A Preview of Macroeconomics

MACRO Topics Requires a theory of the whole economy Important Economic Growth Economic Fluctuations Inflation Unemployment Monetary Policy Fiscal Policy Requires a theory of the whole economy not one firm not one consumer not one industry not one market Important Different Fascinating Even controversial

Put on your “Big Picture Glasses”

Growth and fluctuations during the last forty years

Important Definitions

Employment growth slows during recessions

Unemployment rises in recessions

Inflation falls during and after recessions

Interest rates rise before recessions and fall in recessions

A Longer Historical Perspective

Unemployment was massive during the Great Depression

Measuring GDP Look at the most recent GDP (CNNfn) The market value of all the final goods and services newly produced in a country during some time period Three approaches to measuring GDP Spending Income Production

The Spending Approach Example 1998.3 (billions of dollars)

Key Ideas of the Spending Approach keep your eye on the ball: we want to measure production four spending groups: households, firms, governments, foreigners consumption by households investment by firms why add inventory investment? why add net exports? government purchases only--not transfers

End of Lecture