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Macroeconomics for Students

This document provides an introduction and overview of macroeconomics concepts that will be covered in the course. It discusses key topics like macroeconomic models, the economy as a whole, exogenous vs endogenous variables, and the fallacy of composition. It explains that macroeconomics examines aggregate economic indicators and different macro models are used to study the long run, short run, and factors that influence economic growth over decades. Functional notation is introduced to show how variables relate to each other in economic models.

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124 views8 pages

Macroeconomics for Students

This document provides an introduction and overview of macroeconomics concepts that will be covered in the course. It discusses key topics like macroeconomic models, the economy as a whole, exogenous vs endogenous variables, and the fallacy of composition. It explains that macroeconomics examines aggregate economic indicators and different macro models are used to study the long run, short run, and factors that influence economic growth over decades. Functional notation is introduced to show how variables relate to each other in economic models.

Uploaded by

anhthodav
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Introduction on Macroeconomics

Chapter 1: Science of Macroeconomics, Mankiw


Course Objectives

 Macroeconomic models – we analyze the economy,


rather than learning “facts”.
 Building blocks of macro models
 The economy as a whole – markets interacting
 Analytical approach to economic problems
 “Exogenous” variables vs. “endogenous” variables
 “Fallacy of composition”
 Policy as a scientific study rather than a political debate

Ch1.02 slide 2
What Macroeconomics is About

 We will examine aggregate economic variables:


GDP, the unemployment rate, inflation, the trade
balance, etc.
 To look at aggregate variables, we need to
aggregate individual variables in a simple way.
 We ignore many individual differences among
households and firms.

Ch1.02 slide 3
Short run and Long run
 In economics, there is not a single model for
everything.
 We use different (but related) models to study
the very long run, the long run, and the short run
 Very long run – why do some economies grow
more than others over decades?
 Long run – what determines prices and
employment when the price mechanism is at
work?
 Short run – what determines prices and
employment when wages and prices do not
adjust immediately?
Ch1.02 slide 4
Mathematical functions

 We use functional notation when we want to express the idea that


one variable is determined by other variables.
 For example, supply of pizzas is a function of the price of pizzas
and the price of materials:

Q s  S (P , Pm )

 In this example, the quantity supplied of pizza is the “endogenous”


variable in the pizza supply model.
 The price of pizza and the price of materials are “exogenous” for
the pizza maker. She cannot influence those prices (assuming
that she is not a monopoly seller of pizza!)

Ch1.02 slide 5
More on Endogenous and
Exogenous variables
 Variables that are exogenous in some models might be
endogenous in other models.
 For example, in many macro models, we might take the
share of income earned by females vs. males as
exogenous.
 But some economic models are designed exactly to
explain those shares.
 In some cases, a variable is exogenous in the building
block of a more general model, but endogenous in the
general model.
 Price of pizza is exogenous for the pizza supplier, but
determined within our model of the pizza market.

Ch1.02 slide 6
The Pizza market

 We can take the equations for supply of pizza, demand for pizza,
and market equilibrium:
Q s  S (P , Pm )

Q d  D (P ,Y )

Qs  Qd

 P and Pm are exogenous for the pizza supplier. P and Y are


exogenous for the pizza demander.
 These three equations together determine Qs, Qd, and P
endogenously. The exogenous variables for the pizza market are Pm
and Y.

Ch1.02 slide 7
Macroeconomic example

 We will model aggregate consumption as depending on


“disposable” income:
C  C (Y  T )
 For consumers in this model, income and taxes are
exogenous.
 But aggregate income will be determined in our macro
model.
 In most of our macro models, aggregate taxes will be
exogenous, but sometimes they will be endogenous.
 In most of our models of consumers, income is
exogenous, but sometimes it is endogenous. Income
depends on how many hours we work, for example.

Ch1.02 slide 8

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