Class notes
macroeconomics
- Course
- Eco1300 (ECO1300)
- Institution
- Université Du Québec à Montréal (UQAM )
course on macroeconomics
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Topic: macro economicsMacroeconomics (from the Greek prefix makro- meaning "large" + economics) is a
branch of economics dealing with performance, structure, behavior, and decision-making
of an economy as a whole.
For example, using interest rates, taxes, and government spending to regulate an
economy’s growth and stability.
This includes regional, national, and global economies. According to a 2018 assessment
by economists Emi Nakamura and Jón Steinsson, economic "evidence regarding the
consequences of different macroeconomic policies is still highly imperfect and open to
serious criticism."Macroeconomists study topics such as GDP (Gross Domestic Product),
unemployment (including unemployment rates), national income, price indices, output,
consumption, inflation, saving, investment, energy, international trade, and international
finance.
Macroeconomics and microeconomics are the two most general fields in economics. The
United Nations Sustainable Development Goal 17 has a target to enhance global
macroeconomic stability through policy coordination and coherence as part of the 2030
Agenda.
Development
Origins
Macroeconomics descended from the once divided fields of business cycle theory and
monetary theory. The quantity theory of money was particularly influential prior to
World War II. It took many forms, including the version based on the work of Irving
Fisher:
M
⋅
V
, P
⋅
Q
{\displaystyle M\cdot V=P\cdot Q}
In the typical view of the quantity theory, money velocity (V) and the quantity of goods
produced (Q) would be constant, so any increase in money supply (M) would lead to a
direct increase in price level (P). The quantity theory of money was a central part of the
classical theory of the economy that prevailed in the early twentieth century.
Austrian School
Ludwig Von Mises's work Theory of Money and Credit, published in 1912, was one of
the first books from the Austrian School to deal with macroeconomic topics.
Keynes and his followers
Macroeconomics, at least in its modern form, began with the publication of General
Theory of Employment, Interest and Money written by John Maynard Keynes. When the
Great Depression struck, classical economists had difficulty explaining how goods could
go unsold and workers could be left unemployed. In classical theory, prices and wages
would drop until the market cleared, and all goods and labor were sold. Keynes offered a
new theory of economics that explained why markets might not clear, which would
evolve (later in the 20th century) into a group of macroeconomic schools of thought
known as Keynesian economics – also called Keynesianism or Keynesian theory.
In Keynes' theory, the quantity theory broke down because people and businesses tend to
hold on to their cash in tough economic times – a phenomenon he described in terms of
liquidity preferences. Keynes also explained how the multiplier effect would magnify a
small decrease in consumption or investment and cause declines throughout the economy.
Keynes also noted the role uncertainty and animal spirits can play in the economy.The
generation following Keynes combined the macroeconomics of the General Theory with
neoclassical microeconomics to create the neoclassical synthesis. By the 1950s, most
economists had accepted the synthesis view of the macroeconomy. Economists like Paul
Samuelson, Franco Modigliani, James Tobin, and Robert Solow developed formal
Keynesian models and contributed formal theories of consumption, investment, and
money demand that fleshed out the Keynesian framework.
Monetarism
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