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MACROECONOMICS
N. Gregory Mankiw
PowerPoint ® Slides by Ron Cronovich
© 2013 Worth Publishers, all rights reserved
IN THIS CHAPTER, YOU WILL LEARN:
1
Important issues in macroeconomics
Macroeconomics, the study of the economy as
a whole, addresses many topical issues, e.g.:
What causes recessions? What is
“government stimulus” and why might it help?
How can problems in the housing market spread
to the rest of the economy?
What is the government budget deficit?
How does it affect workers, consumers,
businesses, and taxpayers?
demand equation: P
Price
Qd = D (P,Y ) of cars
supply equation: P
Price
Qs = S (P,PS ) of cars S
P
Price
of cars S
equilibrium
price
D
Q
Quantity
of cars
equilibrium
quantity
An increase in income
increases the quantity P2
of cars consumers P1
demand at each price… D2
D1
Q
…which increases Q1 Q2
Quantity
the equilibrium price of cars
and quantity.
An increase in Ps
reduces the quantity of P2
cars producers supply P1
at each price…
D
…which increases the Q
Q2 Q1
market price and Quantity
of cars
reduces the quantity.
20
The use of multiple models
No one model can address all the issues we
care about.
E.g., our supply-demand model of the car
market…
can tell us how a fall in aggregate income
affects price & quantity of cars.
cannot tell us why aggregate income falls.
27
CHAPTER SUMMARY
28