Chapter 1: What is Macroeconomics?
1. Overview of Macroeconomics
The unemployment rate is the proportion of unemployed workers in the labour force (=
either working or actively looking for a job).
Labour and capital are the two main factors of production, or inputs.
Inflation = the rate of change of the average level of prices
Hyperinflation = inflation rate exceeds 50%
Capacity utilization = the rate of capacity utilization measures the degree to which
companies are truly employing their available plant and equipment, and it serves as a good
indicator of cyclical conditions.
The inflation rate is generally procyclical: it tends to rise in periods of high growth and
declines in periods of slow growth.
The unemployment rate is countercyclical: it moves against the cyclical behavior of output,
falling when output is growing rapidly and rising when output is growing more slowly or
falling.
Physical investment, the accumulation of productive capital by firms, is intimately related to
financial conditions. It is one channel through which financial markets affect the real
economy. The real economy is contrasted with the financial or monetary economy: the
former concerns the production and consumption of goods and services, and the incomes
associated with productive activities.
One measure of a country’s openness, is the ratio of the average of its exports and imports
to its GDP.
Globalization = process of increasing trade and trade integration in goods, services, and
financial assets over time.
2. Macroeconomics in the Long Run: Economic Growth
This trend growth (constant growth rate) in total output implies remarkable increases in
living standards.
3. Macroeconomics in the Short Run: Business Cycles
Business cycles = sustained periods (short-run fluctuations) of ups and downs.
The Burns-Mitchell diagram can help us organize our thought about the common features of
the business cycle. Identify calendar dates for cyclical turning points of output (GDP). Then,
simple numerical averages of other macroeconomic variables of interest and be calculated
around the calendar date of the output’s peak. The behavior of those variables around the
turning points of output tells us something about whether the variables tell us about future
turning points.
Look at page 14: Burns-Mitchell diagrams.
! Short-term interest rates and employment are procyclical.
1. Overview of Macroeconomics
The unemployment rate is the proportion of unemployed workers in the labour force (=
either working or actively looking for a job).
Labour and capital are the two main factors of production, or inputs.
Inflation = the rate of change of the average level of prices
Hyperinflation = inflation rate exceeds 50%
Capacity utilization = the rate of capacity utilization measures the degree to which
companies are truly employing their available plant and equipment, and it serves as a good
indicator of cyclical conditions.
The inflation rate is generally procyclical: it tends to rise in periods of high growth and
declines in periods of slow growth.
The unemployment rate is countercyclical: it moves against the cyclical behavior of output,
falling when output is growing rapidly and rising when output is growing more slowly or
falling.
Physical investment, the accumulation of productive capital by firms, is intimately related to
financial conditions. It is one channel through which financial markets affect the real
economy. The real economy is contrasted with the financial or monetary economy: the
former concerns the production and consumption of goods and services, and the incomes
associated with productive activities.
One measure of a country’s openness, is the ratio of the average of its exports and imports
to its GDP.
Globalization = process of increasing trade and trade integration in goods, services, and
financial assets over time.
2. Macroeconomics in the Long Run: Economic Growth
This trend growth (constant growth rate) in total output implies remarkable increases in
living standards.
3. Macroeconomics in the Short Run: Business Cycles
Business cycles = sustained periods (short-run fluctuations) of ups and downs.
The Burns-Mitchell diagram can help us organize our thought about the common features of
the business cycle. Identify calendar dates for cyclical turning points of output (GDP). Then,
simple numerical averages of other macroeconomic variables of interest and be calculated
around the calendar date of the output’s peak. The behavior of those variables around the
turning points of output tells us something about whether the variables tell us about future
turning points.
Look at page 14: Burns-Mitchell diagrams.
! Short-term interest rates and employment are procyclical.
