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Macroeconomics

Macroeconomics . An Introduction . Microeconomics and Macroeconomics. Microeconomics: Study of the behavior of economic units such and households and firms Macroeconomics: Study of economic aggregates such as national income and the overall price level . PPC Revisited .

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Macroeconomics

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  1. Macroeconomics An Introduction

  2. Microeconomics and Macroeconomics • Microeconomics: Study of the behavior of economic units such and households and firms • Macroeconomics: Study of economic aggregates such as national income and the overall price level

  3. PPC Revisited • Macroeconomic Objectives • Full employment • Stable Prices • Steady Growth • Achieving macroeconomic goals • in a market economy • The market’s self-correcting • mechanism • Imperfect and slow market • adjustments Good a F G U H Good B 0

  4. Business Cycles • The Great Depression: 1929 • The Keynesian Solution • The Act 1946: The Federal government is to intervene in the economy to prevent declines in output and employment

  5. Recent Macroeconomic Experiences • The 1950s: The Post-war recovery • The1960s: Continued growth with some inflation • The 1970s’ stagflation • Controlling inflation and supply side economics in the 1980s • Prosperity in 1990s (Low inflation and low unemployment) • Slow down in 2000-2001; mild recovery in the following years

  6. Macroeconomic Concerns • Unemployment The unemployment rate is often regarded as the key indicator of the health of the economy. • Inflation/deflation Although high inflation (or sever deflation) has not been a common occurrence in the US some other countries have had long period of very high inflation. • Slow economic growth Recessions are periods (lasting two consecutive quarters) during which aggregate output declines. A prolonged deep recession is called “depression.”

  7. Macroeconomic Policy Tools • Fiscal policy • Taxation • Government expenditures • Trade policies • Monetary policy • Money and interest rates • Foreign exchange policies • Growth or supply-side policy

  8. Business Cycle GDP: A measure of economic output • Nominal GDP • Real GDP • Potential (real) GDP • Business cycle: trough – expansion – peak – recession

  9. Business Cycle RGDP Peak Recession Expansion Trough Time

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