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1、1 2012 Pearson Education, Inc. Publishing as Prentice Hall Chapter 1 The Long and Short of Macroeconomics Brief Chapter Summary 1.1 What Macroeconomics Is About (pages 211) Learning Objective 1 Become familiar with the focus of macroeconomics. In the short runa period of a few yearsthe focus of macr
2、oeconomic analysis is the business cycle. In the long run, the focus of macroeconomics is economic growth, which is the process by which rising productivity raises the average standard of living. 1.2 How Economists Think about Macroeconomics (pages 1116) Learning Objective 2 Explain how economists a
3、pproach macroeconomic questions. Economists study economic problems systematically by gathering data relevant to a problem and building a model capable of solving the problem. Economics uses positive analysis, which measures the costs and benefits of different courses of action, to analyze economic
4、problems. 1.3 Key Issues and Questions of Macroeconomics (pages 1617) Learning Objective 3 Become familiar with key macroeconomic issues and questions. Beginning with Chapter 2, the textbook highlights one key issue and question and uses concepts introduced in the chapter to answer the question. Lis
5、t of Key Terms Business cycle , p. 2. Alternating periods of economic expansion and economic recession. Deflation, p. 7. A sustained decrease in the price level. Endogenous variable , p. 14. A variable that is explained by an economic model. Exogenous variable , p. 14. A variable that is taken as gi
6、ven and is not explained by an economic model. Fiscal policy , p. 9. Changes in government taxes and purchases that are intended to achieve macroeconomic policy objectives. Inflation rate , p. 7. The percentage increase in the price level from one year to the next. Labor force , p. 6. The sum of emp
7、loyed and unemployed workers in the economy. 2 Hubbard, OBrien, and Rafferty | Macroeconomics 2012 Pearson Education, Inc. Publishing as Prentice Hall Labor productivity , p. 2. The quantity of goods and services that can be produced by one worker or by one hour of work. Long-run economic growth, p.
8、 2. The process by which increasing productivity raises the average standard of living. Macroeconomics, p. 2. The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. Microeconomics, p. 2. The study of how households and firms make choices, how they
9、 interact in markets, and how the government attempts to influence their choices. Monetary policy , p. 9. The actions that central banks take to manage the money supply and interest rates to pursue macroeconomic policy objectives. Normative analysis , p. 14. Analysis concerned with what ought to be.
10、 Positive analysis , p. 14. Analysis concerned with what is. Real gross domestic product (GDP), p. 4. The value of final goods and services, adjusted for changes in the price level. Unemployment rate , p. 6. The percentage of the labor force that is unemployed. Chapter Outline WHEN YOU ENTER THE JOB
11、 MARKET CAN MATTER A LOT In 2005, the U.S. economy was expanding. Sales of houses and cars were strong and unemployment was low. Therefore, it was a good time to enter the job market. However, 2008 was not a good time to enter the job market. Unemployment was higher than it had been in 25 years, and
12、 sales of houses and cars were at depressed levels. Research shows that college students who graduate during a recession have to search longer to find a job and accept jobs that pay less than the jobs accepted by students who graduate during expansions. Students who graduate during recessions will c
13、ontinue to earn less for 8 to 10 years after they graduate. Starting a business is also easier during an expansion than during a recession. Teaching Tips Subsequent chapters in the book have “chapter openers” similar to the passage that begins Chapter 1. Beginning with Chapter 2, the chapter opener
14、will end with a key issue and related question. Concepts introduced in the chapter will be used to answer the question at the end of the chapter. Each chapter ends with a feature called An Inside Look. This feature analyzes a news article on a macroeconomic topic, often a policy issue, related to th
15、e subject matter covered in the chapter. An Inside Look for Chapter 1 discusses whether a surge in consumer spending at the end of 2010 was a sign of an expansion of the U.S. economy. CHAPTER 1 | The Long and Short of Macroeconomics 3 2012 Pearson Education, Inc. Publishing as Prentice Hall 1.1 What
16、 Macroeconomics Is About (pages 211) Learning Objective: Become familiar with the focus of macroeconomics. Economics it traditionally divided into the study of microeconomics and macroeconomics. Macroeconomics is the study of the economy as a whole. Microeconomics is the study of how households and
17、firms make choices, how they interact in markets, and how the government attempts to influence their choices. Macroeconomics is the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. A. Macroeconomics in the Short Run and in the Long Run In the sh
18、ort run, macroeconomic analysis focuses on the business cycle, which refers to the alternating periods of economic expansion and economic recession experienced by the United States and other economies. For the long run, the focus of macroeconomics is on long-run economic growth, which is the process
