Macroeconomic Chapter 1: The Science of Macroeconomics What is economics? Normative Definition Economics is the science that studies how to efficiently allocate economic resources Positive definition economics is the science that studies how an economy operates or how economic variables are determined under the given economic system The System of an Economy: The economic system can briefly be distinguished in terms of The ownership: private ownership and public ownership The mechanism of resource allocation: planning mechanism and market mechanism
1 Macroeconomics Chapter 1: The Science of Macroeconomics What is Economics? ➢ Normative Definition: Economics is the science that studies how to efficiently allocate economic resources ➢ Positive Definition: Economics is the science that studies how an economy operates or how economic variables are determined under the given economic system. The System of an Economy: The economic system can briefly be distinguished in terms of ➢ The ownership: private ownership and public ownership ➢ The mechanism of resource allocation: planning mechanism and market mechanism
what we shall study in Macroeconomics? How are the macroeconomic variables determined? How can we explain unemployment and inflation? What are the affects of a macroeconomic policy? What determine economic growth? Debates in macroeconomics New Classical Macroeconomics Representative Agents optimization Rational Expectation Market clearing New Keynesian Macroeconomics No Representative Agent's optimization No Rational Expectation No Market Clearing
2 What we shall study in Macroeconomics? ➢ How are the macroeconomic variables determined? ➢ How can we explain unemployment and inflation? ➢ What are the affects of a macroeconomic policy? ➢ What determine economic growth? Debates in Macroeconomics New Classical Macroeconomics: ➢ Representative Agent’s optimization ➢ Rational Expectation ➢ Market Clearing New Keynesian Macroeconomics ➢ No Representative Agent’s optimization ➢ No Rational Expectation ➢ No Market Clearing
