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N. Gregory Mankiw
PowerPoint Slides by Ron Cronovich
CHAPTER
SEVENTH EDITION
Why does the cost of living keep rising? Why are so many countries poor? What policies
might help them grow out of poverty?
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Social problems like homelessness, domestic violence, crime, and Property crimes (right scale) poverty are linked to the economy. For example
Unemployment (left scale)
unemployment rate
U rate
7.7%
inflation rate
5.8%
elec. outcome
Carter (D)
1980
1984 1988 1992 1996 2000
7.1%
7.5% 5.5% 7.5% 5.4% 4.0%
13.5%
4.3% 4.1% 3.0% 3.3% 3.4%
Reagan (R)
Reagan (R) Bush I (R) Clinton (D) Clinton (D) Bush II (R)
2004
2008
5.5%
7.2%
3.3%
3.8%
Bush II (R)
Obama (D)
Economic models
are simplified versions of a more complex reality irrelevant details are stripped away are used to show relationships between variables explain the economys behavior devise policies to improve economic performance
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Example of a model:
Supply & demand for new cars shows how various events affect price and
quantity of cars
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Q d = D (P,Y )
Example: variables
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Qd
= D (P,Y )
The demand curve shows the relationship between quantity demanded and price, other things equal.
D
Quantity of cars
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Qs
= S (P,PS )
The supply curve shows the relationship between quantity supplied and price, other things equal.
D
Quantity of cars
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equilibrium price
D
Quantity of cars
equilibrium quantity
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Q d = D (P,Y )
An increase in income increases the quantity of cars consumers demand at each price which increases the equilibrium price and quantity.
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Price of cars
P2 P1 D1 Q1 Q2 D2
Quantity of cars
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Q s = S (P,PS )
An increase in Ps reduces the quantity of cars producers supply at each price
Price of cars
S2 S1
P2 P1 D Q2 Q1
Quantity of cars
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Y , Ps
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phones.
3. Use your graph to show how a change in
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For each new model, you should keep track of its assumptions which variables are endogenous,
which are exogenous the questions it can help us understand, those it cannot
The Science of Macroeconomics
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Chapter Summary
Macroeconomics is the study of the economy
as a whole, including growth in incomes changes in the overall level of prices the unemployment rate
Chapter Summary
Economists use different models to examine
different issues.