Friday, June 29, 2012

"What Is Macroeconomics?" Macroeconomic Theory I: Fall 2012

The goal of our first lecture will be to understand what sort of things we will study in a course called macroeconomics. How does this subject differ from microeconomics?

I will begin with some analogies. Remember that analogies are just analogies: the correspondences are not exact!

First analogy:

Microeconomics resembles the study of the weather at a particular moment and place, or in a limited locale: "Wow, it's pouring here right now!" (This analogy in particular is less than exact, but we are just trying to get a general grasp of things right now, to get us going.) Microeconomic questions are like asking, "How does the wind move in this canyon?" or "Why is the rainfall so much heavier on one side of this mountain than on the other?"

Macroeconomics resembles the study of regional or global weather patterns. Macroeconomic question are analogous to asking "How will El NiƱo affect weather in the United States this year?" or "How fast has the globe been warming?"

Second analogy:

Microeconomics resembles the study of the behavior of individual members of a species. It asks questions analogous to "How does the raccoon raise its young?" or "What are raccoon hunting patterns like?"

Macroeconomics resembles the study of large populations of raccoons, or of the entire species. It asks questions similar to "How has rabies impacted the raccoon population of the Eastern United States?" or "Is the raccoon evolving in response to the development of the automobile?" or "How have raccoons spread through Germany since their introduction in 1934?"

An important note: Notice that these studies often overlap, and we may need to move back and forth between the micro and the macro perspective to really grasp some issue. For instance, we can only tell if the raccoon species considered as a whole is changing its behavior in response to the presence of the automobile by noting the behavior of many, many individual raccoons and comparing such a study with previous, similar studies done earlier.

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