1 / 20

Intro to Macroeconomics

Intro to Macroeconomics. Micro vs. Macro. Micro: study individual economic actors (households, firms, gov’t) Macro: study of economic systems Diff of perspective, same basic ideas (with caveats) E.g. the economy is not the same as your family

zora
Download Presentation

Intro to Macroeconomics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Intro to Macroeconomics

  2. Micro vs. Macro • Micro: study individual economic actors (households, firms, gov’t) • Macro: study of economic systems • Diff of perspective, same basic ideas (with caveats) • E.g. the economy is not the same as your family • Circular flow: let’s all tighten our belts to save money during these hard times! • If we all cut wages, the economy will grow! • The world can grow its way out of the recession by increasing exports!

  3. GDP • Gross Domestic Product (measurement of national economic activity): • Dollar value (nominal vs. real GDP= nominal/price index) • of all final goods and services (vs. intermediate goods) • Produced within a country (vs. Gross National Product/GNP) • In a calendar year (avoid double counting)

  4. 4 Main Types GDP • Nominal GDP (prices; how much money from selling donuts?) • Real GDP (adjusted for inflation; how many donuts?) • GDP per capita: stuff/# people; • problem for developing countries w/rapid pop growth • Potential/full-employment GDP: if resources fully employed efficiently, what is possible to produce (think production possibilities curve) w/o increasing inflation

  5. Measuring GDP • Output-Expenditures Model • GDP= C + I + G + (x-m) • Consumption (households, 2/3 US economy) • Investment (only capital goods, not stocks; most volatile) • Government • eXports – iMports (domestic production; slightly misleading)

  6. Income Approach • GDP= Income generated from production • Must equal Output-Expenditure: circular-flow what is spent is earned

  7. Short- and Long-run • Short-run: period when input prices (e.g. wages) don’t change in response price changes (inflation) • Long-run: sufficiently long period when input prices can change in response to price changes • Slight diff. Micro

  8. Aggregate Supply/Demand • AD: total quantity of goods and services demanded at different price levels • AS: total quantity of goods and services in the economy

  9. Keynesian AS-AD Graph • “Mainstream” view: developed in response to Great Depression • Q= real GDP • Price Level: weighted average of all final g+s in economy • 3 ranges: horizontal, intermediate, vertical (at full-capacity/employment level of output) • Intersection AS-AD= equilibrium price and output

  10. AS Price Level Vertical At full-capacity/employment, any increase AD lost entirely to inflation (can’t produce more) Intermediate Some increase output “dissipated” as inflation (PL up) Horizontal: Excess capacity increase output w/o increase price Q= real GDP Qf

  11. AS Price Level AD2= recession AD3= depression AD1= full-employment production Q= real GDP Qr Qf Qd

  12. Ratchet? • Prices + wages “downwardly inflexible”: decline AD firms can’t (labor contracts)/ don’t want to (efficiency wages) decrease wages  price level doesn’t fall w/decrease AD • Recessions depressions

  13. AS Price Level AD1 AD2 Q= real GDP Qd Qf Qr

  14. Keynesian Assumptions • 1) Input prices (wages, rent, etc.) downwardly inflexible (hard to lower wages) • 2) Changes in Investment esp. important affecting GDP (“animal spirits”) • 3) “In the long-run we’re all dead”: Unemployment equilibrium economy can get stuck in recession/depression w/o external force (G)

  15. Neo-Classical AS-AD • Assumes v/ efficient markets (including labor market) • Distinction Short-run AS and Long-run AS • Long-run AS vertical at full-capacity/employment GDP • Long-run equilibrium only at intersection ASsr-AD-ASlr economy will by itself return to ASlr (self-regulating) • No long-run trade-off inflation + unemployment: just inflation

  16. ASlr Price Level ASsr AD2 Long-run equilibrium Short-run equilibrium AD Q= real GDP

  17. Business Cycle • Cyclical not periodic • Contraction > 2 consecutive quarters (6 months) = recession • Deep, long recession = depression • Stagflation: stagnation + inflation

  18. Factors Affecting Business Cycle • 1) Investment (prob. excess capacity) • 2) Availability $ and credit (interest rates) • 3) Expectations future economy • 4) Capital deepening (increase labor productivity; often result I) • 5) External shocks (supply shock)

  19. Indicators • Leading: where we’re going (housing starts) • Lagging: where we’ve been; confirms change in cycle (unemployment) • Coincident: where we are (income)

  20. Limitations of GDP • 1) estimate: slow to gather, sampling/surveys • 2) Underground/ nonmarket transactions • 3) National: hard at local level • 4) Changes in quality: can’t track change Apple IIG Alienware • 5) Distribution of income/goods • 6) Blind: doesn’t differentiate uses of g+s (externalities) •  Green GDP: + happiness, sustainability, etc.; - pollution, crime, etc.

More Related