Lecture 1. A FIRST LOOK AT MACROECONOMICS

Economists began to study economic growth, inflation, and international payments during the 1750s

Modern macroeconomics dates from the Great Depression, a decade (1929-1939) of high unemployment and stagnant production throughout the world economy.

John Maynard Keynes book, The General Theory of Employment, Interest, and Money, began the subject.

Short-Term Versus Long-Term Goals

Keynes focused on the short-term—on unemployment and lost production.

“In the long run,” said Keynes, “we’re all dead.”

During the 1970s and 1980s, macroeconomists became more concerned about the long-term—inflation and economic growth.

Economic growth is the expansion of the economy’s production possibilities—an outward shifting PPF.

We measure economic growth by the increase in real GDP.

Real GDP—real gross domestic product—is the value of the total production of all the nation’s farms, factories, shops, and offices, measured in the prices of a single year.

Economic Growth in the United States

Figure 4.1 shows real GDP in the United States from 1962 to 2002.

• The figure highlights:
• Fluctuations of real GDP
• Smoother growth of potential GDP

Real GDP fluctuates around potential GDP in a business cycle—a periodic but irregular up-and-down movement in production.

Every business cycle has two phases:

1. A recession

2. An expansion

and two turning points:

1. A peak

2. A trough

A recession is a period during which real GDP decreases for at least two successive quarters.

An expansion is a period during which real GDP increases.

Every business cycle has two phases:

1. A recession
2. An expansion

and two turning points:

1. A peak
2. A trough

A recession is a period during which real GDP decreases for at least two successive quarters.

An expansion is a period during which real GDP increases.

Figure 4.2 shows the most recent U.S. cycle.

Figure 4.3 shows the long-term growth trend and cycles.

Date: 2015-12-11; view: 1337