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Chapter 1

Week 1 Chapter 1

6 Pages
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Department
Economics
Course Code
ECN 301
Professor
David Lee

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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
www.notesolution.com
– 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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Description
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 www.notesolution.com – 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 – a specific set of data • In economic analysis the present depends not only on the past, but also on the future; or on what people expect the future to be. • An important example of how people's expectations can change the course of economic events comes from the stock market crash of 1929. • The crash changed what people in the industrialized countries expected about the future of the economy, and the shifts in spending caused by their changed expectations played a key role in causing the greatest economic depression in history, the Great Depression. • The stock market crash of 1929 changed expectations about the future of the economy Spending lowered > production lowered > layoffs > income lowered • Expectations that future income would be lower became realized Phases of Economic Growth in Canada • The period up to Canadian Confederation in 1867, • The period between Confederation and World War I, • The inter-war period, • The modern era from 1945 to the present. Economic Activity Before 1867 • Economic activity concentrated on the production of the staples fish, fur, and timber in order to satisfy European demand for these products. • Lumber trade led to a huge increase of immigrants in (Upper) Canada – Lumbering cleared the land for agriculture – the returning ships provided cheap voyage to immigrants from Great Britain and Ireland The National Economy during 1867-1913 • The three decades after 1867 were an era of low economic growth • From 1896 until 1914 the population of the prairies increased at an accelerating rate and wheat exports increased dramatically following the upturn in the world price of wheat in the same year. • The Canadian economy grew much faster after 1890 than it did in the preceding quarter century. • There was a relative fall in the share of agriculture in the economy and a large increase in the service sector. The share of manufacturing fluctuated but remained unchanged in relative importance The Turbulent Years 1914-1945 • Canada’s economic record in this period shows more than ever its dependence on international events, beginning with World War I in 1914, the Great Depression of the 1930s and World War II in 1939. www.notesolution.com • During this period also Canada’s trade relatio
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