Lecture: August 31: Thinking Like a Macroeconomist
Lecture: August 31: Thinking Like a Macroeconomist
U.C. Berkeley Economics 101b, Fall 2005
Macroeconomics and Microeconomics: Similarities
- Retains focus on incentives and opportunity cost
- Retains focus on aggregating up behavior
- Retains focus on equilibrium conditions
Macroeconomics and Microeconomics: Differences
- Ruthless simplification: representative agents
- Focus on general equilibrium: this is a system, not a market
- Differences in equilibrium conditions: balanced growth, quantity adjustment
Six Key Macroeconomic Variables
- Real GDP (also per capita for living standards, and per worker for productivity)
- The unemployment rate
- The inflation rate
- The real interest rate (term structure)
- The real value of the stock market
- The real exchange rate
Uncle Simon Kuznet and the Creation of the National Income and Product Accounts
The Circular Flow of Economic Activity
- The flow of spending power
- The flow of goods produced
- The flow of incomes
- All of these should add up to the same thing--a system with checks and balances
