Chapter 1: Introduction

1.1 Why study macroeconomics?

a. Understand the role of economic growth, employment, inflation, and economic growth on our lives.

b. Understand the role of macroeconomic issues in political debate. (Bush tax cut --is it good economics or voodoo II?

c. Understand its importance for international relations.

d. To provide a blueprint for economic policy.

1.2 The historical performance of the U.S. economy (Role of exogenous events): Great Depression, Wars, Oil price shock

a. Figure 1.1: real GDP per capita

b. Figure 1-2: The inflation rate

c. Figure 1-3: The unemployment rate

1.3 How economist think

a. The role of economic models: theoretical role of endogenous versus exogenous variables.

b. Supply and demand curves (price and output determination)

c. Eclectic macroeconomist apply many different models (with different underlying assumptions.)

d. A crucial assumption called market clearing will be used to explain the time dimension of sticky versus flexible prices and wages.

e. Microeconomic behavioral assumptions are a useful tool for formulating and evaluating macroeconomic models.