Macroeconomics For Dummies

Overview

The fast and easy way to make macroeconomics manageable

Macroeconomics is kind of a big deal. Without it, we wouldn't have the ability to study the economy as a whole—which is something that affects almost every aspect of your life, whether you realize it or not. From your employment status to how much you earn and pay in taxes, macroeconomics really matters. Breaking down this complicated and fascinating topic into manageable pieces, Macroeconomics For Dummies gives you fast and easy access to a subject that has a tendency to stump the masses.

With the help of this plain-English guide,

you'll quickly find out how to gather data about economies to inform hypotheses on everything from the impact of cutting government spending to the underlying causes of recessions and high inflation.

  • Analyze business cycles for overall economic health
  • Study economic indicators such as unemployment
  • Understand financial trends on the international market
  • Score higher in your macroeconomics class

Filled with step-by-step instruction and enlightening real-world examples, this is the only book you need to slay the beast and make macroeconomics your minion!

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About The Author

Daniel Richards, PhD, is a professor of economics at Tufts University. He received his PhD from Yale University.

Manzur Rashid, PhD, has taught economics at University College London and Cambridge University.

Peter Antonioni is a senior teaching fellow at University College London.

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macroeconomics for dummies

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Macroeconomics covers a massive range of subjects. Following are just ten core concepts, ranging from the real value of things and growth compounds to efficient markets. Ultimately, real things are what count Economists assume that people care about real things and not about nominal magnitudes. Here are some examples: Real wage: What really matters about your wage is how much stuff you can buy with it, not its numerical value.
Like any academic discipline, macroeconomics relies on the incremental progress of researchers, each building upon and improving previous work — like bricks holding up a wall or, more salubriously, adding new ingredients to old cocktail drinks. Here are five famous economists who had a huge impact on macroeconomics.
The field of macroeconomics continues to develop and change as new theories are put forward. Building on the work of great macroeconomists like Keynes and Tobin, here are five famous economists who are having a huge impact on macroeconomics. Robert Solow (1924–) Robert Solow is best known for his fundamental work on economic growth.
Like all practices, economics has its own terminology. Following are explanations of five essential terms that economists use all the time. When calculated for the economy as a whole, all these measures are equal: Gross Domestic Product (GDP): Value of final goods and services an economy produces in one year (a final good or service is one directly provided to the end user).
Recall the Rule of 70. Remember, this rule is an easy way to calculate the time it takes something to double. If real gross domestic product (GDP) for instance grows at x percent per year, you divide x into 70 to find out how many years it will take for real GDP to double.Thus, if real GDP grows at 3 percent per year, it will double in 23 years and 4 months, double again in another 23 years and 4 months, and be 8 times what it was 70 years from the start.
In case you didn't know, the profit motive is powerful. Think about it. Hundreds of millions of people have invested trillions of dollars in pension funds, IRAs, and other assets to provide for their retirement or their children's education or for other reasons. The large banks, mutual funds, and other investment advisors compete for this business by trying to offer their investors a better return than their rivals.
Why do some countries do it better than others?Of all the questions in economics, this is likely the biggest. In the early 1900s, Argentina was one of the richest countries in the world, with a per capita gross domestic product (GDP) that was 50 percent higher than Italy's and far above those of Japan and South Korea.
Inflation is concerned with prices. The interest rate is the price of credit. Yet the prices involved in inflation and the prices reflected in interest rates are very different. Even if inflation were zero, the interest rate would likely be positive in any long-run equilibrium. What is the source of this difference?
The interest rate is a special kind of price because it reflects exchanges through time. An annual interest rate of 5 percent says that in return for giving up $1,000 today, you can get $1,050 a year from now. Thus, $1,000 is the "price" of "buying" $1,050 in one year. To put it another way, you can get $1 in one year for a "price" of about 95 cents today.
The assumption (pretense) that underlies gross domestic product (GDP) — that you can think of the economy as just producing one, very multi-purpose good. Why do macroeconomists make this assumption?The simple answer is that they'd like to talk about "the economy" as parsimoniously as possible. If someone asks about the U.
As of late 2015, the U.S. GDP is more than $18 trillion, and projections are that it will grow by 2.7 percent to over $18.5 trillion before 2016 is over.In other words, if you add the value of all final sales recorded in the U.S. in one year it comes to more than $18 trillion. But note the qualifier final: To avoid double counting, economists count only the value of final goods produced, not intermediate goods.
When prices rise on average in an economy, it's called inflation. In the recent past in developed economies, inflation has only been a few percent per year, but some decades ago double-digit inflation, even in developed economies, wasn't unusual. One of the reasons that inflation has come under control is that economists now have quite a good understanding of what causes it and how countries can go about reducing it.
Over the last 50 years, the U.S. economy has grown at an average annual rate of about 2.8 percent. Roughly 1.1 percent has come from population growth: the country typically adds more workers each year. But the majority of it comes from the fact that it gets more productive each year — to the tune of about 1.7 percent annually.
Economies run on people, firms, and governments requiring and buying things. A need exists (demand) that firms fulfill (supply). Students of microeconomics spend time learning about the behavior of supply and demand in individual markets. Students of macroeconomics are interested in the economy as a whole, so the emphasis is on aggregate (that is, total) demand for goods and services and aggregate (total) supply.
Economics is often split into microeconomics and macroeconomics. Microeconomics is the study of individual and firm behavior, and macroeconomics is the study of the economy as a whole. Decades ago they were very different fields with different ways of doing things: Microeconomics stressed the importance of modeling individuals and firms as optimizing agents.
Many economists think that the measures of inflation tend to overestimate the true increase in the cost of living. That is, if the inflation rate is quoted as being 3 percent, economists think that the true cost of living has actually increased by less than 3 percent.Here are some of the reasons why: The substitution effect: Inflation at 3 percent means that on average prices have increased by 3 percent.
Being a good macroeconomist is in many ways like being a detective at a crime scene. Good detectives carefully collect evidence at the scene and form theories about what may have happened. They use that evidence to test which theories are most plausible.Of course, the evidence from a single crime may or may not prove conclusive.
Just like people, economies can also get sick with things such as recessions, high inflation and high unemployment. Much like a doctor, macroeconomists have to observe the economy and try to work out the underlying cause of these problems. After working out the likely cause, they can think about policies that those in charge can implement to return the economy to health.
Partly because economists (micro and macro) can't easily conduct lab experiments, and partly because statistical inference is complicated, they turn to building models — simplified versions of reality — in order to think through complex problems.There are several advantages to using formal models: Macroeconomic problems are complex: They're so complex that trying to tackle them head-on is almost bound to fail.
Remember, you're imagining gross domestic product (GDP) as one single good. If that were really the case — if, say, you only produced oil — you'd have no trouble saying that if you produced 1,800 billion barrels of oil this year and next year, your real production hasn't increased, even if oil prices doubled from $10 to $20.
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