Principles of Macroeconomics
This article examines macroeconomic principles that are commonly taught in college courses. The various schools of macroeconomic thought are presented and the growing use of macroeconomic research in the public policy-making process is examined. Key government agencies that create and disseminate macroeconomic data are reviewed along with some of the types of data or indicators that the agencies provide. In addition, the expanding list of think tanks and organizations which create macroeconomic data or research are reviewed along with their history, goals, and funding sources. The importance of understanding the philosophy or political agenda behind the research in the policy-making process is also explained.
When discussing the principles of macroeconomics, it is important to remember that there is more than one school of thought in economics. Some of the important strains of economics are Austrian, Classical, Neoclassical Economics (NCE), Original Institutional Economics (OIE), Marxian, Schumpeterian, Keynesian, and Monetarism (Underwood, 2004). Each of these theoretical orientations approaches the study of economics differently and each has its own basis from which to develop principles. Thus, a central and universally agreed upon set of principles of macroeconomics is difficult. It is also noteworthy to mention that at the undergraduate level there is a bias towards Keynesian macroeconomics (Butos, 2006).
There is some debate as to the most important concepts to be taught in a macroeconomics course and perhaps even what constitutes principles of macroeconomics (Kennedy, 2000)(Taylor, 1997). It is important that material covered in a principles of macroeconomics course is simple enough to understand and consistent with the modern economy. It is also important that the material is relevant to contemporary economic policy and strategy evaluation (Taylor, 2000).
Mankiw's Principles of Macroeconomics
To assist in teaching economics and simplify the teaching of the many complex ideas in the academic discipline, Professor N. Gregoery Mankiw, author of one of the most popular textbooks, presents the principles of macroeconomics. Mankiw (1998) organizes concepts and begins a discussion of ideas regarding human behavior (including decision making and interaction) and the organization of economies. These principles were developed through the observation and analysis of human and social behavior. Mankiw's ten principles are (1998):Decision making:
- People face tradeoffs
- The cost of something is what you give up to have it
- Rational people think at the margin
- People respond to initiatives
- Trade can make every body better off
- Markets are usually a good way to organize economic activity
- Governments can sometimes improve market outcomes
- A country's standard of living depends on its ability to produce goods and services
- Prices rise when the government prints too much money (inflation)
- Society faces short-term tradeoff between inflation and unemployment
Macroeconomic analysis is a data intensive discipline. One approach to examining and testing economic theories and principles is to examine the major components of an economy and the forces which impact that economy. This examination is undertaken by measuring economic activity or creating indices. Various governments and institutions around the world have worked to develop economic indices over the last several decades ("Informing our nation," 2004). The European Union (EU), the United Nations (UN), and the Organization for Economics Cooperation and Development (OECD), all use indicators to measure economic conditions and performance.
The Bureau of Economic Analysis
In the United States there are seveal federal government agencies that provide data which helps to explain or analyze the condition of the economy. The Bureau of Economic Analysis (BEA), an agency of the Department of Commerce, is charged with producing economic statistics to help government and business decision-makers understand the state of the economy. The BEA collects data from numerous sources, conducts research, and provides an analysis of econmic data ("About BEA," 2009). Some of the many indicators that are of interest to economists, policy makers, and corporate executives are:
- Gross domestic product (GDP) which is the market value of all of the goods and services produce in an economy during the time that is being measured.
- Gross domestic product (GDP) price index. This index is designed to measure "the prices paid for goods and services produced by an economy" ("GDP," 2009). The index is created from several other measures including "the prices of personal consumption expenditures, gross private domestic investment, and net exports of goods and services" ("GDP," 2009).
- Gross domestic product (GDP)-by-industry accounts. This data shows the contribution of each private industry and government to the Nation's gross domestic product (GDP) ("GDP," 2009).
The Conference Board
In 1995 Bureau of Economic Analysis of the Department of Commerce decided to contract with a private organization to produce and disseminate monthly cyclical indicators. These included leading economic indicators and the composite leading index. The Conference Board was selected to provide the official composite leading, coincident, and lagging indexes. The Board also maintains the Business Cycle Indicators database, which has more than 250 economic series and publishes Business Cycle Indicators reports. The data series in the United States BCI dataset cover a wide range of topics including employment and unemployment, personal income and industrial production, interest rates and money supply, and consumer price indexes ("Why and when ," 2009).
The Conference Board is a not-for-profit organization located in New York City. The Board assesses economic trends, makes economics-based forecasts, and publishes analysis and indices. The Conference Board was established in 1916 and views itself as a network of thousands of business leaders from around the world and as an independent source of unbiased information and analysis. The board has established a global presence with relationships in Asia, Europe, India and the Middle East ("History of the conference board," 2009).
The Leading Economic Indicators (LEI) report is released monthly, usually in the third week of the month. The Business Cycle Indicators (BCI) monthly report not only highlights the leading index and indicators but also provides additional data series and historical graphs. The Conference Board also publishes the Consumer Confidence Index™ which is based on the Consumer Confidence Survey™ which polls a representative sample of 5,000 households in the United States (www.conference-board.org).
Other Sources of Economic Indicators
Another agency that is a major contributor of economic data is the United States Census Bureau. Economic statistics include information on retail and wholesale trade, construction activity, industrial output, capital expenditures, e-commerce sales, and foreign trade ("How to Find the Latest Business Data," 2009). Other agencies that create economic indicators include the Office of Federal Housing Enterprise Oversight (OFHEO) which publishes quarterly house price indexes for single-family detached homes ("House Price Index," 2009). In addition, The United States Small Business Administration produces statistics and analysis that show economic...
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