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Chapter 1
Introduction
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Chapter 1 Topics
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What is macroeconomics?
GDP, economic growth, business cycles.
Macroeconomic models.
Understanding recent and current
macroeconomic events.
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What is Macroeconomics?
• Models built to explain macroeconomic
phenomena.
• The important phenomena are long-run growth
and business cycles.
• Approach in this book is to build up
macroeconomic analysis from microeconomic
principles.
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Gross Domestic Product, Economic
Growth, and Business Cycles
• Gross Domestic Product (GDP): the quantity of
goods and services produced within a country’s
borders over a particular period of time.
• The time series of GDP can be separated into
trend and business cycle components
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Figure 1.1 Per Capita Real GDP (in 2000
dollars) for the United States, 1900–2005
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Figure 1.2 Natural Logarithm of
Per Capita Real GDP
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Figure 1.3 Natural Logarithm of
Per Capita Real GDP and Trend
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Figure 1.4 Percentage Deviations
from Trend in Per Capita Real GDP
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Macroeconomic Models
• A macroeconomic model captures the essential
features of the world needed to analyze a
particular macroeconomic problem.
• Macroeconomic models should be simple, but
they need not be realistic.
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Basic Structure of a Macroeconomic
Model
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Consumers and firms
The set of goods that consumers consume
Consumers’ preferences
The production technology
Resources available
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Understanding Recent and Current
Macroeconomic Events
• Aggregate productivity
• Taxes, Government Spending and the Government
Deficit
• Interest Rates
• Business Cycles in the United States
• The Current Account Surplus and the Government
Surplus
• Inflation
• Unemployment
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Figure 1.5 Natural Logarithm of
Average Labor Productivity
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Figure 1.6 Total Taxes (black line) and Total
Government Spending (colored line) in the
United States, as Percentages of GDP
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Figure 1.7 The Total Government
Surplus in the United States as a
Percentage of GDP
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Figure 1.8 The Nominal Interest Rate
and the Inflation Rate
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Figure 1.9 Real Interest Rate
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Figure 1.10 Percentage Deviation
from Trend in Real GDP, 1947–2006
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Figure 1.11 Exports and Imports of Goods
and Services for the United States as
Percentages of GDP
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Figure 1.12 The Current Account Surplus
and the Government Surplus, 1960–2006
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Figure 1.13 The Inflation Rate
and the Money Growth Rate
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Figure 1.14 The Unemployment Rate
in the United States, 1948–2006
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Figure 1.15 Deviations from Trend in the
Unemployment Rate (black line) and Percentage
Deviations from Trend in Real GDP (colored line)
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