Principles of Macroeconomics

Twelfth Edition, Global Edition (2 of 2)

Chapter 1
Introduction to
Macroeconomics

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Principles of Macroeconomics
Twelfth Edition, Global Edition (2 of 2)

Chapter 1
Introduction to
Macroeconomics

Copyright © 2017 Pearson Education, Ltd. 5-‹N°›

 Chapter Outline and Learning Objectives

1.1 Macroeconomic Concerns

• Describe the three primary concerns of macroeconomics.

1.2 The Components of the Macroeconomy

• Discuss the interaction between the four components of the
macroeconomy. /

1.3 A Brief History of Macroeconomics

• Summarize the macroeconomic history of the United States between
⑤
1929 and 1970.

1.4 The U.S. Economy since 1970

• Describe the U.S. economy since 1970.

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Chapter 1 Introduction to
Macroeconomics (1 of 2)
• microeconomics Examines the functioning of individual
industries and the behavior of individual decision-making
units—firms and households.
• macroeconomics Deals with the economy as a whole.
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Macroeconomics focuses on the determinants of total
national income, deals with aggregates such as aggregate
consumption and investment, and looks at the overall level
of prices instead of individual prices.

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Chapter 1 Introduction to
Macroeconomics (2 of 2)
• aggregate behavior The behavior of all households and
firms together.
• sticky prices Prices that do not always adjust rapidly to
maintain equality between quantity supplied and quantity
demanded.
‫األسعار التي ال تتكيف دائًما بسرعة للحفاظ على‬
.‫املساواة بني الكمية املعروضة والكمية املطلوبة‬

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Macroeconomic Concerns
• Three of the major concerns of macroeconomics are:
➢ Output growth

➢ Unemployment

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➢ Inflation and deflation

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Output Growth (1 of 2)
‫دورة الصعود والهبوط قصيرة املدى في االقتصاد‬.

• business cycle The cycle of short-term ups and downs in

the economy.
‫الكمية اإلجمالية للسلع والخدمات املنتجة في االقتصاد في فترة معينة‬.
• aggregate output The total quantity of goods and
services produced in an economy in a given period.
• recession A period during which aggregate output
declines. Conventionally, a period in which aggregate
output declines for two consecutive quarters.

‫ هي الفترة التي‬،‫ تقليديا‬.‫الفترة التي ينخفض فيها اإلنتاج اإلجمالي‬

‫ينخفض فيها الناتج اإلجمالي ملدة ربعني متتاليني‬.

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Output Growth (2 of 2)
• depression A prolonged and deep recession.
• expansion or boom The period in the business cycle from
a trough up to a peak during which output and employment
grow. ‫الفترة في دورة األعمال من القاع إلى الذروة التي ينمو خاللها اإلنتاج والعمالة‬.

• contraction, recession, or slump The period in the

business cycle from a peak down to a trough during which
output and employment fall.
‫االنكماش أو الركود أو الركود الفترة في دورة األعمال من الذروة إلى القاع التي‬
‫ينخفض خاللها اإلنتاج والعمالة‬.

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FIGURE 1.1 A Typical Business Cycle

In this business cycle,

the economy is
expanding as it moves
through point A from the
trough to the peak.

When the economy

moves from a peak
down to a trough,
through point B, the
economy is in recession

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FIGURE 1.2 U.S. Aggregate Output (Real GDP), 1900–2014
MyEconLab Real-time data

The periods of the Great Depression and World Wars I and II show the largest fluctuations
in aggregate output.

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Unemployment
• unemployment rate The percentage of the labor force
that is unemployed. ‫نسبة القوى العاملة العاطلة عن العمل‬.
• The existence of unemployment seems to imply that the
aggregate labor market is not in equilibrium.
‫يبدو أن وجود البطالة يعني أن إجمالي سوق العمل ليس في حالة توازن‬.

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Inflation and Deflation
• inflation An increase in the overall price level.
• hyperinflation A period of very rapid increases in the
overall price level.

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• deflation A decrease in the overall price level.

‫ زيادة في املستوى العام لألسعار‬:‫التضخم‬.

• ‫التضخم املفرط فترة من الزيادات السريعة للغاية في‬
‫املستوى العام للسعر‬.
• ‫ تحميل‬.‫ انخفاض في املستوى العام لألسعار‬:‫االنكماش‬...

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 The Components of the Macroeconomy
• To see the big picture of the macroeconomy, we divide the
participants in the economy into four broad groups:
1. Households
2. Firms
3. The government
4. The rest of the world
• Households and firms make up the private sector, the
government is the public sector, and the rest of the world is
the foreign sector.

