ECON 101B Chapter Notes - Chapter 1: Labour Power, Deflation, Disinflation
Chapter 1: Introduction to Macroeconomics
1.1 Overview
What is Macroeconomics?
●Macroeconomics: the branch of economics that studies the economy as a whole: business
cycles, the determinants of inflation and unemployment and long-run growth and the
effects of government fiscal and monetary policy
●Macroeconomists’ principal task is to
○Figure out why overall economics activity rises and falls
○Understand what determines the level and rate of change of overall prices (the
proportional rate of change in the prince level is inflation rate)
○Study other variables ie interest rates, stock market values, and exchange rates =>
that help determine the overall levels of production, income, employment, and
prices
Why Macroeconomics Matters
1. Cultural literacy
a. Much discussion in newspapers, TV and parties concerns the macroeconomy
2. Self-interest
a. Each of us is interested in particular issues in microeconomics
i. Farmers and bakers are interested in the price of wheat
b. What happens in the macro shapes everyone’s lies
i. A rise in inflation enrich debtors (people who have borrowed) and
impoverish creditors (people who have lent money to others)
ii. Deep recession will increase unemployment and make those who lose
their jobs have a hard time finding others
c. Although you can’t control the macro you can understand how it affects your
opportunities
3. Civic Responsibility
a. Working together we can improve the macroeconomy aka economic policy!
Macroeconomic Policy
●Growth Policy
○Government’s growth policy - what it does to accelerate or decelerate long run
economic growth
most important aspect of macroeconomic policy
●Stabilization Policy
○Second major branch
○Business cycles: the fluctuations in production and employment
■Expansion (booms): a period when real GDP is growing
■Recession: a fall in the level of real GDP for at least six months or 2
quarters of the year
■Depression: a very severe recession
■Deflation: the opposite of inflation a decrease in the overall price level
○Booms are welcomed recessions are to be feared
○
Macroeconomics vs Microeconomics
●Microeconomics: that field of economics that deals with the behavior of the individual
with the behavior of the individual elements in an economy with respect to the price of a
single commodity and the behavior of individual households and businesses
●Macro
○Focus on the economy as a whole
○Spend much time analyzing how total income changes and how changes in
income cause changes in other modes of economic behavior
○Spends a great deal of time and energy investigating how people form their
expectation and change them over time
○Consider the possibility that decision makers might change the quantities they
produce before they change the prices they change
●Micro
○Focus on the market for indv commodities and on the decision of single economic
agents
○Hold total income constant
Document Summary
Macroeconomics: the branch of economics that studies the economy as a whole: business cycles, the determinants of inflation and unemployment and long-run growth and the effects of government fiscal and monetary policy. Figure out why overall economics activity rises and falls. Understand what determines the level and rate of change of overall prices (the proportional rate of change in the prince level is inflation rate) Study other variables ie interest rates, stock market values, and exchange rates => that help determine the overall levels of production, income, employment, and prices. Why macroeconomics matters: cultural literacy, much discussion in newspapers, tv and parties concerns the macroeconomy, self-interest, each of us is interested in particular issues in microeconomics. Farmers and bakers are interested in the price of wheat i: what happens in the macro shapes everyone"s lies i. ii. A rise in inflation enrich debtors (people who have borrowed) and impoverish creditors (people who have lent money to others)
