Chapter 1

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Chapter 1

  1. 1. Chapter 1. Introduction Chapter 1. Introduction Link to syllabus First Class First Class Roll, Adds and Drops Exams, homework Macromodel Programs Link to Syllabus Link to mt’s webpage Goals of the course Major Themes Comments about textbook WSJ. Economist. NYT. Intro course textbook is good review. Math pre-req. No calculus My politics. Goals of the course: Understand macroeconomic phenomena: inflation, unemployment, interest rates, monetary policy growth, exchange rates. Economic Policy Issues: Importance of the government deficit/debt and intervention. Government spending and taxes. Monetary policy. Social security doesn’t get much play. Intermediate macro involves lots of models.. interactions of several variables. Corresponding graphs. Course is a useful pre-req for many grad school/MBA programs Theory Way of thinking Terms Loose ends Comments about course/text Mankiw: Harvard, CEA (critical of Bush’s tax cuts). Reputation for writing well. Sophisticated, subtle writing style.
  2. 2. 2 No calculus, but it’s obviously there. Focus on government’s role in economy. Good Homework problems. Not much about debates, and pretends to be a more modern version. Too long: I have placed growth at the end. We won’t do appendixes. Major themes: Classical Model—full employment “Keynesian” models; not necessarily full employment. Analyzed in terms of AD and AS. AD depends on IS-LM. Variant of IS-LM—IS*-LM*. AS not emphasized too much. Philips curve. Short run/long run. Does more growth. Relatively more trade than other texts, but still take Econ 347. In the background, macro/micro –different or compatible? Intellectual scheme for Econ 301. 301 as intersection of Labor Econ 321 several other courses: Money & Banking Econ 311 M&B/finance. International, Labor, Public Finance Macro Econ 481 Econ 301 Industrial Organization International Public Finance. I.O. Econ 331/333 Finance Econ 347 Microeconomics-Econ 302—is always in the background Review of Basic data for US Figure 1-1 p. 4. Real GDP per person in the US. Figure 1-1 p. 5 Real GDP per person in the US
  3. 3. 3 Figure 1-2 p. 5. Inflation in the U.S. Figure 1-2 p.6 Inflation In the U.S. Figure 1-3 p. 6. Unemployment in U.S. Figure 1-3 p. 7 Unmployment in U.S. Epilogue to Mankiw text (pp.547 ff.) Epilogue to Mankiw text Four most important lessons of macroeconomics. 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 1. In the long run, a country’s 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 capacity to produce goods and services policy face a tradeoff between inflation and unemployment 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 The four most important unresolved 1. How should policymakers try to raise the questions in macro. economy’s natural rate of output? 2. Should policymakers try to stabilize the economy? 1. How should policymakers try to 3. How costly is inflation, and how costly is reducing inflation? raise the economy’s natural rate of 4. How big a problem is government debt? output? 2. Should policymakers try to stabilize the economy?
  4. 4. 4 3. How costly is inflation, and how costly is reducing inflation? 4. How big a problem is government debt? Figure 1-4. P. 8. How Models Work Figure 1-4. P. 7. How Models Work Terms: exogenous, endogenous

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