BRIC papers
Poi
nts
Elements
F ormat
5
•Paper written in proper APA, MLA, or Chicago format.
•In text citations and proper works cited page, foot
notes, or end notes.
•Double-spaced, 1 inch margins, at least pages of
written text
E vidence
10
•Borrowed and cited statistics, quotes, explanations
•4 or more valid sources
•Evidence supports your thesis/answers your question
(s)
A nalysis
10
•Your interpretation of evidence, used to answer.
•Your words and your voice; has unique elements
•Gives meaning to the paper
C lear
coherent
complete
convincing
5
•Clearly and comprehensively answers the
question/supports the thesis
•Convinces the reader adequately
chapter
Rubric
category
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
What is it and how does it relate to:
a) Our 3rd quarter projects?
b) Your spring breaks?
Prepared by:
Fernando & Yvonn Quijano
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
chapter
What you will learn in
this chapter:
➤ An overview of macroeconomics, the
study of the economy as a whole, and
how it differs from microeconomics
➤ The importance of the business cycle
and why policy makers seek to diminish
the severity of business cycles
➤ The meaning of inflation and deflation
and why price stability is preferred
Even the best students
had a tough time finding a
job in 2002.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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How would a macroeconomist view the business cycle
and what might (s)he want to do about it?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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TABLE 14-1
Median Starting Salaries of New MBAs from Selected Schools in 2000, 2002, and
2004
School
2000 starting salary
2002 starting salary
2004 starting salary
Stanford
$165,500
$138,100
$150,000
Harvard
160,000
134,600
147,500
Pennsylvania
156,000
124,500
144,000
Columbia
142,500
123,600
142,500
Dartmouth
149,500
122,100
135,000
What do you see here?
Why did it occur?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Microeconomics versus Macroeconomics
TABLE 14-2
Microeconomic versus Macroeconomic Questions
Microeconomic Questions
Macroeconomic Questions
Should I go to business school or take a
job right now?
How many people are employed in the
economy as a whole this year?
What determines the salary offered by
Citibank to Cherie Camajo, a new
Columbia MBA?
What determines the overall salary levels
paid to workers in a given year?
What determines the cost to a university
or college of offering a new course?
What determines the overall level of prices
in the economy as a whole?
What government policies should be
adopted to make it easier for low-income
students to attend college?
What government policies should be
adopted to promote employment in the
economy as a whole?
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© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Microeconomics versus Macroeconomics
Economic Aggregates
Economic aggregates are economic
measures that summarize data across
different markets for goods, services,
workers, and assets.
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Microeconomics versus Macroeconomics
Macroeconomics: The Whole Is Greater
Than the Sum of Its Parts
A key insight into macroeconomics is that in
the short run—a time period consisting of
several years but typically less than a
decade—the combined effect of individual
decisions can have effects that are very
different from what any one individual
intended, effects that are sometimes
perverse.
i.e. - Rubber necking
And
The “paradox of thrift”
and vice versa
The behavior of the macroeconomy is,
indeed, greater than the sum of individual
actions and market outcomes.
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p. 366 #2
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Microeconomics versus Macroeconomics
Macroeconomic Policy
The area of microeconomics, in general,
suggests a limited role for government
intervention.
In contrast, economists generally believe
there is a much wider role for government
to play in macroeconomics—most
importantly, to manage short-term
fluctuations and adverse events in the
economy.
Entonces, in which decade was American
macroeconomic policy really born?
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p. 366 #3
economics in action
The Great Depression
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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How did the Great
Depression of the
1930’s affect
macroeconomic policy
in 2008?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
chapter
Who is John Maynard Keynes and
what influence did he have in the
development of modern
macroeconomic theory?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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John Maynard Keynes, 1st Baron Keynes (5 June 1883 – 21 April
1946), was a British economist whose ideas have profoundly affected
the theory and practice of modern macroeconomics, as well as the
economic policies of governments. He greatly refined earlier work on
the causes of business cycles, and advocated the use of fiscal and
monetary measures to mitigate the adverse effects of economic
recessions and depressions. His ideas are the basis for the school of
thought known as Keynesian economics, as well as its various
offshoots.
In the 1930s, Keynes spearheaded a revolution in economic
thinking, overturning the older ideas of neoclassical economics that
held that free markets would in the short to medium term
automatically provide full employment, as long as workers were
flexible in their wage demands. Keynes instead argued that
aggregate demand determined the overall level of economic activity,
and that inadequate aggregate demand could lead to prolonged
periods of high unemployment. Following the outbreak of World War
II, Keynes's ideas concerning economic policy were adopted by
leading Western economies. During the 1950s and 1960s, the
success of Keynesian economics resulted in almost all capitalist
governments adopting its policy recommendations, promoting the
cause of social
liberalism.
