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This document provides a foundational overview of macroeconomics, discussing its significance in analyzing the economy as a whole. It covers the roles of macroeconomists, the relevance of understanding macroeconomic indicators such as GDP, inflation, and unemployment, and the critical importance of macroeconomic policies. Additionally, it highlights key concepts like the paradox of thrift, animal spirits, and the impacts of government stabilization policies on economic cycles. Knowledge of these elements is essential for informed civic engagement and personal financial decision-making.
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Assorted Chapter 1 & 2 Info ECON 402 – Spring 2014
What is Macroeconomics? • Macroeconomics is the study of what is happening to the economy as a whole, the economy-in-the-large, the macroeconomy.
What do Macroeconomists Do? • Macroeconomists’ principal tasks: • To try to figure out why overall economic activity rises and falls: the value of production, total incomes, unemployment, inflation. • Intermediate variables like interest rates, stock market values, and exchange rates play a major role in determining the overall levels of production, income, employment, and prices.
Why Macroeconomics Matters • Three reasons • Cultural literacy • Self-interest (understanding the situation you are in) • Civic responsibility – your duty to vote, and to understand whether who you are voting for is a lying scumbag can deliver what he or she promises.
Key Concepts • Fallacy of Composition • Paradox of Thrift • Self-fulfilling prophecies, a.k.a. “sunspot” equilibria • Animal spirits
Macroeconomic Policy • Growth policy: nothing matters more in the long run for the quality of life in an economy than its long run rate of economic growth. • “A rising tide lifts all boats.”
Macroeconomic Policy (cont’d) • Stabilization policy: the second major branch of macro policy is the government’s stabilization policy. • Business cycles: periods in which production grows and unemployment falls are called booms, or macroeconomic expansions; periods in which production falls and unemployment rises are called recessions, or worse, depressions.
Macroeconomic Policy (cont’d) • Today’s governments have powerful abilities to improve economic growth and to smooth out the business cycle by diminishing the depth of recessions and depressions. • Good macroeconomic policy can make almost everyone’s life better; bad macroeconomic policy can make almost everyone’s life worse.
So Reduced Volatility is Good, Right? • So what could possibly be wrong with ‘price stability’ and lower volatility in overall nominal output? How could reducing the frequency and severity of recessions be a bad thing?
Wait, what? • "But I want you all to know, I will not rest until anybody who's looking for a job can find one -- and I'm not talking about just any job, but good jobs that give every American decent wages and decent benefits and a fair shot at the American Dream.“ • President B.O., September 15, 2009 • http://www.whitehouse.gov/the-press-office/remarks-president-gm-lordstown-assembly-plant-employees-ohio-9152009
