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Macroeconomics chapter 6 notes

by: Lexi Lambrinides

Macroeconomics chapter 6 notes ECO 2013

Marketplace > Economcs > ECO 2013 > Macroeconomics chapter 6 notes
Lexi Lambrinides

Professor Gummerson

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Professor Gummerson
One Day of Notes
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This 4 page One Day of Notes was uploaded by Lexi Lambrinides on Tuesday January 20, 2015. The One Day of Notes belongs to ECO 2013 at a university taught by Professor Gummerson in Fall. Since its upload, it has received 23 views.


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Date Created: 01/20/15
Macroeconomics January 13 2015 Chapter 6 Macroeconomics the big picture Microeconomics focuses on how decisions are made by individuals and rms and the consequences of those decisions Macroeconomics examines the aggregate behavior of the economy how the actions of all the individuals and rms in the economy interact to produce a particular level of economic performance as a whole In macroeconomics the behavior of the whole macroeconomy is indeed different than the sum of individual actions and market outcomes Example Paradox ofthrift when families and businesses are worried about the possibility of economic hard times they prepare by cutting their spending This reduction in spending depresses the economy as consumers spend less and businesses react by laying off workers As a result families and businesses may end up worse off than if they hadn t tried to act responsible by cutting their spending Suffer through a recession because people believe that there will be a recession In fact incomes may fall enough to reduce what the private sector can save Happened during 2008 Economy goes in to a real dive Fear of recession helps in come along Another example Fallacy of Composition cutting wages may raise pro ts for a rm but if all rms cut wages this may lower demand for all products thus lowering pro ts for all rms Only makes it worse Export countries are not dependent on domestic demands because their market is largely conformed In a selfregulating economy problems such as unemployment are resolved without government intervention through the working of the invisible hand This theory fell out of favor during the Great Depression Keynes named it the quotClassical Theoryquot 1786 Keynes convinced scientists End of the 1930 s only ended when people stopped worrying about government spending Increase in government spending made the depression disappear They were producing guns boots tanks and other government needs Someone needs to raise their spending to keep us from going into a recession Obama stimulus only payed half of what needed to be paid 0 According to Keynesian pronounces canesian economics inadequate spending causes economic slumps and they can be mitigated by government intervention 0 Monetary policy uses changes in the quantity of money to alter interest rates and affect overall spending Doesn t work very well in a deep recession 0 Fiscal policy uses changes in government spending and taxes to affect overall spending They could also lower taxes Fending off Depression Inm 2008 the world economy experienced a severe nancial crisis that was all too reminiscent of the early days of the Great Depression 0 In the spring of 2009 the economic historians Barry Eichengreen and kevin In the early 19305 some countries monetary authorities actually raised interest rates in the face of the slump while governments cut spending and raised taxes actions that deepened the recession In the aftermath of the 2008 crisis by contrast interest rates were slashed and a number of countries the United States include used temporary increases in spending and reductions in taxes in an attempt to sustain spending The business cycle is the shortrun alternation between economic downturns and economic upturns Recessions are periods of economic downturns when output and employment are falling Depression is a very deep and prolonged downturn Lasted 7 years the economy looks like it is going to take off again


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