Mankiw's 1-2

What macroeconomists study:
- Long-run growth (why some nations are rich and others poor).
- Inflation and price stability.
- Short-run fluctuations (recessions, unemployment).
Tools:
- Use of models (simplifications of reality) to explain the economy.
- Different models fit different situations (short run vs. long run).
Key Ideas:
- Flexible vs. sticky prices: In the long run, prices are flexible (classical theory). In the short run, prices can be sticky (Keynesian insights).
- Microfoundations: Macroeconomics builds on individual behavior of households and firms.
- Positive vs. normative: Economists explain “what is” (positive) and sometimes advise on “what should be” (normative).

Goal: Understand how to measure economic activity.
Key Indicators:
1. GDP (Gross Domestic Product):
  - Value of all final goods and services produced within a country in a given period.
  - Can be measured by income or expenditure.
  - Nominal GDP: valued at current prices.
  - Real GDP: adjusted for inflation (constant prices).
  - GDP deflator: price index = Nominal GDP / Real GDP × 100.
2. CPI (Consumer Price Index):
  - Measures cost of a fixed basket of goods.
  - Used to track cost of living and inflation.
  - Different from GDP deflator (CPI includes imports, GDP deflator does not).
3. Unemployment rate:
  - % of labor force unemployed.
  - Based on household survey (unemployed if without a job but seeking).
  - Also measured by establishment survey (payroll jobs).
Other Notes:
- Stocks vs. flows: wealth (stock) vs. income (flow).
- Seasonal adjustment: data are corrected for regular seasonal patterns.

Formula: