Download presentation
Presentation is loading. Please wait.
1
MANKIW'S MACROECONOMICS MODULES
CHAPTER 1 The Science of Macroeconomics A PowerPointTutorial To Accompany MACROECONOMICS, 8th Edition N. Gregory Mankiw Tutorial written by: Mannig J. Simidian B.A. in Economics with Distinction, Duke University M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management
2
In Memoriam Ara Vahan Simidian (June 24, 1928 - December 19, 2008)
Mankiw’s Macroeconomics Modules for Macroeconomics 7th ed. are dedicated to the loving memory of my cherished father, best friend and mentor. Daddy– you are still my inspiration for making sure these tutorials are the best they can be for students worldwide! Ara Vahan Simidian (June 24, December 19, 2008) May he continue to enjoy learning and loving economics from heaven above. Ara Vahan Simidian with Mankiw’s Macroeconomics Modules author, Mannig J. Simidian, 2007.
3
Acknowledgements For over a decade, I have had the honor of participating in the educational supplements for Professor Mankiw’s Macroeconomics (eds. 5th- 8th). Each iteration of his text becomes clearer, and more insightful! Professor Mankiw effortlessly finds a way to improve what is already perfect. He profoundly elucidates changes and illuminates the dynamics of the ever-changing ubiquitous collection of buyers and sellers which comprises the macroeconomy. In the most organized and articulate fashion, he demystifies the financial good and evil that all humans face on a daily and long-term basis. To me, there is no other greater societal contribution to a globalizing marketplace in desperate need of education, answers, reformation and inspiration. Thank you Professor Mankiw for filling the world with hope through analytical awareness! Mankiw’s Macroecoeconomics Modules act as a complimentary tool to Professor Mankiw’s text, and have been a benefit to students and teachers worldwide who have wanted yet another way to experience the power and knowledge found in Macroeconomics 8th ed. My participation is an honor for which I am eternally grateful. I have had a profound support system throughout the years most notably my Father, Ara Simidian, who rests in heaven, my Mother, Jane Simidian, Dr. Lawrence Brockman, Dr. Russell & Dara Meetze, Professors Mike McElroy, Adrian Austin, David Denslow, Mark Rush, Ed Tower, Jeff Frankel, David Gergen, and friends Mark Hassan, Stephanie Taylor and artistlaureate Peter Max, among many others. The 8th edition of Mankiw’s Macroeconomics Modules is dedicated to my eight year old daughter Elle, who is now old enough to understand the importance of the economy. I owe it to her to disseminate macroeconomics education that will not leave her generation in economic turmoil. Mannig J. Simidian July 2012
4
Welcome to Macroeconomics!
Everyone has reason to think critically about macroeconomic issues. It is imperative that we seek to understand why some countries are growing faster or slower than others or why some have greater fluctuations in inflation or unemployment. The study of macroeconomics focuses on the forces that affect the economy as a whole! And, it affects everyone in so many ways. It plays a significant role in politics, while also affecting public policy and societal well-being, at national and global levels. Macroeconomists use variables to measure the performance of the economy such as real GDP, the inflation rate, and the unemployment rate many among others. They are also concerned with matters such as monetary and fiscal policy—both of which, will be discussed at length in MACROECONOMICS, 8th ed., Mankiw’s Macroeconomics Modules, and in your macroeconomics course. Good luck and have fun using these tutorials to guide you when macroeconomics might be challenging you! Enjoy!!!
5
President Barack Obama and the State of the Economy
When President Obama moved into the White House in 2009, the economy was in a state of turmoil. Mortgage defaults and a drop in housing prices were the major culprits, exacerbated by the bankruptcy or near bankruptcy of many financial institutions. In 2008 and 2009 the Treasury and the Federal Reserve acted vigorously so as to avoid the circumstances that characterized the Great Depression which occurred in the 1930’s. The recovery was slow and painful; they eventually succeeded to some extent in that unemployment was at 10.1% but enacted policies that left behind tremendous government debt.
6
How Do Economists Think?
Economists use models to understand what goes on in the economy. Here are two important points about models: endogenous variables and exogenous variables. Endogenous variables are those which the model tries to explain. Exogenous variables are those variables that a model takes as given. In short, endogenous are variables within a model, and exogenous are the variables outside the model. Price Demand Q * P Supply Quantity The Model of Supply and Demand This is the most famous economic model. It describes the ubiquitous relationship between buyers and sellers in the market. The point of intersection is called an equilibrium.
7
The Basics of Market Clearing
Market clearing is an alignment process whereby decisions between suppliers and demanders reach an equilibrium. Here’s how it works. Let’s say you begin with a demand and supply curve for CDs. Remember that the demand curve slopes downward meaning that as you increase the price (by moving along the demand curve), the quantity demanded decreases. Conversely, the supply curve slopes upward implying that as the price increases (by moving along the supply curve), the amount supplied will increase. The center point A is where market decisions reach an equilibrium. P Q D S D´ Q´ P´ B Now, suppose that there is a sudden increase in the demand for CDs. Q* P* A Shortage Demand will shift from D to D´. The increase in demand places upward pressure on the price to point B since the original price, P* no longer clears the market. Notice the “shortage.”
8
The Basics of Supply and Demand
Q D' SHIFTS IN DEMAND: Suppose your income rises? Your demand for a given product, for example, pizza, will also increase. This translates into a rightward shift in the demand curve from D to D'. Result: both price and quantity are higher. P D S Q S' SHIFTS IN SUPPLY: A fall in the price of materials increases the supply of pizza; at any given price, pizzerias find that the sale of pizza is more profitable, and thus the supply of pizza rises. This translates into a rightward shift in supply from S to S'. Result: price falls, quantity rises.
9
Prices: Flexible vs. Sticky
Economists typically assume that the market will go into an equilibrium of supply and demand, which is called the market clearing process. This assumption is central to the pizza example on the previous slide. But, assuming that markets clear continuously, is unrealistic. For markets to clear continuously, prices would have to adjust instantly to changes in supply and demand. But, evidence suggests that prices and wages often adjust slowly. So, remember that although market clearing models assume that wages and prices are flexible, in actuality, some wages and prices are sticky. Market clearing models may not describe every instant in an economy, but they do depict the equilibrium toward which the economy gravitates.
10
Using Microeconomics in Macroeconomics
Microeconomics is the study of how households and firms make decisions and how these decision makers interact in the broader marketplace. In microeconomics, an individual chooses to maximize his or her utility subject to his or her budget constraint. Microeconomics Macroeconomic events arise from the interaction of many individuals trying to maximize their own welfare. Because aggregate variables are the sum of the variables describing individuals’ decisions, the study of macroeconomics is based on microeconomic foundations. Macroeconomics
11
How Mankiw's Macroeconomics Modules Proceed
The modules mirror the sequencing of the text, Macroeconomics, 8th ed. There are six parts and a total of nineteen chapters with a module written for each chapter. Enjoy! Part One Introduction Part Two Classical Theory, The Economy in the Long Run Part Three Growth Theory, The Economy in the Very Long Run Part Four Business Cycle Theory: The Economy in the Short Run Part Five Topics in Macroeconomic Theory Part Six Topics in Macroeconomic Policy
12
Key Concepts of Chapter 1
Macroeconomics Real GDP Inflation and deflation Unemployment Recession Depression Models Endogenous variables Exogenous variables Market clearing Flexible and sticky prices Microeconomics
Similar presentations