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The Circular Flow Diagram
• circular flow A diagram showing the flows in and out of
the sectors in the economy. ‫الاتالدقفتقصالاددائري رسم تخطيطي يوضح التدفقات داخل وخارج القطاعات في‬.
• transfer payments Cash payments made by the
government to people who do not supply goods, services,
or labor in exchange for these payments. They include
Social Security benefits, veterans’ benefits, and welfare
payments. ‫مدفوعات التحويل املدفوعات النقدية التي تقدمها الحكومة لألشخاص الذين ال يقومون بتوريد السلع أو الخدمات أو‬
‫ ومدفوعات‬،‫ واستحقاقات املحاربني القدامى‬،‫ وهي تشمل مزايا الضمان االجتماعي‬.‫العمالة مقابل هذه املدفوعات‬
‫الرعاية االجتماعية‬.

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FIGURE 1.3 The Circular Flow of Payments
Households receive income from firms
and the government, purchase goods and
services from firms, and pay taxes to the
government. They also purchase foreign-
made goods and services (imports).

Firms receive payments from households

and the government for goods and
services; they pay wages, dividends,
interest, and rents to households and
taxes to the government.

The government receives taxes from firms

and households, pays firms and
households for goods and services—
including wages to government workers—
and pays interest and transfers to
households.

Finally, people in other countries purchase

goods and services produced
domestically (exports).

Note: Although not shown in this

diagram, firms and governments also
purchase imports.

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The Three Market Arenas (1 of 6)
• Another way of looking at the ways households, firms, the
government, and the rest of the world relate to one another
is to consider the markets in which they interact. ‫للنظهرنإالكىطالريطقرةقأ اخلترىي‬
‫ترتبط بها األسر‬
• We divide the markets into three broad arenas: ‫والشركات والحكومة‬
‫ وهي‬،‫وبقية العالم‬
➢ The goods-and-services market ‫النظر في األسواق‬
.‫التي تتفاعل فيها‬

➢ The labor market

➢ The money (financial) market

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The Three Market Arenas (2 of 6)
Goods-and-Services Market
.‫تقوم األسر والحكومة بشراء السلع والخدمات من الشركات في سوق السلع والخدمات‬
• Households and the government purchase goods and
services from firms in the goods-and-services market.
• Firms purchase goods and services from each other and
also supply to the goods-and-services market.
.‫تقوم الشركات بشراء السلع والخدمات من بعضها البعض وكذلك توريدها إلى سوق السلع والخدمات‬

• Households, the government, and firms demand from this

market. .‫تطلب األسر والحكومة والشركات من هذا السوق‬
• The rest of the world buys from and sells to the goods-and-
services market. .‫أما بقية العالم فيشتري ويبيع من سوق السلع والخدمات‬

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The Three Market Arenas (3 of 6)
Labor Market
• In the labor market, households supply labor, and firms and
the government demand labor.
• Labor is also supplied to and demanded from the rest of
the world.

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The Three Market Arenas (4 of 6)
Money Market ‫توفر األسر األموال لسوق املال )أو السوق املالية( توقًعا لكسب الدخل في شكل‬
.‫أرباح على األسهم والفوائد على السندات‬

• Households supply funds to the money market (or financial

market) in the expectation of earning income in the form of
dividends on stocks and interest on bonds.
• Households also demand (borrow) funds from this market
to finance various purchases. ‫ت‬.‫تطلب األسر أيًضا )اقتراض( أموال من هذا السوقاللتشمروايءلاملعخملتليافة‬
• Firms borrow to build new facilities in the hope of earning
more in the future. .‫تقترض الشركات لبناء مرافق جديدة على أمل كسب املزيد في املستقبل‬

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The Three Market Arenas (5 of 6)
Money Market
• The government borrows by issuing bonds.
• The rest of the world borrows from and lends to the money
market.
• Much of this borrowing and lending is coordinated by
financial institutions, which take deposits from one group
and lend them to others. ‫^ تقترض الحكومة عن طريق إصدار السندات‬
‫• بقية العالم يقترض من املال ويقرضه‬
.‫سوق‬
‫ التي تأخذ‬،‫• يتم تنسيق جزء كبير من هذا االقتراض واإلقراض من قبل املؤسسات املالية‬
.‫الودائع من مجموعة واحدة وتقرضها آلخرين‬

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 ‫سندات الخزينة أو الكمبياالت أو الكمبياالت الصادرة‬
.‫من قبل الحكومة الفيدرالية عندما تقترض املال‬
‫• سندات الشركات هي السندات اإلذنية التي‬

The Three Market Arenas (6 of 6) .‫تصدرها الشركات عندما تقترض املال‬

‫• أسهم األسهم أدوات مالية تعطي لحاملها حصة في‬
‫ملكية الشركة وبالتالي الحق في املشاركة في أرباح‬
.‫الشركة‬
Money Market ‫• توزيعات األرباح الجزء من أرباح الشركة الذي تدفعه‬
.‫الشركة كل فترة ملساهميها‬

• Treasury bonds, notes, or bills Promissory notes issued

by the federal government when it borrows money.
• corporate bonds Promissory notes issued by
corporations when they borrow money.
• shares of stock Financial instruments that give to the
holder a share in the firm’s ownership and therefore the
right to share in the firm’s profits.
• dividends The portion of a firm’s profits that the firm pays
out each period to its shareholders.

