Chapter 1

Introduction

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Chapter 1 Topics

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 countrys
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, 19002005

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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

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, 19472006

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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, 19602006

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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, 19482006

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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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