Basics of Macroeconomics peak contraction recovery trough Dr

Basics of Macroeconomics peak contraction recovery trough Dr. Dennis Foster

Economics: A framework for understanding how we cope with scarcity. Micro – focus on individual/firm. Macro – focus on the overall economy.

Macroeconomic problems Unemployment of resources. Economic growth is slow, sluggish, negative. Rising prices; inflation.

Why is Inflation a problem? Milton Friedman … Inflation is always and everywhere a monetary phenomenon. Who controls the money supply? The Federal Reserve System (the government!)

Macroeconomic goals Full employment of resources. Sustained economic growth. Price stability. How are these goals accomplished? --through government policy.

The PPF: A Macro Model of Economy Production Possibilities Frontier Tons of Wheat [aka, The Production Possibilities Curve] A 120 B I 100 C 80 H 60 D E 40 20 F G 0 25 35 41 46 49 50 Reference: Investopedia on the PPF: http: //www. investopedia. com/terms/p/productionpossibilityfrontier. asp Gallons of Wine 1. What is the cost in going from (total and per unit): a. A to B? b. B to C? c. C to D? d. D to E? e. E to F? f. F to G? 2. What is the cost in going from (total and per unit): a. G to F? b. F to E? c. E to D? d. D to C? e. C to B? f. B to A? 3. What point is best? 4. What is wrong with H? 5. Can we produce at I? Explain. 6. Can we consume at I? Explain.

Production Possibilities Frontier What does it show us? Ø Scarcity Ø Choice Ø Unemployment Ø Economic growth What doesn’t it show us? Ø What/How/For Whom to produce Ø Inflation Ø How variables are related (theory)

Business Cycles Macro goals are interrelated: peak Change in GDP over time. contraction recovery trough time line Employment high falling low rising Prices rising falling stable Growth stable negative stable high

Business Cycles - Theories v External shocks v Population pressures [Malthus] v Innovation [Schumpeter] v Underconsumption [Marx] v Erratic anomalies [Classical] v Overproduction [Keynesian] v Central banking [Austrian]

Basics of Macroeconomics peak contraction recovery trough Dr. Dennis Foster