Macroeconomics
Notes
PART
I
Chapter
1
-
Introduction
●
Macr oeconomics
looks
at
issues
that
affect
the
economy
of
an
entire
country
or
even
the
entire
planet
●
The
macroeconomy
of
a
country
includes
all
the
different
individual
markets
we
studies
in
microeconomics
●
Macroeconomics
is
built
out
of
microeconomics
●
Macroeconomists
strive
to
understand
how
people
can
be
optimizing
and
still
get
into
trouble
●
Macroeconomics
has
two
big
goals:
○
Increase
living
standards
in
the
long
run
○
Understand
booms
and
busts
●
The
idea
that
the
macroeconomy
is
like
a
well-organized
game
is
called
the
classical
view
○
Proposed
by
Adam
Smith
●
Most
economists
can
agree
that
Smith’s
classical
view
makes
a
lot
of
sense
in
the
long
run
●
While
the
classical
view
explains
long
run
growth
quite
well,
it
fails
to
explain
these
short-run
business
cycle
fluctuations
●
John
Marnard
Keynes
said,
“in
the
long
run,
we
are
all
dead”
●
The
idea
that
government
action
can
prompt
short-run
stability
is
called
the
keynesian
view
●
Writing
in
1931,
Keynes
envisioned
a
time
when
government
economist
could
simply
and
easily
fine-tune
the
economy
●
Unfortunately ,
trying
to
explain
the
up
and
downs
of
the
business
cycle,
much
less
fix
them
has
turned
out
to
be
very
hard Chapter
2
-
Unemployment
●
The
best
way
to
understand
the
keynesian
view
of
the
economy
is
to
look
at
the
labor
market
●
In
the
short
run,
messed-up
economies
can
leave
lots
of
people
out
of
work
●
During
the
great
depression,
the
unemployment
rate
peaked
in
1933
at
25%
●
The
great
recession
that
started
during
december
2007
featured
an
extended
period
of
unemployment,
peaking
in
2009
at
10%
●
Looking
at
the
labor
market
is
the
best
way
to
understand
the
classical
view
of
the
economy
●
In
the
long-run,
despite
massive
changes
in
the
labor
market
over
the
past
two
centuries,
like
population
growth,
globalization,
technological
change,
and
the
entry
of
women
into
the
labor
force,
free-market
economies
have
continued
to
create
more
jobs
for
pretty
much
everybody
●
Over
time,
work
disappears
from
some
parts
of
a
free
market
economy
but
reappears
elsewhere
○
Joseph
Shcumpeter
called
this
process
creative
destruction
●
There
is
no
guarantee
that
free-market
economies
will
always
●
do
so
well
at
creating
jobs
for
everyone,
built
so
far
the
track
record
of
free
markets
has
been
remarkable
●
When
it
comes
to
the
labor
market
challenge
is
to
reconcile
the
classical
and
the
keynesian
views
○
To
do
this,
it
helps
to
have
a
good
definition
of
“unemployment”
●
According
to
economists,
you’re
only
unemployed
if
you’re
actively
looking
for
a
paying
job
and
can’t
find
one
●
The
three
types
of
unemployment:
○
Frictional
:
Unavoidable
short-term
unemployment
caused
by
changes
in
the
economy
and
people’s
lives
○
Structural
:
Long-term
unemployment
that
results
when
the
balance
of
supply
and
demand
breaks
down
○
Cyclical
:
Short-term
fluctuations
around
the
natural
rate
caused
by
the
ups
and
down
of
the
business
cycle
Notes
PART
I
Chapter
1
-
Introduction
●
Macr oeconomics
looks
at
issues
that
affect
the
economy
of
an
entire
country
or
even
the
entire
planet
●
The
macroeconomy
of
a
country
includes
all
the
different
individual
markets
we
studies
in
microeconomics
●
Macroeconomics
is
built
out
of
microeconomics
●
Macroeconomists
strive
to
understand
how
people
can
be
optimizing
and
still
get
into
trouble
●
Macroeconomics
has
two
big
goals:
○
Increase
living
standards
in
the
long
run
○
Understand
booms
and
busts
●
The
idea
that
the
macroeconomy
is
like
a
well-organized
game
is
called
the
classical
view
○
Proposed
by
Adam
Smith
●
Most
economists
can
agree
that
Smith’s
classical
view
makes
a
lot
of
sense
in
the
long
run
●
While
the
classical
view
explains
long
run
growth
quite
well,
it
fails
to
explain
these
short-run
business
cycle
fluctuations
●
John
Marnard
Keynes
said,
“in
the
long
run,
we
are
all
dead”
●
The
idea
that
government
action
can
prompt
short-run
stability
is
called
the
keynesian
view
●
Writing
in
1931,
Keynes
envisioned
a
time
when
government
economist
could
simply
and
easily
fine-tune
the
economy
●
Unfortunately ,
trying
to
explain
the
up
and
downs
of
the
business
cycle,
much
less
fix
them
has
turned
out
to
be
very
hard Chapter
2
-
Unemployment
●
The
best
way
to
understand
the
keynesian
view
of
the
economy
is
to
look
at
the
labor
market
●
In
the
short
run,
messed-up
economies
can
leave
lots
of
people
out
of
work
●
During
the
great
depression,
the
unemployment
rate
peaked
in
1933
at
25%
●
The
great
recession
that
started
during
december
2007
featured
an
extended
period
of
unemployment,
peaking
in
2009
at
10%
●
Looking
at
the
labor
market
is
the
best
way
to
understand
the
classical
view
of
the
economy
●
In
the
long-run,
despite
massive
changes
in
the
labor
market
over
the
past
two
centuries,
like
population
growth,
globalization,
technological
change,
and
the
entry
of
women
into
the
labor
force,
free-market
economies
have
continued
to
create
more
jobs
for
pretty
much
everybody
●
Over
time,
work
disappears
from
some
parts
of
a
free
market
economy
but
reappears
elsewhere
○
Joseph
Shcumpeter
called
this
process
creative
destruction
●
There
is
no
guarantee
that
free-market
economies
will
always
●
do
so
well
at
creating
jobs
for
everyone,
built
so
far
the
track
record
of
free
markets
has
been
remarkable
●
When
it
comes
to
the
labor
market
challenge
is
to
reconcile
the
classical
and
the
keynesian
views
○
To
do
this,
it
helps
to
have
a
good
definition
of
“unemployment”
●
According
to
economists,
you’re
only
unemployed
if
you’re
actively
looking
for
a
paying
job
and
can’t
find
one
●
The
three
types
of
unemployment:
○
Frictional
:
Unavoidable
short-term
unemployment
caused
by
changes
in
the
economy
and
people’s
lives
○
Structural
:
Long-term
unemployment
that
results
when
the
balance
of
supply
and
demand
breaks
down
○
Cyclical
:
Short-term
fluctuations
around
the
natural
rate
caused
by
the
ups
and
down
of
the
business
cycle
