Scribd
Upload
43 views15 pages

Chapter 2

This document provides an overview of macroeconomics, including its goals of explaining economic growth and fluctuations. It discusses how macroeconomics helps policymakers stabilize and grow the economy by averting recessions and inflation. The document also outlines key macroeconomic concepts like potential GDP, the business cycle, factors of long-run growth, and the behavior of economic variables over the cycle. It concludes with five core macroeconomic principles around long-run growth, the output-inflation tradeoff, rational expectations, and monetary policy procedures.

Uploaded by

Zebedee Taltal
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
43 views15 pages

Chapter 2

This document provides an overview of macroeconomics, including its goals of explaining economic growth and fluctuations. It discusses how macroeconomics helps policymakers stabilize and grow the economy by averting recessions and inflation. The document also outlines key macroeconomic concepts like potential GDP, the business cycle, factors of long-run growth, and the behavior of economic variables over the cycle. It concludes with five core macroeconomic principles around long-run growth, the output-inflation tradeoff, rational expectations, and monetary policy procedures.

Uploaded by

Zebedee Taltal
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/ 15

Macroeconomics: getting started

Economic Growth and Fluctuations


Macroeconomics tries to explain how and why the economy grows and
fluctuates over time.
Uses of Macroeconomics
A. Helps policymakers avert or minimize the impact of recessions.
B. Helps policymakers assess various government spending and tax
proposals to increase long-term economic growth.
C. Helps policymakers keep inflation low and stable without causing
unnecessary economic fluctuations.
D. Tells us how broad policy changes affect the types of goods
produced.
Recent Macroeconomic Performance
A. Measures of output in the economy
1. Real Gross Domestic Product (real GDP) measures the actual
production of all goods and services in the economy (output).
2. Potential real GDP is the level of output the economy produces at
the natural rate of unemployment. (This is the level of output produced
according to the growth model.)
Trend Line (Potential GDP)

Slump

Boom
B. Macroeconomic theories are divided into two main topics
1. Economic growth analysis studies the causes of long-run sustained growth
in real GDP.
2. Business cycle analysis studies the short-run expansions and contractions
in real GDP.
C. Factors that contribute to long-run economic growth
1. Technological progress (productivity)
2. Population growth
3. Capital accumulation
D. Phases of the business cycle
1. A recession is a period where real GDP falls.
2. The trough is when real GDP stops declining.
3. An expansion is a period where real GDP rises.
4. The peak is when real GDP stops increasing.
E. The performance of key economic variables over the business cycle
1. Employment is procyclical. (It moves in the same direction as real
GDP.)
2. Unemployment is countercyclical. (It moves in the opposite direction
of output.)
3. The inflation rate is modestly procyclical.
4. The nominal interest rate is modestly procyclical.
5. The real interest rate (nominal interest rate minus the expected
inflation rate) is procyclical.
6. The real money supply (the money supply divided by prices) is
procyclical.
7. The real wage rate (the wage rate divided by prices) is procyclical.
F. Five core macroeconomic principles
1. The long-run growth rate of output depends on the growth rates of
labor, capital, and technology.
2. In the long run, there is no tradeoff between output and inflation.
3. In the short run, there exists a tradeoff between output and
inflation.
4. Peoples expectations of the future are formed rationally. (rational
expectations)
5. Monetary policymakers should follow clear procedures and not
administer onetime shocks to the economy.

You might also like