19、 by which rising productivity raises the average standard of living. Increasing production faster than population growth increases the standard of living. Achieving this is possible only through increases in labor productivity. Labor productivity is the quantity of goods and services that can be pro
20、duced by one worker or by one worker hour. B. Long-Run Growth in the United States Changes in living standards depend on the rate of long-run economic growth. Real gross domestic production (GDP) , which is the value of final goods and services adjusted for changes in the price level, provides a mea
21、sure of the total level of income in the economy. The best measure of the standard of living is real GDP per capita. Real GDP per capita fluctuates in the short run, but we focus on the upward trend in real GDP per capita when discussing long-run economic growth. C. Some Countries Have Not Experienc
22、ed Significant Long-Run Growth Because countries have experienced different rates of economic growth, their current levels of GDP per capita are also very different. Though the gap between the GDP per capita of the United States and the GDP per capita of other high-income countries is relatively sma
23、ll, the gap between high-income countries and low-income countries is large. D. Aging Populations Pose a Challenge to Governments Around the World Some economists fear that aging populations may pose a threat to long-run economic growth. As populations age, fewer workers are paying taxes relative to
24、 the number of retired people who receive government payments. This may force governments to reduce payments to retired workers, reduce expenditures on other programs, or raise taxes on current workers. E. Unemployment in the United States There has been a tremendous increase in the standard of livi
25、ng of the average American since 1900, but GDP per capita did not increase in every year. The key macroeconomic issue of the short run is the business cycle. Most people experience the business cycle in the job market. The labor force is the sum of employed and unemployed workers in the economy, 4 H
26、ubbard, OBrien, and Rafferty | Macroeconomics 2012 Pearson Education, Inc. Publishing as Prentice Hall and the unemployment rate is the percentage of the labor force that is unemployed. The unemployment rate in the United States has risen and fallen with the business cycle. Following the end of the
27、severe 19811982 recession, the United States entered into a period of mild business cycles that some economists call “the Great Moderation.” F. How Unemployment Rates Differ Across Developed Countries Unemployment rates have been persistently higher in some countries than others for reasons not conn
28、ected to the business cycle. Economists have not reached a consensus on which labor-market policies are most important in explaining these differences. G. Inflation Rates Fluctuate Over Time and Across Countries Just as the unemployment rate varies over time and differs between countries, so does th
29、e inflation rate. The inflation rate is the percentage increase in the price level from one year to the next. Data going back to 1775 show that in the United States, except for the late 1970s and early 1980s, most periods of very high inflation have occurred during times of war; periods of deflation
30、a sustained decrease in the price level were relatively common during the countrys history, but occurred in 2009 for the first time in more than 50 years; the inflation rate during the past 25 years has generally been below 5%. The inflation rate in other countries over the past 25 years has been di
31、fferent from that of the United States. Some countries experienced mild deflation or inflation, but other countries experienced significantly higher inflation rates. H. Economic Policy Can Help Stabilize the Economy A basic measure of economic stability is how much real GDP fluctuates from one year
32、to the next. During the past 50 years, the U.S. economy has not experienced anything similar to the fluctuations in real GDP that occurred during the 1930s. From 1950 to 2009, the U.S. economy experienced long business-cycle expansions, interrupted by brief recessions. Most economists believe that m
33、ost high-income countries became more stable after 1950 because of their monetary and fiscal policies. Monetary policy refers to the actions that central banks (the Federal Reserve in the United States) take to manage the money supply and interest rates to pursue macroeconomic policy objectives. Fis
34、cal policy refers to changes in government taxes and purchases that are intended to achieve macroeconomic policy objectives. I. International Factors Have Become Increasingly Important in Explaining Macroeconomic Events Economists measure the “openness” of an economy in terms of how much it trades w
35、ith other countries. Though the imports and exports of the United States as a percentage of GDP have grown over time, a number of other developed countries have economies that are significantly more open than the United States. As markets in goods and services have become more open to international
36、trade, so have the financial markets that help match savers and investors around the world. The financial crisis of 20072009 resulted in a sharp decline in foreign purchases of corporate bonds, a small decline in foreign purchases of stock, but an increase in foreign purchases of bonds issued by the
