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Summary for the course of Intermediate Macroeconomics

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Cours
Intermediate Macroeconomics

Établissement
Vrije Universiteit Brussel (VUB)

Summary was created to read it instead of the book, it covers all necessary information. Graphs, terms and concepts from the book explained.

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Quels chapitres sont résumés ? Chapters 1,2,3,4,5,6,7,8,9,12,,13,14,15,20
Publié le 2 janvier 2025
Nombre de pages 117
Écrit en 2024/2025
Type Resume

macroeconomics
unemployment
gdp
models
mundell fleming model
is lm model
growth theory
capital accumulation
open economy
closed economy
national income
policies
summary
aggregate supply and demand

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The Science of Macroeconomics

Key Insights
• Macroeconomics bridges daily experiences, political outcomes, and global policies.
• Its insights guide both policymakers and individuals in understanding economic
behavior.

Macroeconomics as an Imperfect Science
• Predicting future economic events is as challenging as predicting weather, but
macroeconomists excel in understanding how economies work.

How Economists Think
Objective Approach:
• Economists tackle politically charged topics scientifically, using data and tools.
Theories as Models:
• Models are simplified representations of reality (like toys for children), used to
understand and predict economic relationships.
Examples:
• GDP, inflation, and unemployment relationships.
• Impact of fiscal and monetary policies.

Graphs and Their Role in Understanding Data
• Economists use graphs to represent trends in GDP, unemployment, and inflation over
time.
Example:
• Fluctuating unemployment rates demonstrate the constant changes in the economy.

Economic Models: Endogenous and Exogenous Variables

• Endogenous Variables: These are the outputs of the model that it aims to
explain.
• Exogenous Variables: These are external factors taken as given and influence
the endogenous variables.

Purpose of Models:
• Models are simplified frameworks that help understand how exogenous
variables influence endogenous variables.
• They focus on key relationships, ignoring irrelevant details.

,The Supply and Demand Model
• Scenario: An economist studies factors affecting the price and quantity of pizza.
• Demand Function:

• Q^d : Quantity of pizza demanded.
• P : Price of pizza.
• Y : Aggregate income.
• Supply Function:

• Q^s : Quantity of pizza supplied.
• Pm : Prices of materials (cheese, flour, etc.).
• Equilibrium Condition:

• Assumes the price adjusts to balance supply and demand.

Supply and Demand Curve Exogenous and Endogenous Variables in the Model
Demand Curve: • Exogenous Variables:
• Downward sloping. • Aggregate income ( Y ).
• Shows that higher prices reduce • Prices of materials ( Pm ).
quantity demanded as consumers opt for • Endogenous Variables:
alternatives. • Price of pizza ( P ).
Supply Curve: • Quantity of pizza sold ( Q ).
• Upward sloping.
• Indicates that higher prices make
selling pizza more profitable, encouraging
increased production.
Market Equilibrium:
• The point where the supply and
demand curves intersect.
• Defines the equilibrium price and
quantity in the market.

, Like all models, this model of the
pizza market makes simplifying
assumptions. It assumes, for
instance, that there is a single
price for pizza. This assumption
ignores the fact that every
pizzeria is in a different location.
For the customers in any given
vicinity, one pizzeria is closer and
more convenient than the others.
As a result, pizzerias have some
ability to set their own prices,
and different pizzerias could
charge different prices for pizza,
contrary to the modelʼs
assumption of a single price.

Market clearing — assumption that markets are normally in equilibrium, so
the price of any good or service is found where the supply and demand
curves intersect.
(Long-run)
Not continuous because wages and prices are not always flexible sometimes
they are sticky
(Short-run)

Microeconomics is the study of how households and firms make decisions and how
these decisionmakers interact in the marketplace.

macroeconomic theory rests on a microeconomic foundation.

, The Data of Macroeconomics

Measuring the Value of Economic Activity: Gross Domestic Product

One way to view GDP is as the total income of everyone in the economy;
the other is as the total expenditure on the economy’s output of goods
and services.

A stock is a quantity measured at a given point in time, whereas a flow is a
quantity measured per unit of time.

A person’s wealth is a stock; his income and expenditure are flows.
The number of unemployed people is a stock; the number of people losing their jobs
is a flow.

Rules for Computing GDP

Gross domestic product (GDP) is the market value of all final goods and services
produced within an economy in a given period of time.

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Summary for the course of Intermediate Macroeconomics

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