© 2007 Worth
Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
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© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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What do you think were the opinions and effects of
the:
American Recovery and Reinvestment Act?
Troubled Asset Relief Program?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
The business cycle is the short-run
alternation between economic
downturns, known as recessions, and
economic upturns, known as
expansions.
A depression is a very deep and
prolonged downturn.
Recessions are periods of economic
downturns when output and
employment are falling.
Expansions, or recoveries, are periods
of economic upturns when output and
employment are rising.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
Employment and Unemployment
Employment is the number of people
currently employed in the economy.
Unemployment is the number of
people who are actively looking for work
but aren’t currently employed.
The labor force is equal to the sum of
employment and unemployment.
Discouraged workers are nonworking
people who are capable of working but
have given up looking for a job.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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p. 362 #1,2,3
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The Business Cycle
Employment and Unemployment
Underemployment is the number of
people who work during a recession but
receive lower wages than they would
during an expansion due to fewer
number of hours worked, lower-paying
jobs, or both.
The unemployment rate is the
percentage of the total number of
people in the labor force who are
unemployed.
(14-1) Unemployment rate =
Number of unemployed workers
x 100
Number of unemployed workers  Number of employed workers
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Unemployment mathematics
1. P. 366 #4
2. Number of people employed: 120,500
Number of people unemployed: 4,050
How many total people are in the workforce?
What is the unemployment rate?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
Aggregate Output
Aggregate output is the economy’s
total production of final goods and
services for a given time period.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
Aggregate Output
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Thursday 3/24/2011
1. Lecture ch 14 Macroeconomics
2. Look at Homework: p. 364 #1 and page 366 #5
HW – Be sure all problems are complete.
Tomorrow – Finish up and Review
Monday – Ch 14 Quiz
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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What tools can policy
makers use to affect the
state of the business
cycle?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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The Business Cycle
Taming the Business Cycle
Policy efforts undertaken to reduce the
severity of recessions and to rein in
excessively strong expansions are
called stabilization policy.
Monetary policy is a type of
stabilization policy that involves
changes in the quantity of money in
circulation or in interest rates, or both.
Fiscal policy is a type of stabilization
policy that involves changes in taxation
or in government spending, or both.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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economics in action
Has the Business Cycle Been Tamed?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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What’s misleading about this statement?
'Country A is becoming wealthier
each year than Country B
because its wage levels are
rising by an average of $500
compared to $250 in Country B'.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Inflation and Deflation
A nominal measure is a measure that
has not been adjusted for changes in
prices over time.
A real measure is a measure that has
been adjusted for changes in prices
over time.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Inflation and Deflation
The aggregate price level is the overall
price level for final goods and services in
the economy.
A rising aggregate price level is inflation.
A falling aggregate price level is deflation.
Inflation reduces the real value of money over time;
conversely, deflation increases the real value of money
Which one would encourage consumption?
Which one would encourage saving?
What can go wrong when everyone starts saving?
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Inflation and Deflation
The CPI
• A consumer price index (CPI) measures changes in the price level
of consumer goods and service purchased by households.
• The CPI is defined by the United States Bureau of Labor Statistics
as "a measure of the average change over time in the prices paid by
urban consumers for a market basket of consumer goods and
services."
• The CPI is a statistical estimate constructed using the prices of a
sample of representative items whose prices are collected
periodically. The annual percentage change in a CPI is used as a
measure of inflation.
• A CPI can be used to index (i.e., adjust for the effect of inflation) the
real value of wages and salaries
• In most countries, the CPI is, along with the population census and
the USA National Income and Product Accounts, one of the most
closely watched national economic statistics.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Inflation and Deflation
The economy has price stability when the
aggregate price level is changing only
slowly.
The inflation rate is the annual percent
change in the aggregate price level.
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Inflation and Deflation
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© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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Economics in Action
Let’s read “A Fast Food measure of Inflation” on p.
364
P. 366 #5
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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KEY TERMS
Economic aggregates
Business cycle
Depression
Recessions
Expansions
Employment
Unemployment
Labor force
Discouraged workers
Underemployment
Unemployment rate
Aggregate output
Stabilization policy
Monetary policy
Fiscal policy
Nominal
Real
Aggregate price level
Inflation
Deflation
Price stability
Inflation rate
© 2007 Worth Publishers Essentials of Economics Krugman • Wells • Olney
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