Lecture # 1 First Econ Class, for those who missed it.
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Chapter 1 The Science of Macroeconomics
Macroeconomics, the study of the economy as whole, address many topical issues:
- why does the cost of living keep rising?
-why are millions of people unemployed even when the economy is booming?
-what causes recession?
Can the government do anything to combat recessions?
-what is the government budget deficit?
How does it affect the economy?
-why does the Canadian dollar appreciate?
… are simplified versions of the real world
- irrelevant details are stripped away
… are used to
- show relationships among variables
Example: Supply & Demand for pizza
Assumption: competitive market
Variables: Qd = quantity of pizza that buyers demand
Qs = quantity that producers supply
P = price of pizza
Y = aggregate income
Pf = price of flour (an input)
The demand equation: Qd = D(P,Y)
Shows that the quantity of pizza consumers demand is related to the price of pizza and aggregate