Macro1

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Figure 2: The real GDP per person in the U.S.
Zhao Bo (CCER, Peking University) Intermediate Macroeconomics Sept 10, 2012 10 / 15
Trend and Business Cycles
The GDP can be decomposed as trend and cycles.
Figure 3: GDP and Its Trend (blue line)
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
13 / 15
The Methodology of Macroeconomics
How to prove our economics model is correct if there is no way to perform actual experiment? "A hypothesis can be tested only by the conformity of its implications or predictions with observable phenomena" (Milton Friedman, The Methodology of Positive Economics, 1953) The Normal Steps We Take in Macroeconomics
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
6 / 15
Two Main Objectives of Macroeconomics
Growth: the increase in a nation’ s productive capacity and average standard of living that occurs over a long period of time Business Cycles: the short-run ups and downs, or booms and recessions, in aggregate economic activity
Sept 10, 2012
1 / 15
Before We Start...
Text books
Stephen Williamson, Macroeconomics, 4th (SW) Gregory Mankiw, Macroeconomics, 7th (GM)
TA: Li Chao, su27lee@ Email: zhaobo@ O¢ ce: Room 625, CCER Software you may …nd useful
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Question 1 and 2 are about the growth topic, Question 3 and 4 are related to the business cycle topic
ቤተ መጻሕፍቲ ባይዱZhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
4 / 15
What is Economics?
What is Economics? The study of the rational behavior of human beings. Like Economics, Sociology and Anthropology also study human behavior. However, Economics uses di¤erent approach, e.g., it uses survey data rather than case interview. Although Economics belongs to social science, it resembles nature science, such as Mathematics, Statistics, and Physics. Economics are based on mathematical model, which is a powerful form of reasoning.
Intermediate Macroeconomics
Chapter 1: Introduction
Zhao Bo
CCER, Peking University
Sept 10, 2012
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Intermediate Macroeconomics
Sept 10, 2012
12 / 15
The Methodology of Macroeconomics
The research methodology of Economics is close to nature science, such as physics and chemistry Similarity: we all build up models to answer questions Di¤erence: for most models in physics and chemistry, the theory can be tested through experiment. However, not all the models in Economics can be tested through social experiment. In macroeconomics, it is very costly and almost infeasible to perform experiment. Example: the usefulness of credit market and private lending
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
3 / 15
A Notice
I will be out of town during Sept 14-21. This means Class on Sept 17 and Sept 20 are cancelled. Sorry about that. I will make it up using exercise class since we only have three assignments. That should be feasible.
Intermediate Macroeconomics
Sept 10, 2012
Sept 10, 2012
9 / 15
Gross Domestic Product
Gross Domestic Product (GDP): The quantity of goods and services produced within a country’ s borders during some speci…ed period of time
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
7 / 15
The U.S. and BRICs
Figure 1: GDP Per Person in The U.S. and BRICs (2005 dollars).
Data (Motivation) Structural Model (Model Assumption) Calibrate the Model to Match the Data (Model Estimation) Predictions (Model Simulation)
Zhao Bo (CCER, Peking University)
Zhao Bo (CCER, Peking University)
Intermediate Macroeconomics
Sept 10, 2012
8 / 15
The U.S. and BRICs
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What causes sustained economic growth in some countries but not in the others? (China’ s Growth Miracle) Why some countries are much richer than the others? (There are even huge inequality within African Countries!) What causes the short-run ups and downs in GDP? (The U.S. Subprime Crisis 2007-2008) Should government act to smooth GDP growth? (New Keynesian or Neoclassical?)
Zhao Bo (CCER, Peking University)