Professional Documents
Culture Documents
MACROECONOMICS
N. Gregory Mankiw
Fall 2013
update
CHAPTER 1
Important issues in
macroeconomics
Macroeconomics, the study of the economy as
a whole, addresses many topical issues, e.g.:
CHAPTER 1
Important issues in
macroeconomics
Macroeconomics, the study of the economy as
a whole, addresses many topical issues, e.g.:
CHAPTER 1
9/11/2001
$40,000
Great
Depression
$30,000
$20,000
First
oil price
shock
World
War I
Financial
crisis
Second oil
price shock
$10,000
World War II
$0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
CHAPTER 1
World
War I
First
oil price
shock
Second
oil price
shock
10
5
0
-5
-10
Great
Depression
Financial
crisis
-15
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
CHAPTER 1
Great
Depression
25
20
15
10
World
War I
World
War II
Oil price
shocks
Financial
crisis
5
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
CHAPTER 1
Economic models
are simplified versions of a more complex reality
irrelevant details are stripped away
are used to
show relationships between variables
explain the economys behavior
devise policies to improve economic
performance
CHAPTER 1
Example of a model:
CHAPTER 1
10
Example:
D (P,Y ) = 60 10P + 2Y
CHAPTER 1
11
P
Price
of cars
CHAPTER 1
Q
Quantit
y of
cars
12
P
Price
of cars
CHAPTER 1
Q
Quantit
y of
cars
13
equilibrium
price
Q
equilibrium
quantity
CHAPTER 1
Quantit
y of
cars
14
P
Price
of cars
An increase in income
increases the quantity
of cars consumers
demand at each price
P2
P1
D1
which increases
the equilibrium price
and quantity.
CHAPTER 1
Q1 Q2
D2
Q
Quantit
y of
cars
15
P
Price
of cars
An increase in Ps
reduces the quantity of
cars producers supply
at each price
S1
P2
P1
CHAPTER 1
S2
D
Q2 Q1
Q
Quantit
y of
cars
16
Y, Ps
17
CHAPTER 1
18
CHAPTER 1
19
CHAPTER 1
20
CHAPTER 1
21
22
23
CHAPTER 1
24
CHAPTER SUMMARY
CHAPTER 1
25
CHAPTER SUMMARY
CHAPTER 1
26