37、 federal government. The increased openness of the United States and other economies has raised incomes and improved economic efficiency around the world. But increased openness also means that CHAPTER 1 | The Long and Short of Macroeconomics 5 2012 Pearson Education, Inc. Publishing as Prentice Hal
38、l macroeconomic problems in one country can have consequences for other economies. Openness can also complicate the attempts of policy makers to stabilize the economy. Teaching Tips Section 1.1 includes several figures, most of which students should be able to understand after having taken principle
39、s of economics courses. Instructors may want to spend some classroom time discussing the note to Figure 1.1 on page 4, which points out that the values in the graph are plotted on a logarithmic scale. 1.2 How Economists Think About Macroeconomics (pages 1116) Learning Objective: Explain how economis
40、ts approach macroeconomic questions. A. What Is the Best Way to Analyze Macroeconomic Issues? Economists study economic problems systematically by gathering data relevant to the problem and then building a model capable of analyzing the data. B. Macroeconomic Models Economic models are simplified ve
41、rsions of reality. To develop a model, economists generally follow these steps: Decide on the assumptions to be used in developing the model. Decide which endogenous variables will be explained by the model and which exogenous variables will be taken as given. Formulate a testable hypothesis. Use ec
42、onomic data to test the hypothesis. Revise the model if it fails to explain the data well. Retain the revised model to help answer similar economic questions in the future. C. Assumptions, Endogenous Variables, and Exogenous Variables in Economic Models Models have to be simplified to be useful. Som
43、e economic models make behavioral assumptions about the motives of consumers and firms. These assumptions are simplifications because they do not describe the motives of every consumer and every firm. Economists refer to a variable that is taken as given and is not explained by an economic model as
44、an exogenous variable. A variable that is explained by an economic model is an endogenous variable. D. Forming and Testing Hypotheses in Economic Models A hypothesis is a statement that may be either correct or incorrect about an economic variable. To test a hypothesis, we need to analyze statistics
45、 on the relevant economic variables. Hypotheses must be statements that could turn out to be incorrect. Economists accept an economic model if it leads to hypotheses that are confirmed by statistical analysis. The acceptance is tentative, pending the gathering of new data or further statistical anal
46、ysis. We need to bear in mind the distinction between positive analysis, which is concerned with 6 Hubbard, OBrien, and Rafferty | Macroeconomics 2012 Pearson Education, Inc. Publishing as Prentice Hall what is, and normative analysis, which is concerned with what ought to be. Economics is about pos
47、itive analysis, which measures the costs and benefits of different courses of action. Teaching Tips This section includes a Solved Problem . Other Solved Problems appear throughout the book. Each Solved Problem uses a step-by-step process of solving an economic problem related to a chapter learning
48、objective. Solved Problem 1.2 uses a question (“Do Rising Imports Lead to a Permanent Reduction in U.S. Employment?”) to show students how economists evaluate explanations of macroeconomic events. Another featureMaking the Connectionalso appears in this section. Making the Connection features discus
49、s news stories related to the chapter learning objectives. Making the Connection in this section refers to a study that examines impact of education and intellectual ability on economic understanding. 1.3 Key Issues and Questions of Macroeconomics (pages 1617) Learning Objective: Become familiar wit
50、h key macroeconomic issues and questions. The text discusses a number of important issues and questions. Beginning with Chapter 2, one key issue and one key question will be highlighted at the start of each chapter. Each chapter will end by using the concepts introduced in the chapter to answer the
51、question. Teaching Tips The final section of Chapter 1 provides an introduction to the key issues and questions that are raised in the other chapters of the book. This issue-question framework provides a roadmap for the rest of the book. Chapter 2: Measuring the Macroeconomy Issue: The unemployment
52、rate can rise even though a recession has ended. Question: How accurately does the government measure the unemployment rate? Chapter 3: The Financial System Issue: The financial system moves funds from savers to borrowers, which promotes investment and the accumulation of capital goods. Question: Wh
53、y did the bursting of the housing bubble beginning in 2006 cause the financial system to falter? Chapter 4: Determining Aggregate Production Issue: Real GDP has increased substantially over time in the United States and other developed countries. Question: What are the main factors that determine th
54、e growth rate of real GDP? Chapter 5: Long-Run Economic Growth Issue: Some countries have experienced rapid rates of long-run economic growth while other countries have grown slowly, if at all. CHAPTER 1 | The Long and Short of Macroeconomics 7 2012 Pearson Education, Inc. Publishing as Prentice Hal
