The Study of Macroeconomics
• Micro vs. Macro
• Microeconomics
– the study of how individual households and firms make decisions and how they interact with one another in markets.
• Macroeconomics
– the study of the economy as a whole.
– Its goal is to explain the economic changes that affect many households, firms, and markets at once.
• The Two Groups of Economists
• Macroeconomists
• Focus on the economy as a whole.
• Spend much time analyzing how total income changes and how changes in income cause changes in other modes of economic behavior.
• Microeconomists
• Focus on the markets for individual commodities and on the decisions of single economic agents.
• Hold total income constant.
• The Two Groups of Economists
• Macroeconomists
• Spend a great deal of time and energy investigating how people form their expectations and change them over time.
• Consider the possibility that decision makers might change the quantities they produce before they change the prices they charge.
• Microeconomists
• Don’t worry much about how decision makers form their expectations.
• Assume that economic adjustment occurs first through prices that change to balance supply and demand and that only afterward do producers and consumers react to the changed prices by changing the quantities they make, buy or sell.
• Why Macroeconomics Matters…
• Cultural Literacy
– “If you want to follow and participate in public debates and discussions, you need to know about macroeconomics.”
– Self-interest
– “the macro economy matters to you personally”
• Civic Responsibility
– “working together, we can improve the macro economy.” • Macroeconomic Questions
• Why do output and employment sometimes fall and how can unemployment be reduced?
• What are the sources of price inflation and how can it be kept under control?
• How can a nation increase its rate of economic growth?
• Objectives of Macroeconomics
OUTPUT
• high level and rapid growth of output
• to provide goods and
• Microeconomics
– the study of how individual households and firms make decisions and how they interact with one another in markets.
• Macroeconomics
– the study of the economy as a whole.
– Its goal is to explain the economic changes that affect many households, firms, and markets at once.
• The Two Groups of Economists
• Macroeconomists
• Focus on the economy as a whole.
• Spend much time analyzing how total income changes and how changes in income cause changes in other modes of economic behavior.
• Microeconomists
• Focus on the markets for individual commodities and on the decisions of single economic agents.
• Hold total income constant.
• The Two Groups of Economists
• Macroeconomists
• Spend a great deal of time and energy investigating how people form their expectations and change them over time.
• Consider the possibility that decision makers might change the quantities they produce before they change the prices they charge.
• Microeconomists
• Don’t worry much about how decision makers form their expectations.
• Assume that economic adjustment occurs first through prices that change to balance supply and demand and that only afterward do producers and consumers react to the changed prices by changing the quantities they make, buy or sell.
• Why Macroeconomics Matters…
• Cultural Literacy
– “If you want to follow and participate in public debates and discussions, you need to know about macroeconomics.”
– Self-interest
– “the macro economy matters to you personally”
• Civic Responsibility
– “working together, we can improve the macro economy.” • Macroeconomic Questions
• Why do output and employment sometimes fall and how can unemployment be reduced?
• What are the sources of price inflation and how can it be kept under control?
• How can a nation increase its rate of economic growth?
• Objectives of Macroeconomics
OUTPUT
• high level and rapid growth of output
• to provide goods and