1Chapter OneCHAPTER 1 The Science of MacroeconomicsA PowerPointTutorialTo Accompany MACROECONOMICS, 7th. Edition N. Gregory Mankiw Tutorial written by: Mannig J. Simidian B.A. in Economics with Distinction, Duke University M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management2Chapter OneMankiws Macroeconomics Modules for Macroeconomics 7th ed. are dedicated to the loving memory of my cherished father, best friend and mentor. Daddy you are still my inspiration for making sure these tutorials are the best they can be for students worldwide! Ara Vahan Simidian (June 24, 1928 - December 19, 2008) May he continue to enjoy learning and loving economics from heaven above. In MemoriamAraAra VahanVahan SimidianSimidian with with MankiwsMankiws Macroeconomics Modules Macroeconomics Modules author, author, MannigMannig J. J. SimidianSimidian, 2007., 2007.3Chapter OneProfessor Greg Mankiw is not only a prolific, talented, and ingenious economist, but humble and kind-hearted. His unique and extraordinary creative ability to impart knowledge makes him both an economist and artist. I am so honored and grateful again be a part of supplementing his unprecedented craftsmanship.My mentor, and friend for over a decade Professor Mike McElroy (North Carolina State University) was the first to see the novelty in these tutorials while I was an undergraduate student at Duke University. His contributions and influence will be a part of my work indefinitely. My gratitude is endless as well to Professors David Denslow, Mark Rush, Ed Tower, and Jeff Frankel.My love and gratitude goes to my dear friend and surrogate father Dr. Lawrence Brockman, D.M.D, an endodontist but an economist in spirit who has been my teacher, inspiration and dearest friend for over a decade. I also want to thank the following special people in my life: my mother, Jane, Michael Hill, Elle at any given price, pizzerias find that the sale of pizza is more profitable, and thus the supply of pizza rises. This translates into a rightward shift in supply from S to S. . Result: price falls, quantity rises.Result: price falls, quantity rises.P PD DS SQ QS S 9Chapter OneEconomists typically assume that the market will go into an equilibrium of supply and demand, which is called the market clearing process. This assumption is central to the pizza example on the previous slide. But, assuming that markets clear continuously, is unrealistic. For markets to clear continuously, prices would have to adjust instantly to changes in supply and demand. But, evidence suggests that prices and wages often adjust slowly.So, remember that although market-clearing models assume that wages and prices are flexible, in actuality, some wages and prices are sticky. Market-clearing models may not describe every instant in an economy, but they do depict the equilibrium toward which the economy gravitates.10Chapter OneMicroeconomics is the study of how households and firms make decisions and how these decision makers interact in the broader marketplace. In microeconomics, an individual chooses to maximize his or her utility subject to his or her budget constraint.Macroeconomic events arise from the interaction of many individuals trying to maximize their own welfare. Because aggregate variables are the sum of the variables describing individuals decisions, the study of macroeconomics is based on microeconomic foundations.11Chapter OneThe modules mirror the sequencing of the text, Macroeconomics, 7th ed. There are six parts and a total of nineteen chapters with a module written for each chapter. Enjoy!IntroductionClassical Theory, The Economy in the Long RunGrowth Theory, The Economy in the Very Long RunBusiness Cycle Theory: The Economy in the Short RunMacroeconomic Policy DebatesMore on the Microeconomics Behind Macroeconomics12Chapter OneMacroeconomics Real GDP Inflation and deflation Unemployment Recession Depression Models Endogenous variables Exogenous variables Market clearing Flexible and sticky prices Microeconomics