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MACROECONOMICS
SIXTH EDITION
N. GREGORY MANKIW
PowerPoint Slides by Ron Cronovich
2007 Worth Publishers, all rights reserved
Learning Objectives
This chapter introduces you to
the issues macroeconomists study the tools macroeconomists use some important concepts in macroeconomic
analysis
CHAPTER 1
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Why does the cost of living keep rising? Why are millions of people unemployed,
even when the economy is booming?
CHAPTER 1
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30,000
Great Depression
10,000
0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
CHAPTER 1
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slide 5
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920 more suicides 650 more homicides 4000 more people admitted to state mental
institutions 3300 more people sent to state prisons 37,000 more deaths increases in domestic violence and homelessness
CHAPTER 1
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unemployment rate inflation-adjusted mean wage (right scale) slide 8 CHAPTER 1 The Science of Macroeconomics
U rate
7.7%
7.1% 7.5%
inflation rate
5.8%
13.5% 4.3%
elec. outcome
Carter (D)
Reagan (R) Reagan (R)
1988
1992 1996
5.5%
7.5% 5.4%
4.1%
3.0% 3.3%
Bush I (R)
Clinton (D) Clinton (D)
2000
CHAPTER 1
4.0%
5.5%
3.4%
3.3%
Bush II (R)
Bush II (R)
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2004
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
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Example of a model:
Variables:
Q d = quantity of cars that buyers demand Q s = quantity that producers supply P = price of new cars Y = aggregate income Ps = price of steel (an input)
CHAPTER 1
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CHAPTER 1
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Q d = D (P,Y )
CHAPTER 1
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D (P ,Y )
The demand curve shows the relationship between quantity demanded and price, other things equal.
D
Quantity of cars
CHAPTER 1
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P
S
Q S (P , Ps )
The supply curve shows the relationship between quantity supplied and price, other things equal.
D
Quantity of cars
CHAPTER 1
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P
S
equilibrium price
D
Quantity of cars
equilibrium quantity
CHAPTER 1
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Q d D (P ,Y )
An increase in income increases the quantity of cars consumers demand at each price which increases the equilibrium price and quantity.
CHAPTER 1
Price of cars
P
S
P2
P1
D1 Q1 Q2
D2
Quantity of cars
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Q S (P , Ps )
An increase in Ps reduces the quantity of cars producers supply at each price
Price of cars
S2
S1
P2 P1 D Q2 Q1
Quantity of cars
CHAPTER 1
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P, Q , Q
Y , Ps
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equations for wireless phones; include two exogenous variables in each equation.
2. Draw a supply-demand graph
change in one of your exogenous variables affects the models endogenous variables.
CHAPTER 1
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A multitude of models
CHAPTER 1
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A multitude of models
For each new model, you should keep track of its assumptions which variables are endogenous,
which are exogenous the questions it can help us understand, and those it cannot
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Chapter Summary
CHAPTER 1
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Chapter Summary
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