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slide 1 Learning Objectives This chapter introduces you to the issues macroeconomists study the tools macroeconomists use some important concepts in macroeconomic analysis The Science of Macroeconomics slide 2 Important issues in macroeconomics Why does the cost of living keep rising? Why are millions of people unemployed, even when the economy is booming? What causes recessions? Can the government do anything to combat recessions? Should it? Macroeconomics, the study of the economy as a whole, addresses many topical issues: The Science of Macroeconomics slide 3 Important issues in macroeconomics What is the government budget deficit? How does it affect the economy? Why does the U.S. have such a huge trade deficit? Why are so many countries poor? What policies might help them grow out of poverty? Macroeconomics, the study of the economy as a whole, addresses many topical issues: The Science of Macroeconomics slide 4 U.S. Real GDP per capita (2000 dollars) Great Depression World War II First oil price shock Second oil price shock 9/11/2001 long-run upward trend The Science of Macroeconomics slide 5 U.S. inflation rate (% per year) The Science of Macroeconomics slide 6 U.S. unemployment rate (% of labor force) The Science of Macroeconomics slide 7 Social problems like homelessness, domestic violence, crime, and poverty are linked to the economy. For example Why learn macroeconomics? 1. The macroeconomy affects societys well- being. percent of labor force crimes per 100,000 population U.S. Unemployment and Property Crime Rates unemployment (left scale) property crime (right scale) The Science of Macroeconomics slide 8 Each one-point increase in the unemployment rate is associated with: 920 more suicides(自杀) 650 more homicides(杀人) 4000 more people admitted to state mental institutions(精神病院) 3300 more people sent to state prisons 37,000 more deaths increases in domestic violence and homelessness Unemployment and social problems The Science of Macroeconomics slide 9 Why learn macroeconomics? 2. The macroeconomy affects your well-being. change from 12 mos earlier percent change from 12 mos earlier In most years, wage growth falls when unemployment is rising. The Science of Macroeconomics slide 10 Why learn macroeconomics? Unemployment include two exogenous variables in each equation. Draw a supply-demand graph for wireless phones. Use your graph to show how a change in one of your exogenous variables affects the models endogenous variables. The Science of Macroeconomics slide 22 A multitude of models No one model can address all the issues we care about. e.g., our supply-demand model of the car market can tell us how a fall in aggregate income affects price models with sticky prices describe the economy in the short run. Macroeconomic events and performance arise from many microeconomic tra
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