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Intermediate Macroeconomics Chapter 1 An Overview of Macroeconomics.

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Presentation on theme: "Intermediate Macroeconomics Chapter 1 An Overview of Macroeconomics."— Presentation transcript:

1 Intermediate Macroeconomics Chapter 1 An Overview of Macroeconomics

2 Intermediate Macroeconomics An Overview of Macroeconomics 1.What is Macroeconomics 2.Macroeconomic Goals 3.Economic Theory in Practice

3 Intermediate Macroeconomics 1. What Is Macroeconomics? Microeconomics - study of behavior of individual economic agents. Macroeconomics - study of aggregate measures of the economy

4 Intermediate Macroeconomics 2. Macroeconomic Goals Low Unemployment Price Stability Economic Growth Complementary and Conflicting Goals

5 Intermediate Macroeconomics 2. Macroeconomic Goals Low Unemployment U.S. Fairfax Co., VA recession recession recession Great Depression ( ) World War II ( ) Source: Bureau of Labor Statistics (www.bls.gov)

6 Intermediate Macroeconomics 2. Macroeconomic Goals Price Stability Great Depression World War World War Arab oil Embargo Iranian Revolution and Oil Price Increase Source: Bureau of Labor Statistics (www.bls.gov)

7 Intermediate Macroeconomics 2. Macroeconomic Goals Economic Growth Source: Bureau of Economic Analysis (www.bea.gov) Nominal GDP Real GDP (chained 1996 dollars) Annual change in U.S. GDP per capita

8 Intermediate Macroeconomics 2. Macroeconomic Goals Economic Growth Long term trend 2.4% per year

9 Intermediate Macroeconomics 2. Macroeconomic Goals Complementary and Conflicting Goals Complementary Goals –Low unemployment and high economic growth Conflicting Goals –Low unemployment and low inflation

10 Intermediate Macroeconomics 3. Economic Theory in Practice Economic Theory and Models Empirical Applications

11 Intermediate Macroeconomics 3. Economic Theory in Practice Economic theory and models What makes a good model? Accurately explains history Makes reasonable predictions about the future

12 Intermediate Macroeconomics 3. Economic Theory in Practice Economic theory and models Keep models simple Occam’s Razor - eliminate complicating details that don’t significantly contribute to the model Ceteris Paribus - other things being equal

13 Intermediate Macroeconomics 3.Economic Theory in Practice Empirical time series applications Use Real rather than Nominal values Compare Per Capita rather than Totals Compare Growth Rates rather than Levels

14 Intermediate Macroeconomics 3. Economic Theory in Practice Compare real rather than nominal Real GDPNominal GDP Source: Bureau of Economic Analysis, Percent increase 1929 – 2003 Nominal GDP:10,522 % Real GDP: 1,100 %

15 Intermediate Macroeconomics 3. Economic Theory in Practice Compare per capita rather than aggregates Total Real GDP Real GDP per capita Source: Bureau of Economic Analysis, Percent increase 1929 – 2003 Total Real GDP: 1,100 % Real GDP per capita: 402%

16 Intermediate Macroeconomics 3. Economic Theory in Practice Compare growth rates rather than levels Source: Bureau of Economic Analysis,


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