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The Origins of “Macroeconomics”

Econ 120D Intermediate Macroeconomics Spring 2014 Professor Kevin D. Hoover Topic 1 Introduction to Macroeconomics and the National Income Accounts. Ragnar Frisch, the Norwegian economist, coined the terms microeconomics and macroeconomics in 1933.

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The Origins of “Macroeconomics”

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  1. Econ 120D Intermediate MacroeconomicsSpring 2014Professor Kevin D. HooverTopic 1Introduction to Macroeconomics and the National Income Accounts Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  2. Ragnar Frisch, the Norwegian economist, coined the terms microeconomics and macroeconomics in 1933. Frisch shared the first Nobel Prize in Economics with Jan Tinbergen in 1969. The Origins of “Macroeconomics” Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  3. London Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  4. London Underground Map Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  5. The Worst Economy Since the Great Depression? Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  6. The Beginnings of National Accounting • William Petty (1623-1687) • Earliest macroeconomic measurement • What was Ireland worth to England? Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  7. The Physiocrats take the King’s-eye View • François Quesnay (1694-1774) • Victor de Riquetti, Marquis de Mirabeau(1715-1789) • Tableau Economique – the first formal macroeconomic model • How to maximize the King’s revenue • Unproductive spending by the nobility = the stimulus Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  8. Adam Smith: A Nation is Rich when its People are Rich • Adam Smith (1723-1790), Scottish philosopher • The Wealth of Nations, beginning of modern economics • “According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.” Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  9. The Founders of National-Income Accounting Colin Clark (1905-1989)Australian economist Simon Kuznets (1901-1985), American economist, Nobel Prize 1971 James Meade (1907-1995), English economist, Nobel Prize 1977 Richard Stone (1913-1991), English economist, Nobel Prize 1984 Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  10. Stocks and Flows Income Wealth Expenditure Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  11. Gross Domestic Product “the market value of all the final goods and services produced by labor and property located” within the borders of a country within a definite period. Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  12. Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  13. The Circular Flow of Income and Expenditure Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  14. National Income Accounting Identities • Product-expenditure IdentityY C + I + G + NX • Disposable-income IdentityYDY – T + TR  C + S • Sectoral-deficits Identity [G – (T – TR)] + [I – S] + [EX – IM]  0 government budget deficit + private sector deficit + foreign sector deficit  0 • Inflow-Outflow IdentityI + G + EX  S + (T – TR) + IM Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  15. Accounting for Price Change Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  16. Accounting for Price Change Using the GDP Implicit Price Deflator Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  17. Nominal vs. Real: A Vital Distinction • Nominal (or current-dollar or market) = quantities measured in the actual dollars of each period. • Real (or constant-dollar) = quantities adjusted for price changes. Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  18. Deflation: Converting Nominal to Real • Reference Period = period in whose dollars real values are expressed. • Price Factor = pft = preference/pt • Conversion to constant dollars$referenceXt = pft $tXt Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  19. International GDP Comparisons Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  20. International GDP per Capita Comparisons Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  21. U.S. GDP Growth Rates Over Time – 1 Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  22. U.S. GDP Growth Rates Over Time – 2 Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  23. U.S. Inflation Rates Over Time Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

  24. END of Topic 1 Next Topic: 2. Trends and Cycles Professor K.D. Hoover, Econ 210D Topic 1 Fall 2015

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