Macroeconomics: an Introduction
Jes´us Fern´andez-Villaverde
University of Pennsylvania
1
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Macroeconomics: an Introduction
Jes´
us Fern´
andez-Villaverde
University of Pennsylvania
1
The Scope of Macroeconomics
•^
Microeconomics: Object of interest is a single (or small number of)household or
fi rm.
•^
Macroeconomics: Object of interest is the entire economy.
We care
mostly about:1. Growth.2. Fluctuations.
2
What are the Requirements of Theory?
•^
Well articulated models with sharp predictions.
-^
Good theory cannot be vague: predictions must be falsi
fiable.
•^
Internal Consistency.
-^
Models as measurement tools. All this is Scienti
fic Discipline.
4
Why should we care about Macroeconomics?
•^
Self Interest: macroeconomic aggregates a
ffect our daily life.
•^
Cultural Literacy: understanding our world.
-^
Common Welfare: Essential for policymakers to do good policy.
-^
Civic Responsibility: Essential for us to understand our politicians.
5
A Brief Overview of the History of Macroeconomics II
-^
1972, Rational Expectations Revolution: Lucas, Prescott, Sargent.
-^
1982, Real Business Cycles: Kydland and Prescott.
-^
1990’s, Rich dynamic equilibrium models.
-^
Future?
7
Why do Macroeconomist Disagree?
•^
Most research macroeconomist agree on a wide set of issues.
-^
There is wide agreement on growth theory.
-^
There is less agreement on business cycle theory.
-^
Normative issues.
-^
Are economist ideologically biased? Caplan (2002).
8
A Guide to NIPA’s
•^
What is the goal?
-^
When did it begin? Role of Simon Kuznets:1. Nobel Prize in Economics 1971.2. Prof. at Penn during the key years of NIPA creation.
-^
Gigantic intellectual achievement.
-^
Elaborated by Bureau of Economic Analysis and published in the
Sur-
vey of Current Business
.^ http://www.bea.gov/
2
Question: How are macroeconomic aggregates measured?
3
Nominal GDP
•^
For 2003, nominal GDP was:
,^004
,^000
,^000
,^000
•^
Population, July 2003 was:
,^788
,^976
•^
Nominal GDP per capita is roughly:
,^8425
Computing GDP through Production
•^
Calculate nominal GDP by adding value of production of all industries:production surveys.
-^
Problem of double-counting: i.e. USX and GM.
-^
Value Added=Revenue
−Intermediate Goods.
•^
Nominal GDP=Sum of Value Added of all Industries.
6
Consumption (
C)
•^
Durable Goods: 3 years rule.
-^
Nondurable Goods.
-^
Services.
8
Gross Private Investment (
I)
•^
Nonresidential Fixed Investment.
-^
Residential Fixed Investment.
-^
Inventory Investment.
-^
Stocks vs. Flows.
9
Inventory Investment
•^
Why included in GDP?
-^
Inventory Investment=Stock of Inventories at end of this year
−Stock
of Inventories at the end of last year
-^
Final Sales=Nominal GDP
−Inventory Investment
11
Government Purchases (
G)
•^
Sum of federal, state, and local purchases of goods and services.
-^
Certain government outlays do not belong to government spending:transfers (SS and Interest Payments).
-^
Government Investment.
12