1Intermediate Macroeconomics ZhaoEcon 303 UIUCIntermediate MacroeconomicsIntroductionMankiw: The Macroeconomist as Scientist and Engineer The Journal of Economic Perspectives 29(4) 29-46• Macroeconomics deals with aggregate economic variables:– Explains the facts on aggregate output, consumption, investment, saving, employment, and inflation– Explains the effect of government policy on these variables.• Two major frameworks, views, or campsKeynesian – salty water macroeconomics, Harvard and MIT Classical – fresh water macroeconomics, U of Chicago and Carnegie Mellon, U of Minnesota2Intermediate Macroeconomics ZhaoEcon 303 UIUCWhy macro is harder than micro? (continued)• Simplest macro model in a closed economy involves four markets and three prices (r or i, W, P) at the same time in one-period.– Goods market, capital market– Labor market– Money market• Classical system Labor market Goods market Money market (QTM) P• Keynesian system Goods market (IS)Money market (i) (LM) Labor market (W) AS Y, W/P, rADY, PWhat is the emphasis of this classTransferable skills on the job marketto think critically, reason analytically, solve problems, and communicate clearly• All about that Basic Skills“Sensation is unorganized stimulus, perception is organized sensation, conception is organized perception, science is organized knowledge, and wisdom is organized life: … Perceptions without conceptions are blind.”Immanuel Kant• Pythagorean’s motto-- “All is number”3Intermediate Macroeconomics ZhaoEcon 303 UIUCDifferential CalculusNotationA linear example (page 9)4Intermediate Macroeconomics ZhaoEcon 303 UIUCA non-linear example (page 9)• Additional thoughts: If x=20, what is impact of additional x, approximately?Differential CalculusInterpretation: “rate of change” and “impact” Graphic representation: slope of a curve Local concept, small changes – “Marginal” AB5Intermediate Macroeconomics ZhaoEcon 303 UIUCDerivatives of some simple functionsFind derivatives of the following function (page 10)6Intermediate Macroeconomics ZhaoEcon 303 UIUCRule of
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