Macroeconomics is the study of the behaviour of large collections of economic agents.
Deals with the overall effects on economies of the choices that all economic agents make
*microeconomics deals with the choices of individual consumers or firms
-the aggregate behaviour of consumers and firms
-the behaviour of governments
-the overall level of economic activity in individual countries
-the economic interactions
-the effects of fiscal and monetary policy
Economic Models: macroeconomist use, consisting of descriptions of consumers and firms, their
objectives and constraints, and their interactions, are built up from microeconomic principles, and these
models are typically analyzed and fit to data by using methods similar to those used by microeconomics.
Long-run growth: refers to the increase in a nation’s productive capacity and average standard of living
that occurs over a long period of time.
Business cycles: the short-run ups and downs, or booms and recessions, in aggregate economic activity.
Gross domestic product (GDP): the quantity of goods and services produced within a country’s borders
during some specified period of time.
-measure of aggregate economic activity
-represents the aggregate quantity of income earned by those who contribute to production in a
Growth/Trend component and Business cycle component: the logic behind this decomposition of real
per capita GDP into trend and business cycle components is that it is often simpler and more productive
to consider separately the theory that explains trend growth and the theory that explains business cycle,
which are the deviation from trend.
Economics: a scientific pursuit involving the formulation and refinement of theories that can help us
better understand how economies work and how they can be improved.
The basic structure of a macroeconomic model is
1) The consumers and firms that interact in the economy
2) The set of goods that consumers want to consume
3) Consumers’ preferences over goods
4) The technology available to firms for producing goods
5) The resources available
Competitive equilibrium: goods are bought and sold on markets in which consumers and firms are price-
taker; they behave as if their actions have no effect on market prices.
-market prices that the quantity of each good offered for sale = the quantity that economic agents want
to buy in each market
-quantity supply = quantity demand
Endogenous growth models: the economic mechanism determining the rate of economic growth. Real business cycle theory: implies that government policy aimed at smoothing b