Introduce To Macroeconomics

LU 1:
INTRODUCTION TO
MACROECONOMICS
ROSSAZANA AB RAHIM
Email: arrossazana@unimas.my
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10/03/2022
RAR
2
Principles of Macroeconomics
Twelfth Edition (1 of 2)
PART I
INTRODUCTION TO
ECONOMICS
Copyright 2017
Copyright © 2017RAR
Pearson
Pearson Education,
Education, Inc.Inc. 1-3 3
Copyright
RAR
• At the end of the lecture class,

students will be able to:
1. Define the concepts of economics
LEARNING 2. Define the macroeconomics
perspectives.
OBJECTIVE 3. Discuss the elements under the
macroeconomics perspective
4. Explain the circular flow of the
economy
5
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• DEFINITION: The study of
how individuals and societies
choose to use the scarce
Definition of resources to maximize utility.
Economics • Economics is a behavioral, or
social, science.
• Economics is the study of how
people make choices.
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Why?
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8
Scarce
Unlimited resources
wants
Maximum
utility
Definition of
Economics
Economics
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Theories and •
Models
•
Theories and •
•
Models
•
Theories and •
Models •
Theories and •
Models •
POSITIVE
METHOD
OF
ECONOMICS
NORMATIVE
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• If you were the Prime Minister, would
you be more interested in your
economic advisers’ positive views or
their normative views? Why?
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Ceteris Paribus
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•
•
PART II
CONCEPTS IN
MACROECONOMICS
Copyright 2017
Copyright © 2017RAR
Pearson
Pearson Education,
Education, Inc.Inc. 1-17 17
The Scope of
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•
Economics (1 of
2)
•
TABLE 1.1 Examples of Microeconomic and Macroeconomic Concerns
Division of Production Prices Income Employment

Economics
Microeconomics Production/output Prices of Distribution of Employment by
in individual individual income and individual businesses
industries and goods and wealth Wages in and industries jobs in
businesses How medical care the auto the steel industry
much steel How Price of industry Number of
much office space gasoline Food Minimum wage employees in a firm
How many cars prices Executive Number of
Apartment salaries Poverty accountants
rents
Macroeconomics National Aggregate price National income Employment and

production/output level Consumer Total wages and unemployment in
Total industrial prices Producer salaries Total the economy Total
output Gross prices Rate of corporate profits number of jobs
domestic product inflation Unemployment rate
Growth of output
Copyright © 2017 Pearson Education, Inc. 1-19

TABLE 1.2 The Fields of Economics ( 1 of 3)
Behavioral economics Do aggregate household savings increase when

we automatically enroll people in savings
programs and let them opt out as opposed to
requiring them to sign up?
Comparative economic systems How does the resource allocation process differ
in market versus command and control
systems?
Econometrics What inferences can we make based on
conditional moment inequalities?
Economic development Does increasing employment opportunities for
girls in developing nations increase their
educational achievements?
Economic history How did the growth of railroads and
improvement in transportation more generally
change the U.S. banking systems in the
nineteenth century?

TABLE 1.2 The Fields of Economics (cont’d 2 of 3)
Environmental economics What effect would a tax on carbon have on

emissions? Is a tax better or worse than rules?
Finance Is high frequency trading socially beneficial?
Health economics Do co-pays by patients change the choice and

use of medicines by insured patients?
The history of economic thought How did Aristotle think about just prices?
Industrial organization How do we explain price wars in the airline

industry

TABLE 1.2 The Fields of Economics (cont’d 3 of 3)
International economics What are the benefits and costs of free trade?
Does concern about the environment change
our views of free trade?
Labor economics Will increasing the minimum wage decrease

employment opportunities?
Law and economics Does the current U.S. patent law increase or
decrease the rate of innovation?
Public economics Why is corruption more widespread in some

countries than in others?
Urban and regional economics Do enterprise zones improve employment

opportunities in central cities?

