Introduction To Macroeconomics

Introduction to
Macroeconomics
Lecture 1
Teacher:
Mr. Hayyan Boubou
Faculty of Engineering
About the Subject
Compulsory Literature:
Mankiw, Gregory: Principles of Economics. Fifth Edition. South-Western, Mason, USA, 2009. Isbn:
9780324589979.
Mankiw, Gregory (2015): Principles of Economics. Study Guide. Seventh Edition. Cengage Learning, Isbn-
13:978-1-285-86421-1.
Judit T. Kiss (2014): Introduction to Macroeconomics for Engineers and Technical Managers. Debrecen
University Press. Isbn: 978-963-318-416-5.
Contact details:
[email protected]
Requirements
Gradings & Signature:

• Attendance will be self recorded on e-learning every practice lesson.
• Throughout the semester there are two tests:
1. The mid-term / the 1st of April, at 5 pm / 40% of the final mark.

2. The end-term / the 17th of May, at 11 am / 40% of the final mark.
3. The classwork / 20% of the final mark.
• There will be only one chance for the retake:

The retake test will be on the 25th of May, at 11 am.
LECTURE OUTLINES
1. What is Economics?
2. Microeconomics vs Macroeconomics .
3. Learn The Ten Principles of Economics.

What is Economics?
● It is a social science.
● It deals with the allocation of limited resources to satisfy unlimited

human wants.
● It's the study of scarcity, the study of how people use resources and
respond to incentives, or the study of decision-making.
Why study Economics?
● Learning a new way of thinking.
● Better understanding of society and the global

affairs.
● To be an informed citizen .
Economics branches
Micro vs Macro
● Microeconomics Branch of economics that deals with the behavior
of individual economic units—consumers, firms, workers, and investors—
as well as the markets that these units comprise.
● Macroeconomics Branch of economics that deals with aggregate

economic variables, such as the level and growth rate of national output,
interest rates, unemployment, and inflation.
Principles of Economics
● How People Make ● How People Interact ● How the Economy as a Whole
Decisions Works
5: Trade Make Everyone Better Off.
1: Trade-offs. 8: A Country’s Standard of Living Depends
6: Markets Organize Economic Activity.
on Its Ability to Produce.
2: The Opportunity Cost .
7: Governments Improve Market
9: Too Much Money, Prices Rise.
3: The Marginal Thinking.
Outcomes.
10: Short-Run Trade-off between Inflation
4: Incentives.
and Unemployment.
Principle 1: Trade-Offs
“There is not such thing a s a free lunch”
Consumers have limited incomes, which can be spent on a wide variety of goods
and services, or saved for the future.
Workers First, people must decide whether and when to enter the workforce.
Second, workers face trade-offs in their choice of employment. Finally, workers
must sometimes decide how many hours per week they wish to work, thereby
trading off labor for leisure.
Firms also face limits in terms of the kinds of products that they can produce, and
the resources available to produce them.
Governments make trade-offs on their spending too, a good example for that
is the classis trade-off between “guns and butter”.
Principle 2: The opportunity cost
“The cost of something is what you give up to get it”
What is the cost of studying in the university?

Tuition Fees
Books and notebooks
….
 What about your time?
as when you spend your time study in university, you could’ve spent that time working at a job instead.
The opportunity cost on an item is what you give up getting

that item.
Principle 3: The margin, and Rational
Thinking
“Should I have that extra slice of pizza or wait for the dessert?”
Should I fast or eat everything I can?”

Principle 4: People Respond to Incentives
“Why Norway has this many Tesal cars?”
Principle 5: Trade Can Make Everyone Better
Off
“Give and Take”
©NYTIMES
Principle 6: Markets are usually a good way to
organise economic activity
What is market?
• The individuals economic units are divided into Buyers and Sellers.
• Market Collection of buyers and sellers that, through their actual or potential interactions, determine
the of a product or set of products.
● Elements of the market the most important are price, income, supply, and demand.
Command Economy VS Market Economy
● Command economy where the

government controls all the factors of
production (Labour, Capital, Natural
resources, and Human capital)
● Market economy (Laissez-faire
economics), where the decisions are
decentralized and replaced by the
decisions of millions of firms and
households.
The Invisible Hand of The Market
● From 1776 Adam Smith’s book:

“ Every individual . . . neither intends to promote the public
interest, nor knows how much he is promoting it. . .. He
intends only his own gain, and he is in this, as in many other
cases, led by an invisible hand to promote an end which was
no part of his intention . . . By pursuing his own interest, he
frequently promotes that of the society more effectually than
when he really intends promote it.”
©NYTIMES
Principle 7: Governments can sometimes improve
market outcomes………….
”?Why do we need the government if we have the invisible hand “
Government plays a key role in protecting the market:
● Government enforces the rules and maintains the institutions that are key to a market economy.
● Enforce property rights so individuals can own and control scarce resources.
● Another reason is as a safety-net to protect us from market failure which refers to a situation in
which the market on its own fails to produce an efficient allocation of resources.
Principle 8: A Country’s Standard of Living Depends
on Its Ability to Produce Goods and Services
“What explains the large differences in living standards among countries and over time?”
The average income in 2011 was, the American about $48,000, the Mexican earned about $9,000, the Chinese about
$5,000, and the average Nigerian only $1,200.
Principle 9: Prices Rise When the Government Prints Too
Much Money
“What causes inflation?”
● There are many causes for inflation which we will study later in detail.
● For large or persistent inflations, the culprit is growth in the quantity of
money.
Germany, 1923. Hyperinflation. Kids are playing with money

Principle 10: Society Faces a Short-Run Trade-off
between Inflation and Unemployment
“How can you trade-off between inflation and unemployment?”
Well, the process as follows:

• Increasing the amount of money in the economy stimulates the overall level of
spending and thus the demand for goods and services.
• Higher demand may over time cause firms to raise their prices, but in the
meantime, it also encourages them to hire more workers and produce a larger
quantity of goods and services.
• More hiring means lower unemployment.
THANK YOU FOR
YOUR
ATTENTION

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Introduction to

Gradings & Signature:

• Throughout the semester there are two tests:

1. The mid-term / the 1st of April, at 5 pm / 40% of the final mark.

• There will be only one chance for the retake:

3. Learn The Ten Principles of Economics.

● It deals with the allocation of limited resources to satisfy unlimited

● Learning a new way of thinking.

● Better understanding of society and the global

● Macroeconomics Branch of economics that deals with aggregate

What is the cost of studying in the university?

The opportunity cost on an item is what you give up getting

Should I fast or eat everything I can?”

● Command economy where the

● From 1776 Adam Smith’s book:

Germany, 1923. Hyperinflation. Kids are playing with money

Well, the process as follows:

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