A TSI Graphics Worth: Mankiw Economics 5e CHAPTE R ONE The Science of macroeconomics The whole of science is nothing more than the refinement of everyday Albert Einstein 7-1 What Macroeconomists Study Why have some countries experienced rapid growth in incomes over the past century while others stay mired in poverty? Why do some countries have high rates of infation while others maintain stable prices? Why do all countries expe rience recessions and depressions--recurrent periods of falling incomes and ris- ing unemployment--and how can government policy reduce the frequency and severity of these episodes? Macroeconomics, the study of the economy as whole, attempts to answer these and many related questions To appreciate the importance of macroeconomics, you need only read the newspaper or listen to the news. Every day you can see headlines such as IN- COME GROWTH SLOWS. FED MOVES TO COMBAT INFLATION or STOCKS FALL AMID RECESSION FEARS. Although these macroeconomic events may seem abstract, they touch all of our lives. Business executives forecast ing the demand for their products must guess how fast consumers incomes will grow. Senior citizens living on fixed incomes wonder how fast prices will rise Recent college graduates looking for jobs hope that the economy will boom and that firms will be hiring Because the state of the economy affects everyone, macroeconomic issues play a central role in political debate. Voters are aware of how the economy is doing, and they know that government policy can affect the economy in powerful ways. As a result, the popularity of the incumbent president rises when the econ omy is doing well and falls when it is doing poorly Macroeconomic issues are also at the center of world politics. In recent Europe has moved toward a common currency, many Asian countries have rienced financial turmoil and capital fight, and the United States has financed large trade deficits by borrowing from abroad. When world leaders meet, these topics are often high on their agendas R: Job EFFo1417: 6264_ ch01: Pg 2: 24475#/ eps at 1009 Ill Fr,Nav9,200111:52User SONPR:Job EFF01417:6264_ch01:Pg 2:24475#/eps at 100% *24475* Fri, Nov 9, 2001 11:52 AM 1-1 What Macroeconomists Study Why have some countries experienced rapid growth in incomes over the past century while others stay mired in poverty? Why do some countries have high rates of inflation while others maintain stable prices? Why do all countries expe￾rience recessions and depressions—recurrent periods of falling incomes and ris￾ing unemployment—and how can government policy reduce the frequency and severity of these episodes? Macroeconomics, the study of the economy as a whole, attempts to answer these and many related questions. To appreciate the importance of macroeconomics, you need only read the newspaper or listen to the news. Every day you can see headlines such as IN￾COME GROWTH SLOWS, FED MOVES TO COMBAT INFLATION, or STOCKS FALL AMID RECESSION FEARS.Although these macroeconomic events may seem abstract, they touch all of our lives. Business executives forecast￾ing the demand for their products must guess how fast consumers’ incomes will grow. Senior citizens living on fixed incomes wonder how fast prices will rise. Recent college graduates looking for jobs hope that the economy will boom and that firms will be hiring. Because the state of the economy affects everyone, macroeconomic issues play a central role in political debate.Voters are aware of how the economy is doing, and they know that government policy can affect the economy in powerful ways.As a result, the popularity of the incumbent president rises when the econ￾omy is doing well and falls when it is doing poorly. Macroeconomic issues are also at the center of world politics. In recent years, Europe has moved toward a common currency, many Asian countries have expe￾rienced financial turmoil and capital flight, and the United States has financed large trade deficits by borrowing from abroad.When world leaders meet, these topics are often high on their agendas. The Science of Macroeconomics 1CHAPTER The whole of science is nothing more than the refinement of everyday thinking. — Albert Einstein ONE 2 |