The subject of Microeconomics
Theoretical relationship between prices, wages, interest
Theory of the consumer behaviour
Theory of the firm (costs, prices, structures)
Monetary theory?
The subject of Macroeconomics
„Index problems” – GDP, CPI, Unemployment Rate
Central macro institution; the government (budget and the central bank)
Relationship between various policies
Examples of macroeconomic problems
What is the nature of inflation?
What makes the GDP grow?
How government spending affects employment?
How monetary policy affects the welfare of citizens?
Is macroeconomics separate from
microeconomics?
Macroeconomics and political sciences
Government as a central figure in macroeconomics
Also the central figure in political sciences, ideology and politics
Connection between those two
Positive Macroeconomics vs.
Normative Economic Policies
Macro describes necessary connections between the magnitudes
Example: money printing leads to inflation
Politics says what should be done.
Example: we should print more money
Macroeconomics and macroeconomic history
Theory as set of economic laws describing how the economy works
Universal and applicable to different cases
Macroeconomic history is a study of particular time and place
Complementary, but separate
Model building
Models and causality
Exogenous and endogenous variables
Simple monetarist model of inflation
More M leads to more CPI increase. What is
exogenous and endogenous?
Macroeconomics and the history of thought
The most common story – macroeconomics started with Keynes’s treatise Theory of
Employment, Interest and Money.
Before that „classical economics” dominated and according to it no possible problems
could arise.
Everything was to be solved by the
movement in prices
Macroeconomics and the history of thought (continued)
However, many economists did deal with
„macroeconomic problems”
There were macro theories of macro
movements in aggregates.
Business cycle theory as the basic element in Macroeconomics
Theory of economic development (long run)
Theory of economic fluctuations (short run movements)
Boom/expansion and bust/recession
Keynes’s story of macroeconomic thought
The ambition to be Einstein of economics
Einstein’s division between specific theory and general theory in physics.
Keynes’s division between classical theory (special circumstances) and his theory
(general one)
Great Depression of 1929
Stock market crash
Banking system collapses and with it the investment activity
Radical increase in unemployment rate
Decrease in the standard of living
Supposed assumption of classical economics
Mechanism of supply and demand
Equilibrium model
Perfect adjustment of all prices to changing circumstances
No possibility of unemployment equilibrium
Keynes appears
Sticky prices and wages – lack of equilibration mechanism
Reasons for those and „solutions” proposed
by the government
Facts about history of macroeconomics
Were there any competing theories or
Keynes was the only one to describe reality?
Competing theories existed
Example: monetarist theory of money supply, or Hayek’s theory of cycles
One of major sources of Keynes’s success:
well-thought marketing and great charisma
Different types of policies
Monetary policy and central banking
Fiscal policy, taxation and expenditures
Income and price planning
Trade policy
Regulations upon business
Industrial policy
Education policy etc.
