Chapter 1. Introduction

Link to syllabus

First Class

Link to Syllabus

Roll, Adds and DropsExams, homeworkMacromodel Programs

Link to mt’s webpage

Goals of the courseMajor ThemesComments about textbook

Econ 301 as center of the worldBasic dataEpilogue to Mankiw’s text.

Goals of the course

• Understand Macroeconomic phenomena – inflation, unemployment, exchange rates

• Policy issues: Government spending and taxes, the deficit/debt. Social Security doesn’t get much play in this textbook.

• Practice using models and graphs to study interactions of many variables

• This course is a useful pre-req for grad school/MBA programs

• Comments about textbook

Major Themes

• Classical Model – full employment• ‘Keynesian’ models – not necessarily full

employment• Analyzed in terms of Aggregate Demand and

Aggregate Supply. AD depends on IS-LM, which is a major building block. (also, IS*-LM*)

• Aggregate Supply is not emphasized much.• Phillips curve is included, but not central• Short run/long run distinction. • Does more international than many other texts

Intellectual scheme for Econ 301.

MacroEcon 301

LaborEcon 321

Money &BankingEcon 311

International Finance

Econ 347

Public Finance

Econ 481

Industrial OrganizationEcon 331/333

Microeconomics-Econ 302—is always in the background

Figure 1-1 p. 5. Real GDP per person in the US.

Figure 1-2 p. 6. Inflation in the U.S.

Figure 1-3 p. 7. Unemployment in U.S.

Unemployment Rate, US

Source: US Dept. of Labor http://data.bls.gov/timeseries/LNS14000000

Inflation in the U.S.

Source: Bureau of Labor Statistics:http://data.bls.gov/pdq/SurveyOutputServlet?request_action=wh&graph_name=CU_cpibrief

Epilogue to Mankiw text

Four most important lessons of macroeconomics. 1.    In the long run, a country’s capacity to produce goods and services determines the standard of living of its citizens. 2.    In the short run, aggregate demand influences the amount of goods that a country produces 3.    In the long run, the rate of money growth determines the rate of inflation, but does not affect the rate of unemployment 4.    In the short run, policymakers who control monetary and fiscal policy face a tradeoff between inflation and unemployment

The four most important unresolved questions in macro

1.  How should policymakers try to raise the economy’s natural rate of output? 2.   Should policymakers try to stabilize the economy? 3.   How costly is inflation, and how costly is reducing inflation? 4. How big a problem is government debt?

Note that the US currently suffers a recession, a large short term deficit, and the prospect of high long term debts.

Figure 1-4. P. 8. How Models Work

Figure 1-5. P. 9 Supply and Demand for Pizza

Figure 1-6. P. 10. Changes in

Equilibrium