Price P*
Supply
This is the most famous economic model. It describes the ubiquitous relationship between buyers and sellers in the market. The point of intersection is called an 6 equilibrium.
Chapter One
Mannig J. Simidian June 2009
3
Welcome to Macroeconomics!
Everyone has reason to think critically about macroeconomic issues. It is imperative that we seek to understand why some countries are growing faster or slower than others or why some have greater fluctuations in inflation or unemployment. The state of the macroeconomy affects everyone in many ways (especially recently). It plays a significant role in the political sphere while also affecting public policy and societal well-being, at national and global levels. Macroeconomists use variables to measure the performance of the economy such as real GDP, the inflation rate, and the unemployment rate among others. They are also concerned with matters such as monetary and fiscal policy—both of which will be discussed at length in MACROECONOMICS, 7th ed., Mankiw’s Macroeconomics Modules, and in your macroeconomics course. Good luck and have fun using these tutorials to guide you when 4 Chapter One macroeconomics might be challenging you! Enjoy!!!
Demand
Chapter One
Q * Quantity
Market clearing is an alignment process whereby decisions between suppliers and demanders reach an equilibrium. Here’s how it works. Let’s say you begin with a demand and supply curve for CDs. Remember that the demand curve slopes downward meaning that as you increase the price (by moving along the demand curve), the quantity demanded decreases. Conversely, the supply curve slopes upward implying that as the price increases (by moving along the supply curve), the amount supplied will increase. The center point A is where market D S D ´ P decisions reach an equilibrium. B Now, suppose that there is a sudden P´ A increase in the demand for CDs. P* Demand will shift from D to D´. The increase in demand places upward pressure on the price to point B since the original price, P* no longer clears 7 the Chapter One Q ´ Q* Q market. Notice the ―shortage.‖
®
CHAPTER 1 The Science of Macroeconomics
A PowerPointTutorial
To Accompany
MACROECONOMICS, 7th. Edition N. Gregory Mankiw
Tutorial written by:
Mannig J. Simidian
B.A. in Economics with Distinction, Duke University 1 Chapter One M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management
Acknowledgements
Professor Greg Mankiw is not only a prolific, talented, and ingenious economist, but humble and kind-hearted. His unique and extraordinary creative ability to impart knowledge makes him both an economist and artist. I am so honored and grateful again be a part of supplementing his unprecedented craftsmanship. My mentor, and friend for over a decade Professor Mike McElroy (North Carolina State University) was the first to see the novelty in these tutorials while I was an undergraduate student at Duke University. His contributions and influence will be a part of my work indefinitely. My gratitude is endless as well to Professors David Denslow, Mark Rush, Ed Tower, and Jeff Frankel. My love and gratitude goes to my dear friend and surrogate father Dr. Lawrence Brockman, D.M.D, an endodontist but an economist in spirit who has been my teacher, inspiration and dearest friend for over a decade. I also want to thank the following special people in my life: my mother, Jane, Michael Hill, Elle & Ava, Stephanie & Jack Taylor, Lara Kleinman & Eric Wolf, Lula Peoples, GiGi and David Greene and Michele Rubino. Thank you all for always loving me, believing in me and cheering me on!
Chapter One 5
Economists use models to understand what goes on in the economy. Here are two important points about models: endogenous variables and exogenous variables. Endogenous variables are those which the model tries to explain. Exogenous variables are those variables that a model takes as given. In short, endogenous are variables within a model, and exogenous are the variables outside the model.
Ara Vahan Simidian
(June 24, 1928 - December 19, 2008)
May he continue to enjoy learning and loving economics from heaven above.
Chapter One
Ara Vahan Simidian 2 with Mankiw’s Macroeconomics Modules author, Mannig J. Simidian, 2007.