Questions in Macroeconomics
Course Outline
ECON 3040 INTERMEDIATE
MACROECONOMIC THEORY:
INTRODUCTION
Karel Mertens
CORNELL UNIVERSITY
Questions in Macroeconomics
Course Outline
What is Macroeconomics?
Macroeconomics is
“ the study of the structure and performance of national
economies and of the policies that governments use to try to
affect economic performance.” (Abel, Bernanke and
Croushore)
“ the study of the economy as a whole.” (Mankiw)
How do individual (micro) economic decisions determine aggregate
(macro) outcomes?
US Real Output, Consumption and Investment Per Capita
3
2.5
2
Log Levels
1.5
1
0.5
0
−0.5
−1
real gdp
real nondur cons exp
real dur cons exp
real fix inv exp
real gov exp
−1.5
−2
1950
1960
1970
1980
1990
2000
2010
Long Run Growth vs. Short-Run Fluctuations
−7.5
Loglevel
−8
−8.5
−9
1940
1950
1960
1970
1980
1990
2000
2010
2020
Income per capita in 2012
Source: Wikipedia and World Bank
Income per capita in 1990 Dollars
year AD:
1
1000
1500
1820
1950
2003
US
France
Italy
Japan
Mexico
China
Iraq
Argentina
Kenya
400
473
809
400
400
450
500
-
400
425
450
425
400
466
650
-
400
727
1100
500
425
600
550
-
1,257
1,135
1,117
669
759
600
588
-
9,561
5,271
3,502
1,921
2,365
448
1,364
4,987
651
29,037
21,861
19,150
21,218
7,137
4,803
1,023
7,666
998
Source: Angus Maddison
Big Picture Questions in Macroeconomics
What determines long-run economic growth?
Long Run Growth vs. Short-Run Fluctuations
−7.5
Loglevel
−8
−8.5
−9
1940
1950
1960
1970
1980
1990
2000
2010
2020
Short-Run Fluctuations: Output
15
real gdp
10
Cyclical component
5
0
−5
−10
−15
−20
1950
1960
1970
1980
1990
2000
2010
Short-Run Fluctuations: Private Consumption
15
real gdp
real nondur cons exp
real dur cons exp
10
Cyclical component
5
0
−5
−10
−15
−20
1950
1960
1970
1980
1990
2000
2010
Short-Run Fluctuations: Private Fixed Investment
15
real gdp
real nondur cons exp
real dur cons exp
real fix inv exp
10
Cyclical component
5
0
−5
−10
−15
−20
1950
1960
1970
1980
1990
2000
2010
Short-Run Fluctuations: Employment
15
real gdp
employment
10
Cyclical component
5
0
−5
−10
−15
−20
1950
1960
1970
1980
1990
2000
2010
Short-Run Fluctuations: Since 1947
15
real gdp
10
Cyclical component
5
0
−5
−10
−15
−20
1950
1960
1970
1980
1990
2000
2010
Short-Run Fluctuations: Since 1870
Percentage Deviation from Hp−filtered trend
30
20
10
0
−10
−20
real gdp
1880
1900
1920
1940
1960
1980
2000
Big Picture Questions in Macroeconomics
What determines a nation’s long-run economic growth?
What causes a nation’s economy to fluctuate?
International Unemployment Rates
Source: Bureau of Labor Statistics
Europe Unemployment Rates
Source: Bureau of Labor Statistics
US Unemployment Rate
Source: FRED (Federal Reserve Economic Data)
US Unemployment
Big Picture Questions in Macroeconomics
What determines a nation’s long-run economic growth?
What causes a nation’s economy to fluctuate?
What causes unemployment?
The Price Level
Source: Tom Sargent
The US Price Level
US CPI Inflation
Big Picture Questions in Macroeconomics
What determines a nation’s long-run economic growth?
What causes a nation’s economy to fluctuate?
What causes unemployment?
What determines the price level?
Big Picture Questions in Macroeconomics
What determines a nation’s long-run economic growth?
What causes a nation’s economy to fluctuate?
What causes unemployment?
What determines the price level?
Can government policies be used to improve economic
performance?
The US Trade Balance
Dollars for one Euro
Big Picture Questions in Macroeconomics
What determines a nation’s long-run economic growth?
What causes a nation’s economy to fluctuate?
What causes unemployment?
What determines the price level?
Can government policies be used to improve economic
performance?
What are the links between different nations’ economies?
Questions in Macroeconomics
Course Outline
1. Introduction to Macroeconomics
2. The Three Key Aggregate Markets in Macroeconomics
2.1 Labor Market: Productivity, Output and Employment
2.2 Goods Market: Consumption, Saving and Investment
2.3 Asset Market: Money and Prices
3. Growth Theory
4. Theory of Economic Fluctuations
4.1 Business Cycles
4.2 The IS-LM model
4.3 The AD-AS model
4.4 (Neo-) Classical Models of Fluctuations
4.5 (New-) Keynesian Models of Fluctuations
5. Macroeconomic Policy
5.1 Monetary Policy
5.2 Fiscal Policy
6. The Open Economy
Course Outline