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1、CHAPTER ONEThe Science of Macroeconomicsmacro slide 1This chapter introduces you tothe issues macroeconomists studythe tools macroeconomists usesome important concepts in macroeconomic analysisslide 2Why does the cost of living keep rising?Why are millions of people unemployed, even when the economy
2、 is booming?Why are there recessions? Can the government do anything to combat recessions? Should it?slide 3What is the government budget deficit? How does it affect the economy?Why does the U.S. have such a huge trade deficit? Why are so many countries poor? What policies might help them grow out o
3、f poverty?slide 43,0004,0005,0006,0007,0008,0009,00010,0001970197519801985199019952000long-run upward trendslide 53,0004,0005,0006,0007,0008,0009,00010,0001970197519801985199019952000Recessionslongest economic expansion on recordslide 61.The macroeconomy affects societys well-being.example: Unemploy
4、ment and social problemsslide 7Each one-point increase in the unemployment rate is associated with: 920 more suicides 650 more homicides 4000 more people admitted to state mental institutions 3300 more people sent to state prisons 37,000 more deaths increases in domestic violence and homelessnesssli
5、de 81.The macroeconomy affects societys well-being.example: Unemployment and social problems2.The macroeconomy affects your well-being.example 1: Unemployment and earnings growthexample 2:Interest rates and mortgage paymentsslide 9slide 10For a $150,000 30-year mortgage: $11,782$9816.84%Dec 2001$12,
6、771$10647.65%Dec 2000annual paymentmonthly paymentactual rate on 30-year mortgagedateslide 111.The macroeconomy affects societys well-being.example: Unemployment and social problems2.The macroeconomy affects your well-being.example 1: Unemployment and earnings growthexample 2:Interest rates and mort
7、gage payments3.The macroeconomy affects politics & current events.example: Inflation and unemployment in election yearsslide 12year U rate inflation rate elec. outcome19767.7%5.8%Carter (D)19807.1%13.5%Reagan (R)19847.5%4.3%Reagan (R)19885.5%4.1%Bush I (R)19927.5%3.0%Clinton (D)19965.4%3.3%Clinton (
8、D)20004.0%3.4%Bush II (R)slide 13are simplied versions of a more complex reality irrelevant details are stripped awayUsed to show the relationships between economic variables explain the economys behavior devise policies to improve economic performanceslide 14explains the factors that determine the
9、price of cars and the quantity sold.assumes the market is competitive: each buyer and seller is too small to affect the market priceVariables:Q d = quantity of cars that buyers demandQ s = quantity that producers supplyP = price of new carsY = aggregate incomePs = price of steel (an input)slide 15sh
10、ows that the quantity of cars consumers demand is related to the price of cars and aggregate income. demand equation: (,)dQD P Yslide 16General functional notation shows only that the variables are related:(,)dQD P YA list of the variables that affect Q dslide 17General functional notation shows onl
11、y that the variables are related:(,)dQD P YA specific functional form shows the precise quantitative relationship:Examples:1) (,)60102dQD P YPY0.32) (,)dYQD P YPslide 18Q Quantity of carsP Price of carsDThe demand curve shows the relationship between quantity demanded and price, other things equal.
12、demand equation: (,)dQD P Yslide 19Q Quantity of carsP Price of carsDsupply equation: (,)ssQS P PSThe supply curve shows the relationship between quantity supplied and price, other things equal. slide 20Q Quantity of carsP Price of carsSDequilibrium priceequilibriumquantityslide 21D2Q Quantity of ca
13、rsP Price of carsSD1Q1P1An increase in income increases the quantity of cars consumers demand at each pricewhich increases the equilibrium price and quantity.P2Q2demand equation: (,)dQD P Yslide 22Q Quantity of carsP Price of carsS1DQ1P1An increase in Ps reduces the quantity of cars producers supply
14、 at each pricewhich increases the market price and reduces the quantity.P2Q2S2supply equation: (,)ssQS P Pslide 23The values of endogenous variables are determined in the model.The values of exogenous variables are determined outside the model: the model takes their values & behavior as given.In the
15、 model of supply & demand for cars,endogenous: , , dsPQQexogenous: , sYPslide 241.Write down demand and supply equations for wireless phones; include two exogenous variables in each equation. 2.Draw a supply-demand graph for wireless phones.3.Use your graph to show how a change in one of your exogen
16、ous variables affects the models endogenous variables. slide 25No one model can address all the issues we care about. For example, If we want to know how a fall in aggregate income affects new car prices, we can use the S/D model for new cars. But if we want to know why aggregate income falls, we need a different model. slide 26So we will learn different models for studying different issues (e.g. unemployment, inflation, long-run growth). For each new model, you should keep track of its assumpti
