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INSTRUCTOR’S MANUAL
M
ACROECONOMICS
Sixth Canadian Edition
Stephen D. Williamson Western University
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Copyright © 2021 by Pearson Canada, Inc.Contents
Chapter 1 Introduction
Chapter 2 Measurement
Chapter 3 Business Cycle Measurement
Chapter 4 Consumer and Firm Behaviour: The Work–Leisure Decision and Profit
Maximization
Chapter 5 A Closed-Economy One-Period Macroeconomic Model
Chapter 6 Search and Unemployment
Chapter 7 Economic Growth: Malthus and Solow
Chapter 8 Income Disparity among Countries and Endogenous Growth
Chapter 9 A Two-Period Model: The Consumption–Savings Decision and Credit Markets
Chapter 10 Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security
Chapter 11 A Real Intertemporal Model with Investment
Chapter 12 A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy
Chapter 13 Business Cycles
Chapter 14 Inflation: Phillips Curves and Neo-Fisherism
Chapter 15 International Trade in Goods and Assets
Chapter 16 Money in the Open Economy
Chapter 17 Money and Inflation: A Deeper Look
Chapter 18 Financial Intermediation and Banking
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Copyright © 2021 Pearson Canada Inc. 1–1
CHAPTER 1
Introduction
KEY IDEAS IN THIS CHAPTER
- The primary questions of interest in macroeconomics involve the causes of long-run
growth and business cycles and the appropriate role for government policy in influencing the economic performance of a nation.
- Modern macroeconomics analyzes issues associated with long-run growth and
business cycles, using models that are based on microeconomic principles.
- Macroeconomists rely primarily on abstract models to draw conclusions about how
the macroeconomy works because it is usually very costly or impossible to experiment with the real world economy.
- There is relatively little disagreement among macroeconomists concerning
approaches to modeling economic growth, but there are contentious issues in modeling business cycles.
NEW IN THE SIXTH EDITION
- Chapters 13 and 14 of the fifth edition have been merged into a new Chapter 13.
- Chapter 18 in the fifth edition has been split into two new Chapters, 17 and 18, and
- All data and graphs have been updated.
- The revised discussion on recent and current macroeconomic events incorporates
expanded.
information contained in newly available data.
TEACHING GOALS
Macroeconomics is a field of economics which primarily studies economic growth and business cycles. Over time, there is a prevailing upward trend in the standard of living.However, such growth can be erratic. There are some periods of rapid growth, some periods of rather anemic growth, and also some periods of temporary economic decline.Explanations for the overall upward trend in standards of living are the subject of economic growth analysis. Explanations of variations in growth over shorter time horizons are the subject of business cycle analysis. Students should be able to distinguish 3 / 4
Instructor’s Manual for Macroeconomics, Sixth Canadian Edition Copyright © 2021 Pearson Canada Inc. 1–2 between microeconomic topics and macroeconomic topics. Students should understand the distinction between growth analysis and business cycle analysis.Although microeconomics and macroeconomics are separate branches of study, both branches are guided by the same set of economic principles. Standard economic theory is guided by the assumption of maximizing behaviour. As a first approximation, we therefore view the macroeconomy as a collection of markets with maximizing participants. These participants are price-taking agents and the economy is closely approximated by a competitive equilibrium.
Because the economy as a whole is extremely complex, macroeconomists must rely on abstract models. Although the structure of such models does not correspond to all the details of life in a complex society, these models offer the best hope of providing simple, yet accurate, descriptions of how the macroeconomy works, and how government policies may affect macroeconomic outcomes.
Economists are in broad consensus about the mechanisms of economic growth. There is less agreement about the causes and consequences of business cycles. Careful study concludes that most business cycles are very similar in many ways. Therefore, macroeconomists are in search of a logically consistent paradigm for the typical business cycle. Currently popular explanations of the “typical” business cycle include New Keynesian sticky-price models, and real business cycle models.
CLASSROOM DISCUSSION TOPICS
One good way to get the ball rolling is to list some macroeconomic concerns like stagnant economic growth, unemployment, inflation, government budget deficits, tax burdens, trade deficits, financing of government entitlement programs, and the like. Ask students whether they are personally concerned about such problems and what ideas they might have about causes and effects. Sometimes students express concerns about topics such as inequality in the distribution of income and environmental concerns. Emphasize that the purpose of the course is to develop a set of basic macroeconomic models and tools, and that we can adapt these models to deal with a wide array of problems.
It would be worthwhile to take a little time to review the definition of macroeconomics and review the distinction between microeconomics and macroeconomics. Take care to point out that their understanding of how the demand and supply model of microeconomics works is the key to the understanding how markets in macroeconomics work. This approach should help retain students’ motivation as they switch from microeconomics to macroeconomics.
Students often have conflicting ideas about the current state of the economy. Sometimes their perspectives may be governed by their individual circumstances and what they read in the media. Ask them whether they believe that times are currently good or bad. Ask them why they think the way they do. Ask them how they can more objectively back up or check out their casual impressions about the current state of the economy.
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