.
assumes the market is competitive
Variables:Q
d = quantity of rice that buyers demandQ
s = quantity that producers supplyP = price of riceY = aggregate incomePg = price of grapes (an input)
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The rice marketThe rice market
The supply for rice :
Q s = S(P+, Pf-)
The demand for rice :
Q d =D(P-, Y+)
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The market for rice: The market for rice: equilibriumequilibrium
Q Quantit
y of rice
P Price
of rice S
D
equilibrium price
equilibriumquantity
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The effects of an increase in income:The effects of an increase in income:
D2
Q Quantit
y of rice
P Price
of rice S
D1
Q1
P1
P2
Q2
demand equation:
( , )dQ D P Y
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Endogenous vs. exogenous variables:Endogenous vs. exogenous variables:
The values of endogenous variables are determined in the model.
The values of exogenous variables are determined outside the model: the model takes their values & behavior as given.
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Prices: Flexible Versus StickyPrices: Flexible Versus Sticky Market clearing: an assumption that
prices are flexible and adjust to equate supply and demand.
In the short run, many prices are sticky.
In models : Prices are supposed to be sticky in the short run and flexible in the long run.
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Question Question 1) Macroeconomic issues in the news over the last month?
2) What would be the effect of an increase in the price of Fertilizers on the rice market equilibrium
3) Give the 2 definitions of a recession (the NBER definition and the popular definition)
4) Identify the main recession episodes in the Indonesia economy since 1900