E Scott Sumner's 15-Minute Macroeconomics Lesson

Scott Sumner has given us a 15-minute lesson on what is important in understanding the field of macroeconomics. After this discussion, there is some interesting interaction with Fed VP Stephen Williamson, some insights from him and an economic rant. But first, in order to make sense of Professor Sumner's arguments, it would be helpful to look at the definition of macroeconomics:

Macroeconomics (from the Greek prefix makro- meaning "large" and economics) is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole...
Macroeconomists study aggregated indicators such as GDPunemployment ratesnational incomeprice indices, and the interrelations among the different sectors of the economy to better understand how the whole economy functions...
While macroeconomics is a broad field of study, there are two areas of research that are emblematic of the discipline: the attempt to understand the causes and consequences of short-run fluctuations in national income (the business cycle), and the attempt to understand the determinants of long-run economic growth (increases in national income). 

Professor Sumner has not always been willing to communicate with people outside the field. He is a glass tower kind of guy, from what I have seen. So, to give a 15-minute explanation of macroeconomics to a "really bright person" is certainly a move in a positive direction. Many economists do just that, all the time.  

I am going to assume that my readers and myself could be really bright but are likely just above average like those children who lived in mythical Lake Wobegon. So I will try to extend the explanation of those 15 minutes.

So, to Sumner, there are three main branches of Macro:

1. Equilibrium Nominal 2. Equilibrium real 3. Disequilibrium sticky wage/price interaction

He goes on to explain the three:

Scott Sumner Famous at Bentley University, by Fogster at English Wikipedia

1. Equilibrium Nominal's important concepts:

A. Quantity Theory of Money

Definition: This means that the price level of goods and services reflects the amount of money in circulation.

B. Fisher Effect

Definition: The Fisher Effect states that the real interest rate equals the nominal interest rate minus the inflation rate. However, the concept is open to debate as we see from Investopedia.

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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