1. Macroeconomics: Introduction Xu Hu Texas A&M University

2. Outline Problems macroeconomists are interested in. ( Very Brief ) Modeling Concerns ( no slide ) Approach for this course( no slide )

3. Important issues in macroeconomics Business Cycles & Industrial Fluctuations Great Depression World War II First oil price shock Second oil price shock long-run upward trend… 9/11/2001 U.S. Real GDP per capita (2000 dollars)

4. 1.What are the causes of Boom and Bust? Business Cycles & Industrial Fluctuations 2. What is the government’s role in the recessions? Real Business Cycles theory Excessive Credit Type theory – e.g. Austrian School …… Fiscal Policy: Tax and Subsidy …… Monetary Policy: Fed cut the interest rate ? ……

5. Business Cycles & Industrial Fluctuations Fluctuations of the whole economy are sometimes accompanied with “boom and bust “ in the Financial Market Great Depression

6. Recent Crisis Dow Jones Industrial Ave S&P 500 Unemployment Rate

7. Inflation U.S. inflation rate (% per year) Prior to the Great Depression, the inflation rate was fairly low.

8. 1.What do high inflation rates mean to the public?- “The cost of inflation” 2.Inflation and Monetary Policy Inflation

9. Germany, 1923Germany, 1923: banknotes had lost so much value that they were used as wallpaper. Source: wikiwallpaper German Hyperinflation 1919-1923.

10. Unemployment : Voluntary and Involuntary U.S. unemployment rate (% of labor force)

11. Economic Growth 1.What are the factors which influence the speed of economic growth ? 2. How to explain the “gap” between developing countries and developed countries?

12. Among themselves, macroeconomists often do not have consensuses on certain issues, even some important issues. Here is an interesting example.

13. Crude Oil prices : Fundamentals V.S. Speculation

14. Paul Krugman : The Oil Non-bubble (May 12, 2008)The Oil Non-bubble Guillermo Calvo : Exploding commodity prices, lax monetary policy, and sovereign wealth funds (June 20, 2008)Guillermo CalvoExploding commodity prices, lax monetary policy, and sovereign wealth funds Paul Krugman: Calvo on CommoditiesCalvo on Commodities (June 21, 2008) Debate between two economists