Chapter 6(21) Macroeconomics: The Big PictureWhat’s New in the Fifth Edition?Chapter ObjectivesTeaching TipsThe Nature of MacroeconomicsCreating Student InterestPresenting the MaterialThe Business CycleCreating Student InterestPresenting the MaterialLong-Run Economic GrowthCreating Student InterestPresenting the MaterialInflation and DeflationCreating Student InterestPresenting the MaterialInternational ImbalancesCreating Student InterestPresenting the MaterialChapter OutlineCase Studies in the TextEconomics in ActionFor Inquiring MindsGlobal ComparisonBusiness CaseWeb ResourcesHandout 6(21)-1 Handout 6(21)-2Chapter 6(21) Macroeconomics: The Big Picture What’s New in the Fifth Edition?- Updated casesChapter Objectives - Explain the difference between microeconomics and macroeconomics. - Define the business cycle and explain why reducing the severity of the business cycle isa common goal of policy makers. - Explain the connection between long-run economic growth and a country’s standard ofliving. - Explain the meaning of inflation and deflation. - Explain why price stability is a preferred goal of policy makers. - Explain how economies interact through trade deficits and trade surpluses. Teaching TipsThe Nature of Macroeconomics Creating Student Interest - At this point in the course you have probably spent two or more weeks talking aboutmicroeconomics—opportunity cost, comparative advantage, supply and demand, and so on. Askstudents how they think macroeconomics will be different from microeconomics. Make a list ofanything interesting that they come up with. Ask students why studying macroeconomics mightbe important for all students regardless of their major. One reason is to be a more informed voter.- Use Handout 6(21)-1 to have students consider the difference between macroeconomics andmicroeconomics. Presenting the Material - Direct students’ attention to the Microeconomic versus Macroeconomic Questions listed in Table6(21)-1 in the text. Have them compare their earlier responses regarding the differences betweenmicroeconomics and macroeconomics with the specific questions listed in this table. Microeconomic versus Macroeconomic QuestionsMicroeconomic Questions Macroeconomic QuestionsShould I go to business school or take a job right now?How many people are employed in the economy asa whole this year?What determines the salary Google offers to Cherie Camajo, a new Columbia MBA?What determines the overall salary levels paid to workers in a given year?What determines the cost to a university or college What determines the overall level of prices in the Chapter 6 krugman 1Microeconomic Questions Macroeconomic Questionsof offering a new course? economy as a whole?What government policies should be adopted to make it easier for low-income students to attend college?What government policies should be adopted to promote employment and growth in the economy as a whole?What determines whether Citibank opens a new office in Shanghai?What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world?The Business Cycle Creating Student Interest - Conduct a brief poll of your students to identify how they think the economy is doing. Havethem each identify (by a show of hands, a voice vote, or on a slip of paper) whether they thinkthe state of the economy is “excellent,” “good,” “fair,” or “poor.” Present the results of the pollto the class. Then ask your students to tell you on what they based their decision. What made them chooseexcellent, good, fair, or poor? They may say something about GDP, inflation, or unemployment.Keep a list of their responses. Ask them how their responses would have been different a yearago and five years ago. Use their sense of how things are going and how the state of the economycan change over time to lead into a discussion of the business cycle. Presenting the Material - Go online and find some quarterly and annual GDP growth data. Present the data to emphasize tostudents that growth in GDP is variable. Do not worry about defining GDP at this point. Tellthem you will do that in the next chapter. Next, draw a graph such as Figure 6(21)-2 to discussthe business cycle. Define monetary and fiscal policy as attempts by the government to smoothout business cycle fluctuations. This is a good time to see what your students actually knowabout monetary and fiscal policy. It is a good time to mention the deficit and debt levels and seewhat students think about them. Tell students that policy makers evaluate the economy bycomparing the current data with average or benchmark values to get a sense for where we are.Mention that a downside of recession is higher-than-average unemployment. Ask students if theyknow the current unemployment rate. Present some historical data.Chapter 6 krugman 2Long-Run Economic Growth Creating Student Interest - Ask students about the level of GDP and about the growth rate of GDP. You will find that manydo not have any idea what these values are. Ask students if they think the economy usuallygrows at a positive rate over time. They will probably say yes. Then ask them if they think mosteconomies grow at a positive rate each year on average. They will probably say no, and this canlead to an interesting discussion about which countries are more and less developed. Presenting the Material - Make sure students understand the definition of long-run growth as a sustained increase in theeconomy’s output over time. You might discuss the recent growth experiences of countries likeChina, India, and Brazil in comparison with the United States and Europe. You might askstudents if they think economic growth is a good thing. Generally they should say yes becauseeconomic growth leads to an increase in per capita income and living standards. You may havesome students in class who are concerned about the environment, or running out of resources,and this can also lead to some interesting discussions. Inflation and Deflation Creating Student Interest - Ask students how much a can of Coke costs. Have they ever heard anyone bring up the cost of asoda starting with “Well, back in MY day, a soda cost . . .”? Present the class with the followingdata: Coke was first sold in cans in the 1950s for 5 cents a can. By the end of the 1950s, the samecan of Coke cost 10 cents. In 1960, the average price was about