Macroeconomics is the study of the economy as a whole. It addresses many topical issues which includes growth in incomes, changes in the overall level of prices, and the unemployment rate. Macroeconomists attempt to explain the economy and to devise policies to improve its performance.
Economists use different models to examine different issues. Macroeconomic events and performance arise from many microeconomic transactions, so macroeconomics uses many of the tools of microeconomics.
Economic models are simplified versions of a more complex reality. Irrelevant details are stripped away. Example of a model is the supply and demand for new cars, the model shows how various events affect price and quantity of cars and it assumes that the market is competitive: each buyer and seller is too small to affect the market price.
No one model can address all the issues the people care about. The supply-demand model of the car market can tell how a fall in aggregate income affects price & quantity of cars. And cannot tell why aggregate income falls.
Endogenous and exogenous variables are used to show relationships between variables explain the economy’s behavior devise policies to improve economic performance.
Models with flexible prices describe the economy in the long run; models with sticky prices describe economy in the short run.
Chapter 2: The Data of Macroeconomics
Gross Domestic Product (GDP) measures both total income and total expenditure on the economy’s output of goods & services. Nominal GDP values output at current prices; real GDP values output at constant prices. Changes in output affect both measures, but changes in prices only affect nominal GDP.
GDP is the sum of consumption, investment, government purchases, and net exports. Consupmtion the value of all goods and services bought by households. It includes durable goods, nondurable goods, and services. Investment is spending on [the