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Macroeconomics:
Introduction
Xu Hu
Texas A&M University
Outline
• Problems macroeconomists are
interested in. (Very Brief)
• Modeling Concerns (no slide)
• Approach for this course(no slide)
Important issues in macroeconomics
U.S. Real GDP per capita
(2000 dollars)
• Business Cycles & Industrial Fluctuations
40,000
9/11/2001
First oil
price shock
30,000
long-run upward trend…
20,000
Great
Depression
Second oil
price shock
10,000
World War II
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
• Business Cycles & Industrial Fluctuations
1. What are the causes of Boom and Bust?
Real Business Cycles theory
Excessive Credit Type theory – e.g. Austrian School
……
2. What is the government’s role in the
recessions?
Fiscal Policy: Tax and Subsidy ……
Monetary Policy: Fed cut the interest rate ? ……
• Business Cycles & Industrial Fluctuations
Fluctuations of the whole economy are sometimes
accompanied with “boom and bust “ in the Financial Market
Great Depression
Recent Crisis
Dow Jones Industrial Ave
Real GDP 2000 dollars
11,800.0
11,600.0
11,400.0
11,200.0
11,000.0
10,800.0
10,600.0
10,400.0
Real GDP 2000 dollars
S&P 500
Unemployment Rate
U.S. inflation rate
(% per year)
• Inflation
25
20
15
Prior to the Great
Depression, the
inflation rate was
fairly low.
10
5
0
-5
-10
-15
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
• Inflation
1. What do high inflation rates mean to the
public?- “The cost of inflation”
2. Inflation and Monetary Policy
German
Hyperinflation
1919-1923.
Germany, 1923: banknotes had
lost so much value that they
were used as wallpaper. Source:
wiki
U.S. unemployment rate
(% of labor force)
• Unemployment : Voluntary and Involuntary
30
25
20
15
10
5
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
Economic Growth
1.What are the factors which influence
the speed of economic growth ?
2. How to explain the “gap” between
developing countries and developed
countries?
• Among themselves,
macroeconomists often do not
have consensuses on certain
issues, even some important
issues.
• Here is an interesting example.
Crude Oil prices : Fundamentals V.S. Speculation
Debate between two
economists
• Paul Krugman : The Oil Non-bubble (May 12,
2008)
• Guillermo Calvo : Exploding commodity
prices, lax monetary policy, and
sovereign wealth funds (June 20, 2008)
• Paul Krugman: Calvo on Commodities
(June 21, 2008)