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Macroeconomics by G.MankiwMacroeconomics by G.Mankiw
PART 1, CHAPTER 1 :
The Science of Macroeconomics
Lecture 1
Source : Slide Database by Ron Cronovich + Slides by Nathalie
Bolh
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Learning objectivesLearning objectives
This chapter introduces you to
some important concepts inmacroeconomic analysis
the issues macroeconomists study
the tools macroeconomists use
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What is Macroeconomics?What is Macroeconomics?
A global definition
Explanations and Policy prescriptions
Macroeconomics+ Microeconomics =Economics
The study of macroeconomic variables
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Important issues in macroeconomicsImportant issues in
macroeconomics
3 major indicators of economicperformance :
- GDP and Growth
- Unemployment rate
- Inflation rate
3major economic areas under review :the USA, the EU and
Japan
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Recent data in the USARecent data in the USA
Source:
OECD (Y/Y)1960-2000
1992-2000
2000/
2001
Output
growthrate
3.5 3.7 4.1/
1.1
Unemployment
rate
6.1 5.4 4.0/
4.8
Inflation
Rate
5.1 1.7 2.3/
2.1
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Recent Data in the EURecent Data in the EU
Source:
OECD1960-2000
1992-2000
2000/
2001
Output
growthrate
3.1 2.1 3.3/
1.7
Unemployment rate
6.5 9.9 8.1/
7.8
Inflation
Rate
5.6 1.7 1.5/
2.5
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Recent Data in JapanRecent Data in Japan
1960-2000
1992-2000
2000/
2001
Output
growthrate
5.5 1.2 1.5/
-0.7
Unemployment
rate
2.0 3.0 4.7/
5.0
Inflation
Rate
4.5 -0.1 -1.6/
-1.6
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Economic modelsEconomic models
Mathematics
Observation of data => simplified reality
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The example of a model of supplyThe example of a model of
supplyand demand for riceand demand for rice
explains the factors that determine the price ofManggo and the
quantity sold.
assumes the market is competitive
Variables:Qd = quantity of rice that buyers demand
Q s = quantity that producers supply
P = price of riceY = aggregate income
Pg = price of grapes (an input)
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The rice marketThe rice market
The supply for rice :
Q s = S(P+, Pf-)
The demand for rice :
Qd =D(P-, Y+)
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The market for rice:The market for rice:
equilibriumequilibrium
QQuantityof rice
PPrice
of rice S
D
equilibrium
price
equilibrium
quantity
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The effects of an increase in income:The effects of an increase
in income:
D2
QQuantityof rice
PPrice
of rice S
D1
Q1
P1
P2
Q2
demand equation:
( , )!dQ D P Y
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Endogenous vs. exogenous variables:Endogenous vs. exogenous
variables:
The values ofendogenous variablesare determined in the
model.
The values ofexogenous variables
are determined outside the model:the model takes their values
& behavioras given.
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Prices: Flexible Versus StickyPrices: Flexible Versus Sticky
Marketclearing: an assumption that pricesare flexible and adjust
to equate supply anddemand.
In the short run, many prices are sticky.
In models : Prices are supposed to besticky in the short run and
flexible in thelong run.
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QuestionQuestion
1) Macroeconomic issues in the news overthe last month?
2) What would be the effect of an increasein the price of
Fertilizers on the rice market
equilibrium3) Give the 2 definitions of a recession (theNBER
definition and the popular definition)
4) Identify the main recession episodes inthe Indonesia economy
since 1900
