Macroeconomics Course

Bachelor Semester I

Presented by

Dr Boyé G. Roméo, Lecturer and researcher at University Félix

Houphouët-Boigny of Cocody, Abidjan
+225 07 73 01 02
romeoboye@gmail.com

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 Structure of the course

❖ Chapter 1: Introduction to
Macroeconomics
❖ Chapter 2: Indicators of
Macroeconomics
❖ Chapter 3: Saving, Investment and
Financial system
❖ Chapter 4: Some Great Economic
Debates
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 General objective
• This course aims to
❑ help learners understand and
interpret the realities of the
macroeconomic environment in which
they and their companies operate,
❑ introduce students to the rules of the
economic game.

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 Expected results, Organization and
reference
❑ The learner understands and
interprets the realities of the
macroeconomic environment
❑ - Lecture course,Tutorials and
Practical work
❑ Mankiw, N.Gregory, Principles of
Macroeconomics - 7th edition,
Cengage Learning, 2015
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 Chapter 1: Introduction to
Macroeconomics
This chapter introduces you to
the issues macroeconomists study
the tools macroeconomists use
some important concepts in
macroeconomic analysis

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 Section 1: Important issues in
macroeconomics
• Why does the cost of living keep rising?
• Why are millions of people unemployed, even
when the economy is booming?
• Why are there recessions?
Can the government do anything to combat
recessions? Should it?

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 Section 1: 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?

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 Section 2: What Macroeconomists Study

• Real GDP – The total income of everyone

in the economy (adjusted for price level).

• Inflation Rate – How fast prices are rising.

• Unemployment Rate – The fraction of

labor force that is out of work.

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U.S. Gross Domestic Product
in billions of chained 2000 dollars

n d …
r d tre
pw a
n u
g- r u
lon

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U.S. Gross Domestic Product
in billions of chained 2000 dollars

longest economic
expansion on record

Recessions

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“Living Standards” in the U.S.

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Inflation in the U.S.

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Unemployment in the U.S.

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 Section 3: Why learn
1.
macroeconomics?
The macroeconomy affects society’s
well-being.
▪ example: Unemployment and social problems
Each one-point increase in the u-rate is associated
with:
▪ 920 more suicides
▪ 650 more homicides
▪ 4000 more people admitted to state mental
institutions
▪ 3300 more people sent to state prisons
▪ 37,000 more deaths
▪ increases in domestic violence and homelessness slide 13
 Section 3: Why learn
2.
macroeconomics?
The macroeconomy affects your well-being.
▪ Unemployment and earnings growth

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 Section 3: Why learn
2. macroeconomics?
The macroeconomy affects your well-being.
▪ Interest rates and mortgage payments

For a $150,000 30-year mortgage:

actual rate
monthly annual
date on 30-year
payment payment
mortgage
6/20/03 5.21% $824 $9,888

6/17/04 6.32% $913 $10,959

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 Section 3: Why learn
3. macroeconomics?
The macroeconomy affects politics & current
events.
▪ Inflation and unemployment in election years
year U rate inflation rate elec. outcome
1976 7.7% 5.8% Carter (D)
1980 7.1% 13.5% Reagan (R)
1984 7.5% 4.3% Reagan (R)
1988 5.5% 4.1% Bush I (R)
1992 7.5% 3.0% Clinton (D)
1996 5.4% 3.3% Clinton (D)
2000 4.0% 3.4% Bush II (R)
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 Section 4: Economic models
…are simplied versions of a more complex reality
• irrelevant details are stripped away
Used to
• show the relationships between economic variables
• explain the economy’s behavior
• devise policies to improve economic performance

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 Controlled Experiment or Not?

1) Astronomers formulating the “big bang” theory of the origin of the

universe by making observations through the Hubble telescope.

2) Economists analyzing the effects of an increase in the money

supply by examining output, interest rates, and inflation following
a large increase in the money supply.

3) Physicians testing the effects of aspirin on the incidence of heart

disease by following two groups of men who differ only in their
intake of aspirin.

4) Biologists modifying Darwin’s original theory of evolution after

examining newly found fossils.

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 Example of a model:
The supply & demand for new cars

• explains the factors that determine the price of cars and

the quantity sold.

• assumes the market is competitive: each buyer and

seller is too small to affect the market price

• Variables:
Q d = quantity of cars that buyers demand
Q s = quantity that producers supply
P = price of new cars
Y = aggregate income
Ps = price of steel (an input)
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Endogenous vs. exogenous variables:
• The values of endogenous variables
are determined in the model.
• The values of exogenous variables
are determined outside the model:
the model takes their values & behavior
as given.
• In the model of supply & demand for
cars,

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 A Multitude of Models
No one model can address all the issues
we care about. For example,
▪ If we want to know how a fall in aggregate
income affects new car prices, we can use
the S/D model for new cars.
▪ But if we want to know why aggregate
income falls, we need a different model.

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 A Multitude of Models
• So we will learn different models for
studying different issues (e.g.
unemployment, inflation, long-run growth).
• For each new model, you should keep track
of
– its assumptions,
– which of its variables are endogenous and
which are exogenous,
– the questions it can help us understand,
– and those it cannot.
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 Section 5: Prices: Flexible
Versus
• Market clearing: an Sticky
assumption that prices
are flexible and adjust to equate supply and
demand.
• In the short run, many prices are sticky---
they adjust only sluggishly in response to
supply/demand imbalances.
For example,
– labor contracts that fix the nominal wage
for a year or longer
– magazine prices that publishers change
only once every 3-4 years
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 Section 5: Prices: Flexible
Versus Sticky
• The economy’s behavior depends partly
on whether prices are sticky or flexible:
• If prices are sticky, then demand won’t
always equal supply. This helps explain
– unemployment (excess supply of labor)
– the occasional inability of firms to sell what
they produce
• Long run: prices flexible, markets clear,
economy behaves very differently.
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 Chapter summary
1. Macroeconomics is the study of the economy
as a whole, including
• growth in incomes
• changes in the overall level of prices
• the unemployment rate
2. Macroeconomists attempt to explain the
economy and to devise policies to improve
its performance.

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 Chapter summary
3. Economists use different models to
examine different issues.
4. Models with flexible prices describe the
economy in the long run; models with
sticky prices describe economy in the
short run.
5. Macroeconomic events and performance
arise from many microeconomic
transactions, so macroeconomics uses
many of the tools of microeconomics.

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