Berkeley ECON 100B - Introduction to Macroeconomics (12 pages)

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Introduction to Macroeconomics



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Introduction to Macroeconomics

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Pages:
12
School:
University of California, Berkeley
Course:
Econ 100b - Economic Analysis--Macro
Economic Analysis--Macro Documents
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Agenda What Macroeconomics Is About What Macroeconomists Do Introduction to Macroeconomics Why Macroeconomists Disagree 1 1 1 2 What Macroeconomics Is About What Macroeconomics Is About The main issues of macroeconomics are Macroeconomics is the study of 1 The structure dynamic adjustment and performance of national economies and 2 The government policies that affect national economic performance 1 3 Long run economic growth Business cycles fluctuations Unemployment Inflation The international economy Macroeconomic policy 1 4 1 Figure 1 1 Long run economic growth What Macroeconomics Is About Long run Economic Growth Two main sources of growth Population growth Increases in average labor productivity Figure 1 2 Average labor productivity in the U S Average labor productivity is output per unit of labor 1 5 Figure 1 2 Average labor productivity 1 6 What Macroeconomics Is About Average labor productivity growth About 2 5 per year from 1949 to 1973 About 1 1 per year from 1973 to 1995 About 2 0 per year from 1995 to 2005 1 7 1 8 2 What Macroeconomics Is About What Macroeconomics Is About Business cycles or fluctuations Business cycles are the short run contractions and expansions in economic activity 1 9 What Macroeconomics Is About 1 10 What Macroeconomics Is About Unemployment Unemployment is the number of people who are available for work and actively seeking work but cannot find jobs Figure 1 3 The U S unemployment rate 1 11 1 12 3 What Macroeconomics Is About Figure 1 3 The U S unemployment rate 1 13 What Macroeconomics Is About 1 14 Figure 1 4 Consumer prices in the U S Inflation Inflation is a persistent rise in the general price level Hyperinflation is an extremely high rate of inflation Deflation is a persistent decline in the general price level Figure 1 4 Consumer prices in the U S 1 15 1 16 4 What Macroeconomics Is About What Macroeconomics Is About 1 17 What Macroeconomics Is About 1 18 What Macroeconomics Is About The international economy Open vs closed economies An open economy has extensive trading and financial relationships with other national economies A closed economy has limited or no trading and financial relationships with other national economies 1 19 1 20 5 What Macroeconomics Is About Figure 1 5 U S exports and imports The international economy Trade imbalances are the differences between exports and imports Trade surplus occurs when exports exceed imports Trade deficit occurs when imports exceed exports Figure 1 5 U S exports and imports 1 21 What Macroeconomics Is About 1 22 Figure 1 6 Federal government spending taxes Macroeconomic Policy Fiscal policy is the decisions made about the levels of government spending and tax rates Figure 1 6 Federal government spending and taxes 1 23 1 24 6 What Macroeconomics Is About What Macroeconomics Is About Macroeconomic Policy Monetary policy is the growth of money supply determined by a nation s central bank In the U S the Federal Reserve System or the Fed 1 25 What Macroeconomics Is About 1 26 What Macroeconomics Is About 1 27 1 28 7 What Macroeconomics is About What Macroeconomists Do Aggregation Teach macroeconomics Aggregation is the summing up of individual economic variables to obtain economy wide totals Macroeconomic forecasting Macroeconomic analysis This distinguishes microeconomics disaggregated from macroeconomics aggregated Data development Macroeconomic research 1 29 1 30 What Macroeconomists Do What Macroeconomists Do Macroeconomic research The goal is to make general statements about how the macroeconomy works Usefulness of theory and models depends on 1 The reasonableness of assumptions 2 The possibility of being applied to real problems An economic theory is a set of ideas about the economy organized in a logical framework 3 Whether there are empirically testable implications An economic model is a simplified description of some aspect of the economy 4 Whether the theoretical results are consistent with real world data 1 31 1 32 8 What Macroeconomists Do Why Macroeconomists Disagree Policy Differences Developing and Testing Economic Theories 1 State the research question Theoretical Differences 2 Make provisional assumptions 3 Work out the implications of the theory 4 Conduct an empirical analysis 5 Evaluate the results 1 33 Why Macroeconomists Disagree 1 34 Why Macroeconomists Disagree Policy Differences Economists may have different policy recommendations even if they agree on current economic conditions and the outlook for the economy 1 35 1 36 9 Why Macroeconomists Disagree Why Macroeconomists Disagree Policy Differences Positive vs normative analysis Positive analysis examines the economic consequences of a policy Normative analysis determines whether a policy should be used 1 37 Why Macroeconomists Disagree 1 38 Why Macroeconomists Disagree Theoretical Differences Classical economists and Keynesians economists have different views of the structure and dynamic adjustment of the economy 1 39 1 40 10 Why Macroeconomists Disagree Why Macroeconomists Disagree Classicals versus Keynesians Classicals versus Keynesians In the classical approach The classical approach The economy works well on its own Wages and prices adjust rapidly to get to equilibrium The invisible hand is the idea that if there are free markets and individuals conduct their economic affairs in their own best interests the overall economy will work well One conclusion is that the government should have only a limited role in the economy 1 41 1 42 Why Macroeconomists Disagree Why Macroeconomists Disagree Classicals versus Keynesians Classicals versus Keynesians The Keynesian approach The Keynesian approach Keynes concluded that persistent unemployment occurred because wages and prices are slow to adjust so that markets can remain out of equilibrium for long periods Observed that during the Great Depression the classical theory failed because of persistent high unemployment One conclusion is that government should intervene to restore full employment more quickly 1 43 1 44 11 Why Macroeconomists Disagree Preview A Unified Approach Evolution of the Classical Keynesian debate A unified approach to macroeconomics Keynesians dominated from WWII to 1970 A single model of the macroeconomy to present both classical and Keynesian ideas Stagflation led a classical comeback in the 1970s The model is built on 3 aggregate markets the labor market the goods market the asset market Excellent research with both approaches since 1 45 Why


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