CHAPTER 1 APPENDIX:
How to Read and Understand Graphs
• graph A two-dimensional representation of a set of numbers
or data.
Time Series Graphs

• time series graph A graph illustrating how a variable
changes over time.
TABLE 1A.1 Total Disposable Personal
Income in the United States, 1975–2014
(in Billions of Dollars) FIGURE 1A.1 Total Disposable
Year Total Year Total Personal Income in the United States:
Disposable
Personal
Disposable
Personal
1975–2014 (in Billions of Dollars)
Income Income
1975 1,219 1995 5,533
1976 1,326 1996 5,830
1977 1,457 1997 6,149
1978 1,630 1998 6,561
1979 1,809 1999 6,876
1980 2,018 2000 7,401
1981 2,251 2001 7,752
1982 2,425 2002 8,099
1983 2,617 2003 8,466
1984 2,904 2004 9,002
1985 3,099 2005 9,401
1986 3,288 2006 10,037
1987 3,466 2007 10,507
1988 3,770 2008 10,994
1989 4,052 2009 10,943
1990 4,312 2010 11,238
1991 4,485 2011 11,801
1992 4,800 2012 12,384
1993 5,000 2013 12,508
1994 5,244 2014 12,981
Source: U.S. Department of Commerce, Bureau of Economic Analysis. Source: See Table 1A.1.

Graphing Two Variables
• X-axis The horizontal line against which a variable is

plotted.
• Y-axis The vertical line against which a variable is
plotted.
• origin The point at which the horizontal and vertical
axes intersect.
• Y-intercept The point at which a graph intersects
the
Y-axis.
• X-intercept The point at which a graph intersects
the
X-axis.
Plotting Income
and Consumption
Data for
Households
FIGURE 1A.2 Household Table 1A.2 Consumption
Consumption and Income Expenditures and Income, 2012
Average Average
Income Consumption
Before Taxes Expenditures
Bottom fifth $ 9,988 $ 22,154

2nd fifth 27,585 32,632
3rd fifth 47,265 43,004
4th fifth 75,952 59,980
Top fifth 167,010 99,368
Source: Consumer Expenditures in 2012, U.S. Bureau
of Labor Statistics.
Source: See Table 1A.2.
A graph is a simple two-dimensional geometric representation of data. The graph in Figure

1A.2 displays the data from Table 1A.2.
Along the horizontal scale (X-axis), we measure household income. Along the vertical scale
(Y-axis), we measure household consumption.
Note: At point A, consumption equals $22,154 and income equals $9,988. At point B,
consumption equals $32,632 and income equals $27,585.

Slope
• slope A measurement that indicates whether the

relationship between variables is positive or negative
and how much of a response there is in Y (the
variable on the vertical axis) when X (the variable on
the horizontal axis) changes.
∆Y Y2 − Y1
=
∆X X 2 − X 1
FIGURE 1A.3 A Curve with (a) Positive Slope and
(b) Negative Slope
A positive slope indicates that increases in X are associated with increases in Y and that decreases in X are associated with
decreases in Y.
A negative slope indicates the opposite—when X increases, Y decreases; and when X decreases, Y increases.

FIGURE 1A.4 Changing Slopes along Curves

Some Precautions
FIGURE 1A.5 National Income and Consumption Table 1A.3 Aggregate National Income and Consumption
for the United States, 1930–2014 (in Billions of Dollars)
Aggregate Aggregate
National Consumption
Income
1930 75 70
1940 78 71
1950 215 192
1960 377 332
1970 762 648
1980 2,018 1,755
1990 4,312 3,826
2000 7,401 6,792
2010 11,238 10,202
2011 11,801 10,689
2012 12,384 11,083
2013 12,505 11,484
2014 12,981 11,928
Source: See Table 1A.3. Source: U.S. Department of Commerce, Bureau of Economic Analysis.
It is important to think carefully about what is represented by points in the space defined by the axes of a graph.
In Figure 1A.5 we have graphed income with consumption, as in Figure 1A.2, but here each observation point is national
income and aggregate consumption in different years, measured in billions of dollars.
Twelfth Edition
Chapter 2
The Economic
Problem: Scarcity
and Choice
Copyright 2017 Pearson Education, Inc. 2-32

