Intermediate*Macroeconomics - Amazon Web Services · Intermediate*Macroeconomics!...
Intermediate Macroeconomics Chapter 1: The Science of Macroeconomics What Macroeconomists Study • State of economy affects everyone, macroeconomic issues play a central role in national political debates. • Macroeconomic issues are central to world politics. • Macroeconomists make use of the data that history has given them. • Macroeconomists observe that economies differ across countries and that they change over time. These observations provide both the motivation for developing macroeconomic theories and the data for testing them. • Knowledge of economy is important for explaining economic events and for formulating economic policy. • Three important variables used to measure economy performance are: o Real GDP@ total income of everyone in the economy. o Inflation rate@ measures how fast prices are rising. o Unemployment rate@ the fraction of the labour force that is out of work. • Macroeconomists study: o How these variables are determined o Why they change over time. o How they interact with each other. Real GDP • Grows over time. • When GDP falls recessions occur. • When GDP falls severely then a depression occurs. • Recessions and depressions are associated with high unemployment. Inflation rate • Periods of falling prices is called deflation. • Inflation is around 2@3% each year. How economists think • Economists often study politically charged views. Theory as model building • Model represents the essence of the real object it is designed to resemble. • Economists use models to explain economic variables. • Models have to kinds of variables: o Endogenous variables< Variables that a model tries to explain. o Exogenous variables< variables that a model takes as given. (x and y). • Purpose of model is to show how the exogenous variables affect the endogenous variables. • Exogenous variables come from outside the model. • Endogenous variables are determined within the model and are the models output. Exogenous Variables Model Endogenous Variables
Intermediate*Macroeconomics - Amazon Web Services · Intermediate*Macroeconomics! Chapter!1:!The!Science!of!Macroeconomics! What!Macroeconomists!Study!