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Chapter 1

ECN 301 Chapter Notes - Chapter 1: Canadian Confederation, Business Cycle, Economic Surplus


Department
Economics
Course Code
ECN 301
Professor
David Lee
Chapter
1

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Intermediate Macroeconomics 1: theory
Week 1
Chapter 1
Macroeconomics...
• is the sub-discipline of economics that tries to answer the last four questions that began this
chapter.
• is the branch of economics related to the economy as a whole
• try to figure out why overall economic activity rises and falls
• try to understand what determines the level and rate of change of the price level
• study other variables that play a major role in determining the overall levels of production,
income, employment, and prices
• Macroeconomics is also concerned with policies which promote our standards of living.
– In order to study these policies, macroeconomist have to incorporate microeconomic theory
into their analyses; e.g., the decisions of individual households on consumption and education
and the investment decisions of individual firms
Economics
• is a quantitative science
– uses arithmetic to measure economic variables of interest
– uses mathematical models to relate economic variables of interest
• involves a particular way of thinking about the world using
– unique technical language
– a specific set of data
Macroeconomics versus Microeconomics
• Macroeconomists
– examine the economy as a whole
– focus on the feedback from one component of the economy to another
– study the total level of production and employment
– believe that imbalances between supply and demand may be resolved by changes in quantities
rather than prices
• Microeconomists
– study the markets for single commodities and the behavior of individual households and firms
– focus on how competitive markets allocate resources to create consumer and producer surplus
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– assume that imbalances between demand and supply are resolved by changes in prices
Macroeconomic Policy
• Growth Policy
– policies to accelerate or decelerate long-run economic growth
– most important policies for the long-run
Stabilization Policy
– policies to smooth out the business cycle by diminishing the depth of recessions and
depressions
business cycles are fluctuations in production and employment
booms or expansions occur when production grows and unemployment falls
recessions or depressions occur when production falls and unemployment rises
Why Macroeconomics Matters
• Cultural Literacy
– ability to follow and participate in public debates and discussions
– understanding of news reports on changes in the economy
• Self-Interest
– effects of macroeconomy on our daily lives
– understanding of changing opportunities as the economy fluctuates
• Civic Responsibility
– more informed voting
– more responsible macroeconomic policy
Economics: Is It a Science?
• Economics is a social science
– focuses on human beings and how they behave
• debates within economics last longer than those in natural sciences
– less likely to end in consensus
• economists are unable to undertake large-scale experiments
• the subjects studied by economists--people-- have minds of their own
– expectations of the future play an important role
Economics
• is a quantitative science
– uses arithmetic to measure economic variables of interest
– uses mathematical models to relate economic variables of interest
• involves a particular way of thinking about the world using
– unique technical language
www.notesolution.com
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