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The Role of the Government in the
Macroeconomy
• fiscal policy Government policies concerning taxes and
spending.
• monetary policy The tools used by the Federal Reserve
to control short-term interest rates.
.‫السياسة املالية السياسات الحكومية املتعلقة بالضرائب واإلنفاق‬
‫• السياسة النقدية هي األدوات التي يستخدمها االحتياطي الفيدرالي للتحكم في أسعار الفائدة‬
.‫قصيرة األجل‬

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A Brief History of Macroeconomics
• Great Depression The period of severe economic
contraction and high unemployment that began in 1929
and continued throughout the 1930s.
• fine-tuning The phrase used by Walter Heller to refer to
the government’s role in regulating inflation and
unemployment.
• stagflation A situation of both high inflation and high
unemployment. ‫الكساد الكبير فترة االنكماش االقتصادي الشديد وارتفاع معدالت البطالة‬
.‫ واستمرت طوال الثالثينيات‬1929 ‫التي بدأت في عام‬
‫• صقل العبارة التي استخدمها والتر هيلر لإلشارة إلى دور الحكومة في‬
.‫تنظيم التضخم والبطالة‬
.‫• الركود التضخمي حالة من التضخم املرتفع والبطالة املرتفعة‬

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 ECONOMICS IN PRACTICE
Macroeconomics in Literature
The underlying phenomena that The Great Gatsby, set
economists study are the stuff of novels
in the 1920s
as well as graphs and equations.

If you look at Figure 5.2 for these two

periods, you will see the translation of
Fitzgerald and Steinbeck into
macroeconomics.
THINKING PRACTICALLY
The Grapes of Wrath,
1. As we indicate in the set in the early 1930s
introduction to this chapter,
macroeconomics focuses on three
concerns. Which of these concerns
is covered in The Grapes of Wrath
excerpt?

2. What economics textbook is Source: From The Grapes of Wrath by John Steinbeck, copyright
featured in The Great Gatsby? 1939, renewed © 1967 by John Steinbeck. Used by permission
Hint: Go to of Viking Penguin, a division of Penguin Group (USA) Inc. and
fairmodel.com.yale.edu/rayfair/pdf/ Penguin Group (UK) Ltd.
2000c.pdf.

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FIGURE 1.4 Aggregate Output (Real GDP), 1970 I–2014 IV

MyEconLab Real-time data

Aggregate output in the United States since 1970 has risen overall, but there have been
five recessionary periods: 1974 I–1975 I, 1980 II–1982 IV, 1990 III–1991 I, 2001 I–2001 III,
and 2008 I 2009 II.

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FIGURE 1.5 Unemployment Rate, 1970 I–2014 IV

MyEconLab Real-time data

The U.S. unemployment rate since 1970 shows wide variations.

The five recessionary reference periods show increases in the unemployment rate.

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FIGURE 1.6 Inflation Rate (Percentage Change in the GDP Deflator,
Four-Quarter Average), 1970 I–2014 IV

MyEconLab Real-time data

Since 1970, inflation has been high in two periods: 1973 IV–1975 IV and 1979 I–1981 IV.
Inflation between 1983 and 1992 was moderate.
Since 1992, it has been fairly low.

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 REVIEW TERMS AND CONCEPTS
• aggregate behavior
• aggregate output
• business cycle
• circular flow
• contraction, recession, or slump
• corporate bonds
• deflation
• depression
• dividends
• expansion or boom
• fine-tuning
• fiscal policy
• Great Depression
• hyperinflation
• inflation
• macroeconomics
• microeconomics
• monetary policy
• recession
• shares of stock
• stagflation
• sticky prices
• transfer payments
• Treasury bonds, notes, and bills
• unemployment rate
Copyright © 2017 Pearson Education, Ltd. 5-‹N°›
 REVIEW TERMS AND CONCEPTS
• aggregate behavior
• aggregate output
• business cycle
• circular flow
• contraction, recession, or slump
• corporate bonds
• deflation
• depression
• dividends
• expansion or boom
• fine-tuning
• fiscal policy
• Great Depression
• hyperinflation
• inflation
• macroeconomics
• microeconomics
• monetary policy
• recession
• shares of stock
• stagflation
• sticky prices
• transfer payments
• Treasury bonds, notes, and bills
• unemployment rate
Copyright © 2017 Pearson Education, Ltd. 5-‹N°›