Intro to
Macroeconomics
AP Macroeconomics
What is it?
Macroeconomics is concerned with the
overall ups and downs in the economy,
whereas Microeconomics is concerned
with how people make decisions and how
those decisions interact.
When did “the study” begin?
In the 1930s, the field of
Macroeconomics was still in its
infancy.
After the Great Depression, “the
study” of Macroeconomics really
picked up speed.
What are some of “the field’s”
major concerns?
•Business cycles
•Employment
•Aggregate output
•Price stability
•Economic growth
•(or lack thereof)
Business Cycles…
•The alternation between economic downturns and upturns
in the macroeconomy is known as the business cycle
•A depression is a very deep and prolonged downturn
(the last Depression the US experienced was the Great
Depression of the 1930s
•Less prolonged economic downturns are known as
recessions. Are we still in one?
•Usually, recessions are followed by expansions, or
economic upturns (periods in which output and
employment are rising
FYI: Average length of the
business cycle is 5 yrs 7mos. What
can you do in that amount of
time?
Employment, Unemployment, and
the Business Cycle…
•Employment is the total number of people currently
working for $$$
•Unemployment is the total number of people
actively looking for work, but aren’t currently
employed.
The labor force = employment + unemployment
Unemployment rate is the % of the labor force
unemployed – do you know what it is in the US?
AGGREGATE OUTPUT & THE
BUSINESS CYCLE
The business cycle involves more than just J.O.B.S!
The business cycle is also concerned with OUTPUT, or the quantity
of goods and services produced.
OUTPUT & UNEMPLOYMENT MOVE IN OPPOSITE
DIRECTIONS…
Lower output = fewer workers desired = unemployment goes up,
up, and away!
How do we measure the rise &
fall of an economy’s output?
A little somethin’ somethin’ called
“aggregate output,” or the
economy’s total production of
goods & services for a given time
period (typically, one year)
INFLAT
ION, DEFLATION, & PRICE STABILITY
 Inflation = a rise in the overall price level in the economy
<causes cash to lose value>
 Deflation = well, the opposite of inflation (that is, a fall in the
overall price level)
 Does not apply to change in prices for a few items…it refers to an
overall trend for general items in the economy
 So what’s the big deal? Inflation and deflation can cause major
problemos for the economy!
 That is, if the $ goes up (inflates), then it does not go as far as it did
before
 That is, if the $ goes down (deflates), then it will buy more than
before. Therefore, people will not invest.
As always, we seek a balance…
Price stability – the overall price
level is changing either not at all or
only verrrrrry sloooooowly.
Stabilizes an otherwise unstable
economy
Don’t you wish this logic would apply
to your girlfriend/boyfriend?
Economic Growth +++++++++++++++++
Economic growth – or an increase in the
maximum possible output of an economy – is
the answer to why we are able to afford things
like iPods, iPads, fancy cars, washing
machines (sometimes for as little as $100!),
houses too large to live in, flat-screen TVs,
Prada bags, and other luxuries that people
would otherwise have been unable to afford
many moons ago.
And how do we measure all these
things?
Why, silly, we use models – any
simplified version of reality that is used
to better understand real-life situations.
Very often in the form of a graph.
Lucky for you, we’ve already been using
them!
And Now…
www.reffonomics.com
Macroeconomics
Works Cited
 The Economics of Seinfeld.
http://yadayadayadaecon.com/clip/
 Krugman, Paul, and Robin Wells. Krugman’s
Economics for AP. New York, Worth Publishers.
 Reffonomics. www.reffonomics.com.