The document outlines the distinction between microeconomics and macroeconomics, focusing on the economy as a whole, including key concepts like aggregate demand and supply. It emphasizes the government's role in managing the economy through fiscal and monetary policies, particularly during cyclical trends of expansion and recession. Additionally, it presents historical data on GDP, inflation, and unemployment, illustrating economic performance over time and the effects of governmental policies.

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