Chapter 18: Introduction to Macroeconomics
1. It is important to emphasize that macroeconomic goals all deal with social coordination issues, because
the better we coordinate our behavior with one another, the more successful we are at advancing our own
interests. Coordination failures have adverse consequences for real people, not just numbers.
2. Given that people have different preferences, point out that it is not surprising that there are
disagreements when tradeoffs between macroeconomic goals are faced. F
3. The high unemployment discussion is a good time to emphasize that despite what many assume
4. A humorous illustration of some of the difficulties with unemployment measurement is to point out that
if you sent Danny DeVito (in his obnoxious, berating character) into unemployment offices throughout the
5. Emphasize that it is useful in general to look at both employment and unemployment data to
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participation) biasing one measure–as when both employment and unemployment rates both rise or fall
together, as well as looking at underlying data for further analysis (e.g., job losers vs. quits vs. new
entrants).
6. An interesting addition to the unemployment discussion is to show students that job leavers as a
7. A good analytical extension of the unemployment data is to note that when fringe benefits rise as a
percentage of total compensation, you would expect part-time employment to rise (which could reduce
8. A good illustration of structural unemployment would be someone who had excellent skills using a
slide rule–forty years ago, those skills were valuable, but now virtually valueless.
10. Emphasize to students that full employment (unemployment equal to its natural rate), and therefore
potential output, is not an immutable constant, but a function government policy (e.g., welfare rules,
minimum wages, unemployment benefits) and demographics.
11. If you discuss seasonal unemployment, it is worth mentioning that national unemployment rates are
12. It is worth noting that increases in the minimum wage, the union wage premium and the efficiency
13. Make sure students recognize that the wage premium currently earned by union members does not
d suggest).
15. A good way of illustrating some of the issues involving job search is by an analogy to dating. For
you, because you are trying to make a good impression). Or how well would couples be matched if they
had to decide whether to marry within one month of beginning to date?
16. It can be worth extending the unemployment insurance discussion to show how increasing the
17. Note to students that the unemployment insurance analysis of how it lowers the opportunity cost of
18. The skill-based technical change discussion can be usefully related back to the earlier income
19. Reinforce the idea that falling prices as well as rising prices can cause plan coordination difficulties
20. Emphasize the difference between anticipated inflation and unanticipated inflation. Even those with
21. A good analogy to price inflation may be grade inflation–in both cases the ultimate problem is that the
information conveyed to others (by prices or grades) deteriorates in accuracy, making it harder for
decisionmakers to recognize and act on accurate information, reducing the quality of resulting decisions.
22. It may be worth going through the case where borrowers and lenders in the loanable funds market
23. Emphasize that the demands for investment goods and consumer durables are more cyclical because
such purchases can be relatively easily delayed in hard times and accelerated in good times.
26. You may wish to note to students that there are all sorts of price indexes constructed like the CPI,
from a kiddie price index (heavily weighted in candy b
that is produced by adjusting by the CPI, such as real wages, household incomes, and the poverty rate.