Lecture slides for an undergraduate course on Basic Macroeconomics that I taught in the Fall of 2007. This lecture introduces macroeconomics proper (as opposed to microeconomics).

1. MACROECONOMICS
Looking at the Bigger Picture, in Broad Strokes

2. From Micro to Macro
• Microeconomics: individual markets or industries
• Demand
• Supply
• Prices
• Macroeconomics: the economy as a whole
• Aggregate demand
• Aggregate supply
• Overall price level
A study in contrasts.

3. Government
Rest of the
World
HouseholdsFirms
The Circular Flow (Ver. 2)A glimpse of the macroeconomy.

4. Studying the Economy
• Macroeconomics is concerned the long-run trends and
short-term variations in the economy’s performance.
• Variables of interest:
• Productivity
• Growth
• Employment
• Inflation
Taking a snapshot of the economy.

5. Economic Management
• Even in a free-market setting, government has a significant
role to play beyond providing a level playing field.
• Policy instruments:
• Fiscal: Taxation and spending.
• Monetary: Control over the money supply.
• Other “supply-side” policies that encourage production.
A note on government’s role in the economy.

6. 3,750
7,500
11,250
15,000
1950 1960 1970 1980 1990 2000
GDP ($ Billions)
US ANNUAL GDP (1950-2007)
Source: IMF International Financial Statistics

7. GDP Growth Inflation Unemployment Rate
1950 1960 1970 1980 1990 2000
-5
0
5
10
15
20
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

8. GDP Growth Inflation Unemployment Rate
-5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
This illustrates that the
economy exhibits cyclical
behavior.
Upward trends are called
expansions or booms.
Downward trends are called
contractions, slumps or
recessions.
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

9. -5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
GDP Growth Inflation Unemployment Rate
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

10. -5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
GDP Growth Inflation Unemployment Rate
High growth
after WWII.
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

11. -5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
GDP Growth Inflation Unemployment Rate
Government
policies curb inflation
and unemployment
(demand-driven).
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

12. -5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
GDP Growth Inflation Unemployment Rate
Stagflation:
High Inflation
+
High Unemployment
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics

13. -5
0
5
10
15
20
1950 1960 1970 1980 1990 2000
GDP Growth Inflation Unemployment Rate
“Boom” years: strong
economic performance,
low inflation and low
unemployment.
YEAR-ON-YEAR COMPARISON (PERCENTAGE)
Source: IMF International Financial Statistics