1. Basics of Macroeconomics
peak
trough
recovery
contraction
Dr. Dennis Foster

2. Micro – focus on individual/firm.
Economics:
A framework for understanding how we cope with scarcity.
Micro – focus on individual/firm.
Macro – focus on the overall economy.

3. Macroeconomic problems
Unemployment
of resources.
Economic growth is slow,
sluggish, negative.
Rising prices; inflation.

4. Why is Inflation a problem?
Milton Friedman …
Inflation is always and everywhere a monetary phenomenon.
Who controls the money supply?
The Federal Reserve System
(the government!)

5. Macroeconomic goals Full employment of resources.
Sustained economic growth.
Price stability.
How are these goals accomplished?
--through government policy.

6. Business Cycles Macro goals are interrelated: peak contraction
trough
recovery
contraction
Change in GDP over time.
time line
Employment
high
falling
low
rising
Prices
stable
Growth
negative

7. Business Cycles - Theories
External shocks
Population pressures [Malthus]
Innovation [Schumpeter]
Underconsumption [Marx]
Erratic anomalies [Classical]
Overproduction [Keynesian]
Central banking [Austrian]

8. The PPF: A Macro Model of Economy
Production Possibilities Frontier 25 35
Gallons of Wine G F
Tons of Wheat A B C D E I H 20 40 60 80
100
120
[aka, The Production Possibilities Curve]
1. What is the cost in going from A to B, B to C, C to D, et al.?
2. What is the cost in going from G to F, F to E, et al.?
3. What point is best?
4. What is wrong with H?
5. Can we produce at I? Can we consume there?
Reference: Investopedia on the PPF:

9. Production Possibilities Frontier
What does it show us?
Scarcity
Choice
Unemployment
Economic growth
What doesn’t it show us?
What/How/For Whom to produce
Inflation
How variables are related (theory)

10. Basics of Macroeconomics
peak
trough
recovery
contraction
Dr. Dennis Foster