55、l Question: Why isnt the whole world rich? Chapter 6: Money and Inflation Issue: The Federal Reserves actions during the financial crisis of 20072009 led some economists and policy makers to worry that the inflation rate in the United States would be increasing. Question: What is the connection betw
56、een changes in the money supply and the inflation rate? Chapter 7: The Labor Market Issue: The unemployment rate in the United States remained about 9% for more than 20 months after the end of the 20072009 recession. Question: Should policy makers strive for an unemployment rate of zero? Chapter 8:
57、Business Cycles Issue: Economies around the world experience a business cycle. Question: Why does the business cycle occur? Chapter 9: IS-MP: A Short-Run Macroeconomic Model Issue: The recession of 20072009 was the worst since the Great Depression of the 1930s. Question: What explains the severity o
58、f the 20072009 recession? Chapter 10: Monetary Policy in the Short Run Issue: The Federal Reserve undertook unprecedented policy actions in response to the recession of 20072009. Question: Why were traditional Federal Reserve policies ineffective during the 20072009 recession? Chapter 11: Fiscal Pol
59、icy in the Short Run Issue: During the 20072009 recession, Congress and the president undertook unprecedented fiscal policy actions. Question: Was the American Recovery and Reinvestment Act of 2009 successful in increasing real GDP and employment? Chapter 12: Aggregate Demand, Aggregate Supply, and
60、Monetary Policy Issue: Between the early 1980s and 2007, the U.S. economy experienced a period of macroeconomic stability known as the Great Moderation. Question: Did discretionary monetary policy kill the Great Moderation? Chapter 13: Fiscal Policy and the Government Budget in the Long Run Issue: I
61、n 2011, the federal governments budget deficit and the national debt were on course to rise to unsustainable levels. Question: How should the United States solve its long-run fiscal problem? Chapter 14: Consumption and Investment Issue: Households and firms make decisions about how much to consume a
62、nd invest based on expectations about the future. Question: How does government tax policy affect the decisions of households and firms? Chapter 15: The Balance of Payments, Exchange Rates, and Macroeconomic Policy 8 Hubbard, OBrien, and Rafferty | Macroeconomics 2012 Pearson Education, Inc. Publish
63、ing as Prentice Hall Issue: Some governments allow the value of their currency to fluctuate in foreign-exchange markets, while other governments fix the value of their currency. Question: How does the choice of exchange-rate system affect monetary policy and fiscal policy? Solutions to the End-of-Ch
64、apter Questions and Problems Answers to Thinking Critically questions that accompany the An Inside Look newspaper feature. 1. The statement should not be considered a hypothesis. A hypothesis is usually about a causal relationship, for instance that the increase in the personal saving rate is a caus
65、e of the decrease in consumer spending. Hypotheses are statements that could turn out to be incorrect. The statements that the decrease in consumer spending is bad for the economy and the increase in the personal saving rate benefits the economy are normative statements, or value judgments, rather t
66、han hypotheses because it is not possible to disprove them. 2. Exogenous variables are those taken as given. In this case, the tightening credit markets would be the exogenous variable, because the model is not being developed to try to explain this event. Endogenous variables are explained by econo
67、mic models, so the increase in personal saving would be the endogenous variable because this is what the model is trying to explain. 1.1 What Macroeconomics Is About Learning Objective: Become familiar with the focus of macroeconomics. Review Questions 1.1 Long-run economic growth is the process tha
68、t raises living standards over the decades. It is measured by increases in real GDP per capita over long periods of time, generally decades or more. Not all countries have experienced the same amount of economic growth; countries like the United States and Japan have grown far more rapidly than coun
69、tries like Uganda and Burundi. 1.2 A business cycle consists of alternating periods of economic expansion and economic contraction. The unemployment rate is the percentage of the labor force that is unemployed. The unemployment rate in the United States has usually been around 4 to 6% but was sharpl
70、y higher during the Great Depression and climbed during the 20072009 recession. Unemployment rates in developed countries vary considerably, from a low of 3.5% in the Netherlands to a high of 11.4% in Spain. 1.3 The inflation rate during the past 40 years has generally been below 5%. Most of the per
71、iods of very high inflation have occurred during times of war. An important exception to this is the high levels of inflation in the late 1970s and early 1980s. Periods of deflation were relatively common during most of U.S. history but had not occurred during the past 50 CHAPTER 1 | The Long and Sh
