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Macroeconomics by G.Mankiw. PART 1, CHAPTER 1 : The Science of Macroeconomics Lecture 1 Source : Slide Database by Ron Cronovich + Slides by Nathalie Bolh. Learning objectives. This chapter introduces you to some important concepts in macroeconomic analysis
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Macroeconomics by G.Mankiw PART 1, CHAPTER 1 : The Science of Macroeconomics Lecture 1 Source : Slide Database by Ron Cronovich + Slides by Nathalie Bolh
Learning objectives This chapter introduces you to • some important concepts in macroeconomic analysis • the issues macroeconomists study • the tools macroeconomists use
What is Macroeconomics? • A global definition • Explanations and Policy prescriptions • Macroeconomics+ Microeconomics = Economics • The study of macroeconomic variables
Important issues in macroeconomics • 3 major indicators of economic performance : - GDP and Growth - Unemployment rate - Inflation rate • 3 major economic areas under review : the USA, the EU and Japan
Economic models Mathematics Observation of data => simplified reality
The example of a model of supply and demand for rice • explains the factors that determine the price of Manggo and the quantity sold. • assumes the market is competitive • Variables: Qd = quantity of rice that buyers demand Qs = quantity that producers supply P = price of rice Y = aggregate income Pg = price of grapes (an input)
The rice market • The supply for rice : Qs= S(P+, Pf-) • The demand for rice : Qd=D(P-, Y+)
P Price of rice S equilibrium price Q Quantity of rice D equilibriumquantity The market for rice: equilibrium
P Price of rice S P2 P1 D2 D1 Q Quantity of rice Q1 Q2 The effects of an increase in income:
Endogenous vs. exogenous variables: • The values of endogenous variables are determined in the model. • The values of exogenous variables are determined outside the model: the model takes their values & behavior as given.
Prices: Flexible Versus Sticky • Market clearing: an assumption that prices are flexible and adjust to equate supply and demand. • In the short run, many prices are sticky. • In models : Prices are supposed to be sticky in the short run and flexible in the long run.
Question 1) Macroeconomic issues in the news over the last month? 2) What would be the effect of an increase in the price of Fertilizers on the rice market equilibrium 3)Give the 2 definitions of a recession (the NBER definition and the popular definition) 4)Identify the main recession episodes in the Indonesia economy since 1900