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INTRODUCTION:COURSE DESCRIPTION, TEN PRINCIPLES OF ECONOMICS

PRINCIPLE OF MACROECONOMICS:People Face Tradeoffs >>
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Macroeconomics ECO 403
VU
Lesson 01
INTRODUCTION
COURSE DESCRIPTION
There are two major branches in economics:
Microeconomics
Macroeconomics
MACROECONOMICS
provides a framework for the study of the determinants & movements of such key
economic variables as...
unemployment
�
inflation
�
interest rates
�
exchange rate
�
productivity and growth
�
government budget deficit/surplus
�
foreign trade deficit
�
In Macroeconomics, we study the likely response of key economic variables to such public
policies as...
�  fiscal policy
monetary policy
�
trade policies
�
OBJECTIVE
Help you learn how the national economy works
Enable you to understand such issues as...
�  why key economic variables are at their present levels...
�  what may be the likely future paths of these variables...
�  causes and consequences of recessions, inflation, etc., ....
�  what the government can do about these problems...
�  side effects of government actions...
�  pros and cons of free trade versus trade restrictions
OUTLINE OF THIS COURSE
Introduction
�
­  Scope of Macroeconomics
­  Macroeconomic data and its measurement
The Economy in the Long Run
�
­  National Income
­  Economic Growth
­  Unemployment
­  Money and Inflation
­  Open Economy
The Economy in the Short Run
�
­  Economic Fluctuations
­  Aggregate Demand
­  Aggregate Supply
Govt. Debt and Budget Deficits
�
Microeconomic Foundations
�
­  Consumption
1
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Macroeconomics ECO 403
VU
Investment
­
Money supply and demand
­
Economy. . .
. . . The word economy comes from a Greek word for "one who manages a household."
TEN PRINCIPLES OF ECONOMICS
A household and an economy face many decisions:
�
­  Who will work?
­  What goods and how many of them should be produced?
­  What resources should be used in production?
­  At what price should the goods be sold?
Society and Scarce Resources:
­  The management of society's resources is important because resources are
scarce.
­  Scarcity. . . means that society has limited resources and therefore cannot
produce all the goods and services people wish to have.
Economics is the study of how society manages its scarce resources.
�  How people make decisions.
­  People face tradeoffs.
­  The cost of something is what you give up to get it.
­  Rational people think at the margin.
­  People respond to incentives.
�  How people interact with each other.
­  Trade can make everyone better off.
­  Markets are usually a good way to organize economic activity.
­  Governments can sometimes improve economic outcomes.
�  The forces and trends that affect how the economy as a whole works.
­  The standard of living depends on a country's production.
­  Prices rise when the government prints too much money.
­  Society faces a short-run tradeoff between inflation and unemployment.
2
Table of Contents:
  1. INTRODUCTION:COURSE DESCRIPTION, TEN PRINCIPLES OF ECONOMICS
  2. PRINCIPLE OF MACROECONOMICS:People Face Tradeoffs
  3. IMPORTANCE OF MACROECONOMICS:Interest rates and rental payments
  4. THE DATA OF MACROECONOMICS:Rules for computing GDP
  5. THE DATA OF MACROECONOMICS (Continued…):Components of Expenditures
  6. THE DATA OF MACROECONOMICS (Continued…):How to construct the CPI
  7. NATIONAL INCOME: WHERE IT COMES FROM AND WHERE IT GOES
  8. NATIONAL INCOME: WHERE IT COMES FROM AND WHERE IT GOES (Continued…)
  9. NATIONAL INCOME: WHERE IT COMES FROM AND WHERE IT GOES (Continued…)
  10. NATIONAL INCOME: WHERE IT COMES FROM AND WHERE IT GOES (Continued…)
  11. MONEY AND INFLATION:The Quantity Equation, Inflation and interest rates
  12. MONEY AND INFLATION (Continued…):Money demand and the nominal interest rate
  13. MONEY AND INFLATION (Continued…):Costs of expected inflation:
  14. MONEY AND INFLATION (Continued…):The Classical Dichotomy
  15. OPEN ECONOMY:Three experiments, The nominal exchange rate
  16. OPEN ECONOMY (Continued…):The Determinants of the Nominal Exchange Rate
  17. OPEN ECONOMY (Continued…):A first model of the natural rate
  18. ISSUES IN UNEMPLOYMENT:Public Policy and Job Search
  19. ECONOMIC GROWTH:THE SOLOW MODEL, Saving and investment
  20. ECONOMIC GROWTH (Continued…):The Steady State
  21. ECONOMIC GROWTH (Continued…):The Golden Rule Capital Stock
  22. ECONOMIC GROWTH (Continued…):The Golden Rule, Policies to promote growth
  23. ECONOMIC GROWTH (Continued…):Possible problems with industrial policy
  24. AGGREGATE DEMAND AND AGGREGATE SUPPLY:When prices are sticky
  25. AGGREGATE DEMAND AND AGGREGATE SUPPLY (Continued…):
  26. AGGREGATE DEMAND AND AGGREGATE SUPPLY (Continued…):
  27. AGGREGATE DEMAND AND AGGREGATE SUPPLY (Continued…)
  28. AGGREGATE DEMAND AND AGGREGATE SUPPLY (Continued…)
  29. AGGREGATE DEMAND AND AGGREGATE SUPPLY (Continued…)
  30. AGGREGATE DEMAND IN THE OPEN ECONOMY:Lessons about fiscal policy
  31. AGGREGATE DEMAND IN THE OPEN ECONOMY(Continued…):Fixed exchange rates
  32. AGGREGATE DEMAND IN THE OPEN ECONOMY (Continued…):Why income might not rise
  33. AGGREGATE SUPPLY:The sticky-price model
  34. AGGREGATE SUPPLY (Continued…):Deriving the Phillips Curve from SRAS
  35. GOVERNMENT DEBT:Permanent Debt, Floating Debt, Unfunded Debts
  36. GOVERNMENT DEBT (Continued…):Starting with too little capital,
  37. CONSUMPTION:Secular Stagnation and Simon Kuznets
  38. CONSUMPTION (Continued…):Consumer Preferences, Constraints on Borrowings
  39. CONSUMPTION (Continued…):The Life-cycle Consumption Function
  40. INVESTMENT:The Rental Price of Capital, The Cost of Capital
  41. INVESTMENT (Continued…):The Determinants of Investment
  42. INVESTMENT (Continued…):Financing Constraints, Residential Investment
  43. INVESTMENT (Continued…):Inventories and the Real Interest Rate
  44. MONEY:Money Supply, Fractional Reserve Banking,
  45. MONEY (Continued…):Three Instruments of Money Supply, Money Demand