72、ort of Macroeconomics 9 2012 Pearson Education, Inc. Publishing as Prentice Hall years until the price level fell during 2009, reflecting the severity of the 20072009 recession. 1.4 Rapidly aging populations are causing spending on Social Security and Medicare to rise, which is placing increasing st
73、rain on the budgets of high-income countries. 1.5 Before 1950, the severity of the business cycle was much greater. The period since then has been characterized by much greater stability. The 19842007 period, which was particularly stable, is known as the Great Moderation. 1.6 Monetary policy refers
74、 to the actions the Federal Reserve takes to manage the money supply and interest rates to pursue macroeconomic policy objectives. Fiscal policy refers to changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. They are different in both the agencies cond
75、ucting the policies and in the tools used. 1.7 One way in which economists measure the “openness” of an economy is in terms of how much trade there is with other economies. As a percentage of GDP, trade is less important to the United States than to some other economies, although it is still a signi
76、ficant and important part of the economy. Problems and Applications 1.8 a. and b. Because China is growing faster than the United States, the difference between the U.S. level of income and the Chinese level of income is narrowing. Because these African countries are growing more slowly than the Uni
77、ted States, the difference between the level of income in the United States and the level of income in these African countries is widening. c. In order to catch up, the low-income countries must grow more rapidly than the high-income countries. 1.9 Uncertain. The degree of openness is measured (in t
78、his way) using the size of imports and exports relative to GDP. This data appears in Figure 1.9 in the text. In fact, while the U.S. volume of imports and exports is higher than Belgiums, Belgium has significantly more trade as a percentage of GDP. 1.10 Uncertain. GDP growth could be expected to fal
79、l or the rate of population growth could be expected to increase faster than the rate of GDP growth. Also note that the survey was taken during the slow recovery from the 20072009 recession and, as the Making the Connection on page 15 indicates, during recessions the general public tends to be more
80、pessimistic about future economic conditions than are economists. 1.11 The programs in a. and d. are monetary policies (performed by the Fed). The programs in (b) and (c) are fiscal policies (performed by other parts of the government). 1.12 Graduating during a recession means that it may take worke
81、rs longer to find a job, workers may start at lower wages, and workers may have less opportunity to accumulate human capital, which will impact wages and career long after the recession has ended. 10 Hubbard, OBrien, and Rafferty | Macroeconomics 2012 Pearson Education, Inc. Publishing as Prentice H
82、all 1.2 How Economists Think About Macroeconomics Learning Objective: Explain how economists approach macroeconomic questions. Review Questions 2.1 Economists rely on economic theories, or models, to analyze real-world issues. Models provide a simplified view of the real world, which is useful for f
83、ocusing on specific economic relationships, and models can be used to test hypotheses. 2.2 1. Decide on the assumptions to be used in developing the model, and decide which endogenous variables will be explained by the model and which exogenous variables will be taken as given. 2. Formulate a testab
84、le hypothesis. 3. Use economic data to test the hypothesis. 4. Revise the model if it fails to explain well the economic data. 5. Retain the revised model to help answer similar economic questions in the future. 2.3 The value of an endogenous variable is determined within the model. The value of an
85、exogenous variable is determined outside the model. 2.4 Because, in general, it is not possible to prove that a hypothesis is true; it is only possible to prove that a hypothesis is not false. 2.5 Normative analysis is concerned with what ought to be; positive analysis is concerned with what is. Eco
86、nomics is concerned primarily with positive analysis. Problems and Applications 2.6 One method would be to collect data on the U.S. labor force and on jobs that have migrated both in and out of the United States in the relevant time period. However, it might be difficult to identify which jobs are a
87、ctually outsourced versus simply lost or changed in job description. 2.7 Statements (a), (c), and (e) are positive statements that could be tested directly. Statements (b) and (d) are normative statements that involve value judgments and thus cannot be tested in an objective way. 2.8 a. Investment,
88、exogenous; GDP, endogenous. b. Sunshine, exogenous; growth, endogenous. c. Studying, exogenous; GPA, endogenous. 2.9 False or uncertain. Although economic models are simplified, as long as the assumptions are correct or sufficiently representative of reality, they can still be used well to explain c
89、omplex events in the real world. CHAPTER 1 | The Long and Short of Macroeconomics 11 2012 Pearson Education, Inc. Publishing as Prentice Hall 2.10 Answers may vary, but one reason is that economists are trained to evaluate claims using positive statements rather than normative statements, which may lead to different conclusions. Also, economists are trained to understand how the economy works, where the general public is not.