Opportunity
Scarcity Choice
ECONOMIC
Cost
PROBLEMS
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Skill
Capital
Type
Labour
Land
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Category
Input Production Output
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FIGURE 2.1 The Three Basic Questions
• Every society has some system or process that transforms its

scarce resources into useful goods and services.
• In doing so, it must decide what gets produced, how it is
produced, and to whom it is distributed.
• The primary resources that must be allocated are land, labor,
and capital.
Scarcity and Choice in an Economy
of Two or More
•
FIGURE 2.2 Comparative Advantage and the Gains from Trade
Panel (a) shows the best Colleen and

Bill can do each day, given their
talents and assuming they each wish
to consume an equal amount of food
and wood.
Notice that Colleen produces by

splitting her time equally during the
day, while Bill must devote two thirds
of his time to wood production if he
wishes to equalize his amount
produced of the two goods.
Panel (b) shows what happens when

both parties specialize. Notice that
more units of each good are
produced.

FIGURE 2.3 Production Possibilities with and without Trade
This figure shows the combinations of food and wood that Colleen and Bill can each generate
in one day of labor, working by themselves. Colleen can achieve independently any point
along line ACB, while Bill can generate any combination of food and wood along line DFE.
Specialization and trade would allow both Bill and Colleen to move to the right of their original
lines, to points like C′ and F′. In other words, specialization and trade allow both people to be
better off than they were acting alone.

The Production •
Possibility
Frontier
FIGURE 2.4 Production Possibility Frontier
• The ppf illustrates a number of economic concepts. One of the most important is
opportunity cost.
• The opportunity cost of producing more capital goods is fewer consumer goods.
• Moving from E to F, the number of capital goods increases from 550 to 800, but the
number of consumer goods decreases from 1,300 to 1,100.

The Production Possibility Frontier (3 of 7)
The Law of Increasing Opportunity Cost
FIGURE 2.5 Corn and Wheat Production in Ohio and Kansas
• The ppf illustrates that the

opportunity cost of corn production
increases as we shift resources from
wheat production to corn
production. Moving from point E to D,
we get an additional 100 million
bushels of corn at a cost of 50
million bushels of wheat.
• Moving from point B to A, we get only
50 million bushels of corn at a cost
of 100 million bushels of wheat. The
cost per bushel of corn—measured
in lost wheat—has increased.
TABLE 2.1 Production Possibility Schedule for Total Corn
and Wheat Production in Ohio and Kansas
Total
Total Corn Production (Millions Wheat Production
Point on ppf
of Bushels Per Year) (Millions of Bushels
Per Year)
A 700 100
B 650 200
C 510 380
D 400 500
E 300 550
• The ppf illustrates that the opportunity cost of corn production increases as
we shift resources from wheat production to corn production. Moving from
point E to D, we get an additional 100 million bushels of corn at a cost of 50
million bushels of wheat.
• Moving from point B to A, we get only 50 million bushels of corn at a cost of

100 million bushels of wheat. The cost per bushel of corn—measured in lost
wheat—has increased.

FIGURE 2.6 Inefficiency from Misallocation of Land in Farming
Inefficiency always results in a combination of production shown by a point inside the ppf, like point A.
Increasing efficiency will move production possibilities toward a point on the ppf, such as point B.

FIGURE 2.7 Economic Growth Shifts the PPF Up and to the Right
Productivity increases have enhanced the ability of the United States to produce both corn
and wheat.
As Table 2.2 shows, productivity increases were more dramatic for corn than for wheat.
Thus, the shifts in the ppf were not parallel.

FIGURE 2.8 Capital Goods and Growth in Poor and Rich Countries
Rich countries find it easier

than poor countries to
devote resources to the
production of capital, and
the more resources that
flow into capital production,
the faster the rate of
economic growth.
Thus, the gap between poor

and rich countries has
grown over time.

• Factors of production: the resources the economy
Factors of Production
uses to produce goods & services, including
• labor
• land
• capital (buildings & machines used in production)
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Circular Flow
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FIGURE 5.3 The Circular Flow of Payments
• Households receive income from
firms and the government,
purchase goods and services
from firms, and pay taxes to the
government. They also purchase
foreign-made goods and services
(imports).
• Firms receive payments from

households and the government
for goods and services; they pay
wages, dividends, interest, and
rents to households and taxes to
the government.
• The government receives taxes

from firms and households, pays
firms and households for goods
and services—including wages to
government workers—and pays
interest and transfers to
households.
• Finally, people in other countries

purchase goods and services
produced domestically (exports).
• Note: Although not shown in this

diagram, firms and governments
also purchase imports.

