Econ 202 1st Edition Lecture 10Outline of Last Lecture I. Exam 1Outline of Current Lecture I. What makes macroeconomics different from microeconomicsII. What a business cycle is and why policy makers seek to diminish the severity of business cyclesIII. How long-run economic growth determines a country’s standard of livingIV. The meaning of inflation and deflation and why price stability is preferredV. The importance of open economy macroeconomics and how economies interact through trade deficits and trade surplusesCurrent LectureI. Hoovervillesa. During the Great Depression, “Hoovervilles” sprang up across America, named after the economically clueless President Herbert Hoover.b. Hoover’s failure to understand what caused the Great Depression (or how it could be tamed) was common at the time.Microeconomics was well-developed; macroeconomics was not.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.II. Macroeconomics: The Whole Is Greater thanthe Sum of Its Partsa. Paradox of thrift: When families and businesses are worried about the possibility of economic hard times,they prepare by cutting their spending.i. This reduction in spending depresses the economy as consumers spend less and businesses react by laying off workersAs a result, families and businesses may end up worse offthan if they hadn’t tried to act responsibly by cutting their spending.III. Macroeconomics: Theory and Policya. Pre-1930s conventional wisdom b. Self-regulating economy:Problems such as unemployment are resolved without government intervention through the working of the invisible hand.-Post-1930s conventional wisdom c. Keynesian economics:Economic slumps are caused by inadequate spending, and they can be mitigated by government interventionIV. The Business Cyclea. Alternating increases and decreases in economic activity over timeb. Phases of the business cyclei. Peakii. Recessioniii. Troughiv. ExpansionV. Charting the Business Cyclea. Recessions (contractions):periods of economic downturn, when output and employment are falling.b. Expansions (recoveries): periods of economic upturn, when output and employment arerising.c. The point at which the economy turns from expansion to recession is a business-cycle peak.d. The point at which the economy turns from recession to expansion is a business-cycle trough.e. Business cycle: the short-run alternation between recessions and expansions.VI. The Business Cyclea. Since the 1930s, the U.S. (and most national governments) uses tools to improve the economy.b. Monetary policy:uses changes in the quantity of money to alter interest rates and affect overall spending.c. Fiscal policy: uses changes in government spending and taxestoaffect overall