Macroeconomics Lecture 1 Notes

Why Study Economics?

• Daron Acemoglu (Nobel Prize winner in 2024) highlighted the significant impact of national income disparities on human welfare.
• Robert Lucas (economist) emphasized the importance of understanding the factors influencing national income levels.

Introduction

• Dr. Stefan Nikolic, the lecturer in Economics at Loughborough Business School. His contact: s.nikolic@lboro.ac.uk
• Consultation and feedback hours: Wednesday 1:30 - 3:30 p.m. via email appointment.

Lecture Topics and Readings

• Textbook: Sloman, Garratt and Guest, Economics, 11th edition, Pearson, 2022.
  • Topic 1: Macroeconomic fundamentals (Chapter 15).
  • Topic 2: Money and banking (Chapter 18).
  • Topic 3: Fiscal and monetary policy (Chapter 22).
  • Topic 4: International trade (Chapter 24).
• Reading for Today:
  • Textbook: Sloman, Garratt and Guest (11th ed.), Ch. 15.1, pp. 453-459
  • Supplementary reading: Sloman economics news site UK growth forecast Financial Times (16/3/25).

Lectures: Aims

• Present main subject of assigned readings.
• Explain the context and develop an interpretation.
• Students are advised to read before class.

Lecture Slides

• Summarize content and guide student's studies.
• Provide additional material to help students understand the material.
• Available in advance on the Learn page, under ‘Macroeconomics lectures’.

Participation

• Students are encouraged to engage in lectures by asking questions, voicing opinions, and sharing thoughts.

Introduction to Macroeconomics

• Introduce major macroeconomic issues and concepts.
• Provide a longer-term perspective on key macroeconomic indicators.

Macroeconomics Defined

• Macroeconomics examines the economy as a whole, focusing on:
  • Total level of spending (aggregate demand) and total level of production (aggregate supply).
  • National output and its growth.
  • National employment and unemployment.
  • The general level of prices and their rate of increase (inflation rate).
• Macroeconomic fluctuations:
  • Volatility is most evident in economic output but also affects other macroeconomic variables like unemployment and inflation.

Macroeconomic Issues

• Key questions in macroeconomics:
  • Why do economies grow at times but shrink at others?
  • Why do people seeking jobs sometimes remain unemployed?
  • Why do economies experience price inflation, and why does it matter?
• Economists seek to explain and solve these issues, which affect all countries.

Macroeconomic Themes

1.  Economic growth.
2.  Unemployment.
3.  Inflation.

• Other important topics: government spending and taxes, interest rates, trade policy, income and wealth distribution, etc.

Macroeconomic Concepts

1) Economic Growth, Business Cycle, and Recessions

• Rate of economic growth: Percentage increase in national output, typically expressed over a 12-month or 3-month period.
• Business cycle: Periodic fluctuations of national output, with rapid growth followed by low growth or decline.
• Recession: Defined as an economy experiencing falling real GDP (negative growth) for two or more successive quarters.

2) Unemployment

• Number unemployed: Individuals of working age who are without work but available for work at current wage rates.
• Labor force: The sum of employed and unemployed individuals.
• Unemployment rate: The percentage of the labor force that is unemployed.

3) Inflation

• Rate of inflation: The percentage increase in prices over a 12-month period.
• Typically refers to the annual percentage change in consumer prices, measured by:
  • Consumer Price Index (CPI).
  • Retail Price Index (RPI).
• Government policy aims to maintain low and stable inflation.

Macroeconomic Policy

• Goals:
  • High and stable economic growth.
  • Low unemployment.
  • Low rates of inflation.
  • Avoidance of excessive exchange rate fluctuations.
  • Stable financial system.
• Policy objectives may conflict, requiring governments to make trade-offs.

Lecture Summary

1. Macroeconomics studies output, employment, and prices in the context of the whole economy.
2. Economies are inherently volatile, as evidenced by fluctuations in short-term economic growth rates.
3. Macroeconomic goals are likely to conflict, leading to difficult policy choices for governments.