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C H A P T E
R
The Science of
Macroeconomics
First oil
30,000
price shock
long-run upward trend…
20,000
Great
Depression Second oil
10,000
price shock
World War II
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
CHAPTER 1 The Science of Macroeconomics slide 5
U.S. inflation rate
(% per year)
25
20
15
10
-5
-10
-15
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
CHAPTER 1 The Science of Macroeconomics slide 6
U.S. unemployment rate
(% of labor force)
30
25
20
15
10
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
CHAPTER 1 The Science of Macroeconomics slide 7
Why learn macroeconomics?
1. The macroeconomy affects society’s well-being.
Each
Each one-point
one-point increase
increase in
in the
the unemployment
unemployment raterate
is
is associated
associated with:
with:
920
920 more
more suicides
suicides
650
650 more
more homicides
homicides
4000
4000 more
more people
people admitted
admitted to to state
state mental
mental
institutions
institutions
3300
3300 more
more people
people sent
sent toto state
state prisons
prisons
37,000
37,000 more
more deaths
deaths
increases
increases inin domestic
domestic violence
violence and
and homelessness
homelessness
demand equation: P
Price
Q d
= D (P ,Y ) of cars
supply equation: P
Price
Q = S (P , Ps )
s
of cars S
P
Price
of cars S
equilibrium
price
D
Q
Quantity
of cars
equilibrium
quantity
CHAPTER 1 The Science of Macroeconomics slide 17
The effects of an increase in income
demand equation: P
Q d = D (P ,Y ) Price
of cars S
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 P s
reduces the quantity of P2
cars producers supply P1
at each price…
D