Laissez-
Faire
Command Economies
Economies
Mixed
Economies
ECONOMIC
SYSTEMS
Ideal?
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PART II
CONCEPTS AND
PROBLEMS IN
MACROECONOMICS
Copyright 2017
Copyright © 2017 Pearson
Pearson Education,
Education, Inc.Inc. 1-51
PART II CONCEPTS
AND PROBLEMS IN
MACROECONOMICS
Chapter 5
Introduction to
Macroeconomics

Macroeconomic
Balance of
Inflation Unemployment Output
payments
Concepts
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The Role of the
10/03/2022
Government in
the
Macroeconomy
• business cycle The cycle of short-term ups and downs in the
economy.
• aggregate output The total quantity of goods and services produced
in an economy in a given period.
Output Growth (1 of 2)
• recession A period during which aggregate output declines.

Conventionally, a period in which aggregate output declines for two
consecutive quarters.
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• depression A prolonged and deep recession.
• expansion or boom The period in the business cycle from a trough
up to a peak during which output and employment grow.
Output Growth (2 of 2)
• contraction, recession, or slump The period in the business cycle

from a peak down to a trough during which output and employment
fall.
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FIGURE 5.1 A Typical Business Cycle
• In this business
cycle, the
economy is
expanding as it
moves through
point A from the
trough to the
peak.
• When the
economy moves
from a peak down
to a trough,
through point B,
the economy is in
recession

Thank You.

Introduce To Macroeconomics

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Introduce To Macroeconomics

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LU 1:

• At the end of the lecture class,

Division of Production Prices Income Employment

Macroeconomics National Aggregate price National income Employment and

Copyright © 2017 Pearson Education, Inc. 1-19

Behavioral economics Do aggregate household savings increase when

Copyright © 2017 Pearson Education, Inc. 1-20

Environmental economics What effect would a tax on carbon have on

Finance Is high frequency trading socially beneficial?

Health economics Do co-pays by patients change the choice and

Industrial organization How do we explain price wars in the airline

Copyright © 2017 Pearson Education, Inc. 1-21

Labor economics Will increasing the minimum wage decrease

Public economics Why is corruption more widespread in some

Urban and regional economics Do enterprise zones improve employment

Copyright © 2017 Pearson Education, Inc. 1-22

Time Series Graphs

1975 1,219 1995 5,533

1976 1,326 1996 5,830

1977 1,457 1997 6,149

1978 1,630 1998 6,561

1979 1,809 1999 6,876

1980 2,018 2000 7,401

1981 2,251 2001 7,752

1982 2,425 2002 8,099

1983 2,617 2003 8,466

1984 2,904 2004 9,002

1985 3,099 2005 9,401

1986 3,288 2006 10,037

1987 3,466 2007 10,507

1988 3,770 2008 10,994

1989 4,052 2009 10,943

1990 4,312 2010 11,238

1991 4,485 2011 11,801

1992 4,800 2012 12,384

1993 5,000 2013 12,508

1994 5,244 2014 12,981

Copyright © 2017 Pearson Education, Inc. 1-24

• X-axis The horizontal line against which a variable is

Bottom fifth $ 9,988 $ 22,154

Source: See Table 1A.2.

A graph is a simple two-dimensional geometric representation of data. The graph in Figure

Copyright © 2017 Pearson Education, Inc. 1-27

• slope A measurement that indicates whether the

Copyright © 2017 Pearson Education, Inc. 1-29

Copyright © 2017 Pearson Education, Inc. 1-30

1950 215 192

1960 377 332

1970 762 648

1980 2,018 1,755

1990 4,312 3,826

2000 7,401 6,792

2010 11,238 10,202

2011 11,801 10,689

2012 12,384 11,083

2013 12,505 11,484

2014 12,981 11,928

Copyright 2017 Pearson Education, Inc. 2-32

Input Production Output

• Every society has some system or process that transforms its

Panel (a) shows the best Colleen and

Notice that Colleen produces by

Panel (b) shows what happens when