Econ 101b Fall 1999 Lecture Notes

Brad DeLong

Chapter Drafts

August 24:



The Subject

Next Time

Math You Will Need:

Analytic Geometry

Simple Algebra


Differential equations

August 26:

Questions that Macroeconomics Tries to Answer

To answer these questions, we study macroeconomics.


Why Do We Care?

The State of the Economy and Political Popularity

Politicians strongly believe that their success at reelection depends on the economy doing well when they are in office. They think that--fairly and unfairly--they get the credit when the economy does well, and suffer the blame when the economy does badly.

The political leader who was most outspoken about this was American politician Richard M. Nixon, who blamed his defeat in the 1960 American presidential election on an economic slump and on the Eisenhower administration's unwillingness to take preemptive action:

The matter was thoroughly discussed by the Cabinet....[S]everal of the Administration's economic experts who attended the meeting did not share [the] bearish prognosis....[T]here was strong sentiment against using the spending and credit powers of the Federal Government to affect the economy, unless and until conditions clearly indicated a major recession in prospect....I must admit that I was more sensitive politically than some of the others around the cabinet table. I knew from bitter experience how, in both 1954 and 1958, slumps which hit bottom early in October contributed to substantial Republican losses in the House and Senate.... The bottom of the 1960 dip did come in October.... In October... the jobless roles increased by 452,000. All the speeches, television broadcasts, and precinct work in the world could not counteract that one hard fact.

Richard M. Nixon, Six Crises (Garden City, NY: Doubleday, 1962),
pp. 309-311:

Economic historians continue to dispute the degree to which the "stagflation"--the combination of relatively high inflation and relatively high unemployment--was the result of Richard Nixon's determination, as president, never again to run for office in a recession year.

Growth policy


Source: Angus Maddison (1995), Monitoring the World Economy (Paris: OECD), as updated.

Stabilization policy


[Possible Photo: bread lines during the Great Depression]


The Two Branches of Economics


 The Two Branches of Economics



Focuses on the economy as a whole. Focuses on markets for individual commodities, and on the decisions of single economic agents.
Considers the possibility that decision makers might change the quantities they produce before they change the prices they charge. Assumes that economic adjustment occurs first through prices: prices move to restore equilibrium by balancing supply and demand, and only afterwards do producers and consumers react to the changed prices by changing the quantities they make, buy, or sell.
Spends much time analyzing how total incomes change, and how changes in income cause changes in other modes of economic behavior. Holds total incomes constant.
Spends a great deal of time and energy investigating how expectations are formed and change over time. Doesn't worry too much about how decision makers form their expectations.


August 31:

Lecture notes are here


September 7:

Lecture notes are here

September 9:

Chapter 4: The Theory of Economic Growth (html version).

September 14:

Chapter 4: The Theory of Economic Growth (html version).