1. M ACROECONOMICS STG Spring 2012 Ruslan Aliyev

2. Course Syllabus Schedule: Lectures: Tuesdays, 8:30-10:00; Fridays, 8:30-10:00 Exercise sessions: Tuesdays, 10:10-11:40 Grading: Topics Reading materials Webpage: http://home.cerge-ei.cz/ruslan/teaching/macro1.html http://home.cerge-ei.cz/ruslan/teaching/macro1.html 2

3. Lecture 1 Introduction to Macroeconomics Overview of macroeconomics The methodology and tools of macroeconomics Macroeconomic models Some important concepts in macroeconomic analysis 3

4. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 4 What is macroeconomics?

5. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 5 Macroeconomics, the study of the economy as a whole, addresses many topical issues, e.g.: What causes recessions? What is “government stimulus” and why might it help? How can problems in the housing market spread to the rest of the economy? What is the government budget deficit? How does it affect workers, consumers, businesses, and taxpayers? Why does the cost of living keep rising? Why are so many countries poor? What policies might help them grow out of poverty? What is the trade deficit? How does it affect the country’s well-being?

6. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 6 Major Macroeconomic Variables GDP a measure of the quantity of goods and services produced in the economy in a given year Inflation rate a measure of how prices are changing, on average Unemployment rate rate measures the fraction of those who are seeking work but do not have jobs

7. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 7 Real income per capita, GDP in €, 1990 prices Source: www.conference-board.org/economics/database.cfmwww.conference-board.org/economics/database.cfm

8. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 8 GDP in Azerbaijan (billion. dollars) Source: The State Statistics Committee of Azerbaijan Republic

9. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 9 Gross domestic product in three countries Source: www.conference-board.org/economics/database.cfmwww.conference-board.org/economics/database.cfm

10. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 10 Gross domestic product in three countries (log scale) Source: www.conference-board.org/economics/database.cfmwww.conference-board.org/economics/database.cfm

11. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 11 Per Capita Real GDP (in 2000 dollars) for the United States, 1900–2005 Source: U.S. Department of Commerce and Economic History Services.

12. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 12 Natural Logarithm of Per Capita Real GDP Source: U.S. Department of Commerce and Economic History Services.

13. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 13 Natural Logarithm of Per Capita Real GDP and Trend: US Data Source: U.S. Department of Commerce and Economic History Services.

14. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 14 0.0 2.0 4.0 6.0 8.0 10.0 12.0 19701975198019851990199520002005 SwitzerlandEuropean UnionUnited States Unemployment rates: EU, US, Switzerland (%) Source: www.conference-board.org/economics/database.cfmwww.conference-board.org/economics/database.cfm

15. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 15 Inflation rates over the long-run in France and UK Source: www.conference-board.org/economics/database.cfmwww.conference-board.org/economics/database.cfm

16. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 16 Markets and prices  Aggregation  Model building A macroeconomic model captures the essential features of the world needed to analyze a particular macroeconomic problem. Macroeconomic models should be simple, but they need not be realistic.

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18. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 18 The Model of Supply and Demand

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37. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 37 This relationships can be expressed in the equations: Q d = D ( P, Y ) Equilibrium: Q d = Q s Q s = S ( P, P m ) Example:Q d = 60 - 10P + 2Y Q s = 5 + 5P + 2P m

38. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 38 Some General Comments: Macroeconomics schools of thought Prices: Flexible vs. Sticky Multiple models – multiple approaches Microeconomics and Macroeconomics Being an economist, The Nobel Prize in economics

39. Lecture 1. Introduction to Macroeconomics Overview of macroeconomics 39 Summary What is macroeconomics? Models – theories that simplify reality Some important concepts of macroeconomics