Scribd
Upload
23 views6 pages

Lecture 1 Introduction

mathematics

Uploaded by

kia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
23 views6 pages

Lecture 1 Introduction

mathematics

Uploaded by

kia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Lecture1

THE SCOPE OF MACROECONOMICS


DEFINITIONS OF MACROECONOMICS
• Macroeconomics is the study of the performance of the national
economy and the global economy (Parkin, 2008)
• Macroeconomics is the branch of economics that examines the
economic behavior of aggregates—income, employment , output and
so on—on a national scale (Case and Fair, 2004)
• Macroeconomics is the study of economy-wide phenomena, including
inflation, unemployment, and economic growth (Mankiw, 2017)
• Macroeconomics is the study of the structure and performance of
national economics and the policies that governments uses to try to
improve that performance (Abel and Bernanke, )
MACROECONOMICS
ANALYSIS
Macroeconomics analyses are grouped into 2 categories:
 Short-run analysis (Keynesian):
 Sticky price
 The economy has not achieved the full-employment level of production
 Long-run (Classical/Neo Classical):
 Flexible Price
 The economy at the full-employment level of production

The implication of that is the efficacy/impacts of macroeconomic


policies differ in the short run and in the long run.
MACROECONOMICS HISTORY
Before 1930s
 No separation between microeconomies and macroeconomics theories.
 Both theories discuss the decisions made by HH and firms
 This classical economics analysis believes that market mechanism works; P will adjust to bring the economy to the
equilibrium (D=S).
 The difference between the two merely on the level of analysis: individual vs. aggregate

Great Depression 1930s


 The 1920s was the period of economic prosperity. The economy practically operated close to the full-
employment level of production.
 In 1929 triggered by the stock market crash, the economy beginning to enter the period of great depression
 1933: output was mere 70% of the 1929’s output. Unemployment rate was 25%
 Until the next 10 years unemployment level remained high and output stayed low.
 Self-correcting mechanism (ascpredicted by the classical model) was never happened.
JM Keynes Revolutionary Thought
 In 1936, Keynes published his monumental book: The General Theory of Employment,
Interest and Money.
 Keynes’ revolutionary theory: It is neither P or W that determined the level of output and
employment, but aggregate demand.
 Hence, during the period of recession/depression private demand is low, in this situation the
government has to increase its spending to boost the aggregate demand, output and
employment.
 Since then macroeconomics analysis is separated from the microeconomics analysis.

1950-60 an
 Keynesian economics gained its popularity.
 Many governments around the word adopted Keynesian theory, they actively intervened
the economy through monetary and fiscal policy.
 Fine tuning: government’s role in regulating inflation and unemployment.
Early 1970s-early1980s (oil crises)
 US and many countries in the world experienced stagflation (stagnation and inflation)
 Keynes’ recipe could not be used to improve the economic condition.
 The believe on the efficacy of Keynesian model diminished.

2008
 Global economic crisis
 The rate of growth of the global economy that usually around 4-5 % per annum, turned into negative in 2009
 The crisis was caused by the inability of homeowners to pay their mortgage, and then followed by freefall
housing prices, financial crisis and economic crisis.
 Since then economist started to realized that they did not put sufficient attention on the role and effect of
financial system on the economy.

Macroeconomics is a relatively new body of knowledge, thus it will keep developing to keep
up with the global economy dynamic.

You might also like