Lecture 1: Introduction L11200 Introduction to Macroeconomics 2009/10 Reading: Barro Ch.1 26 January 2010

Introduction L11200 Introduction to Macroeconomics – Year 1, 20 credit, economics-only module – Follows on from Introduction to Microeconomics – 25 one-hour lectures – 7 one-hour small group tutorials – 1 mid-term exam (30%), 1 final exam (70%) – All electronic material available on WebCT

Textbook As with micro, the course follows a textbook ‘Macroeconomics: A Modern Approach’ (International Edition) R.J. Barro (2008) Thomson SouthWestern

What is macroeconomics? Microeconomics – ’That branch of economics that deals with small-scale economic factors; the economics of the individual firm, product, consumer, etc., rather than the aggregate of such individuals’ Macroeconomics – ‘The branch of economics that deals with large-scale economic factors; the economics of a national economy as a whole.’ (both from Oxford English Dictionary)

Two big questions in macro 1.What determines economic growth? 2.Why does output fluctuate between expansions and contractions?

Economic Growth Why do economies ‘grow’ over time? Why do the U.K. and U.S. exhibit steady long- run growth, but Ethiopia no growth? Section 2 (Lectures 3-9) builds a model of economic growth to explain these patterns.

Economic Fluctuations Why do economies with steady long-term growth exhibit volatile short-term growth? What can governments do about ‘boom’ and ‘bust’, is a ‘fiscal stimulus’ a good idea? Sections 2-5 (Lectures 10-24) develops a model of fluctuations and government policy to answer these questions

Building a macro model Microeconomics is concerned with individual agents and markets Macroeconomics is concerned with the aggregate implications of microeconomics i.e. macroeconomic outcomes (GDP, unemployment inflation) are the result of microeconomic actions.

‘Microfoundations’ So good macroeconomic models have ‘microfoundations’ We will build-up a macroeconomic model by putting together consumers, workers, entrepreneurs and capital owners etc. That is why you study micro before macro This is not A-level macro

Summary Two key topics in the course – Economic growth – Economic fluctuations Models built on microeconomics, so don’t forget everything you learned last semester Next time: introduction to aggregate statistics (GDP etc) before we start on the theory.