Presentation on theme: "A FIRST LOOK AT MACROECONOMICS"— Presentation transcript:
1 A FIRST LOOK AT MACROECONOMICS Origins of macroeconomics and the problems it deals withMacroeconomic issues.Economic growthUnemploymentInflationGovernment budget deficits or surpluses.Trade deficits or surplusesMacroeconomic policy challengesTools for meeting macroeconomic goals.Think about using MyEconLab to supplement this chapter. The data graphing tool enables you to make a large number of time series and scatter diagrams using US and international data over a long time period. If your classroom is online, use it in class. You can generate a lot of interest in and discussion of the data with this tool.
2 Origins and Issues of Macroeconomics Study of economic growth, inflation, and international payments began during the 1750s.Modern macro dates to Great Depression ( )John Maynard Keynes, The General Theory of Employment, Interest, and Moneyfocused on short run - unemployment and lost production.“In the long run, we’re all dead.”During the 1970s and 1980s, macroeconomists became more concerned about the long-term—inflation and economic growth.
3 Economic Growth and Fluctuations An outward shift of the Production Possibilities Curve.An increase in “potential GDP”Sources of growthtechnologymore resourcesLand, labor, capital, human capitalPro-growth policies
4 Economic Growth and Fluctuations Real GDP$ value of all goods & services produced in an economy during one year, measured with a fixed set of prices.Potential GDP$ value of real GDP when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed.Signs that Real GDP < Potential GDP?Can policies be implemented to correct problem?
5 Economic Growth and Fluctuations During the 1970s and 1980s, there was a “slowdown in economic growth”What could have caused this?Answers: slowdown in labor force growth, technological growth, oil.
6 Economic Growth and Fluctuations Over time, real GDP fluctuates more than potential GDP because of the business cycle
7 Economic Growth and Fluctuations Every business cycle has four stages:Recessionperiod during which real GDP decreases for at least two successive quartersTroughturning point between recession and expansionExpansionperiod during which real GDP increases.Peak
8 Economic Growth and Fluctuations The most recent U.S. cycle.
11 Economic Growth and Fluctuations Long-term growth trend and cycles.
12 Economic Growth and Fluctuations Why do growth rates vary across countries?
13 Economic Growth and Fluctuations The Lucas Wedgeaccumulated loss of output from a slowdown in the growth rate of real GDP per person.approximately $50 trillion, or five year’s GDP, since 1960
14 Economic Growth and Fluctuations The Okun Gapgap between potential GDP and actual real GDPanother name for the output gap.totaled $2.7 trillion since 1973 or about 3 months real GDP.
15 Economic Growth and Fluctuations Benefits and Costs of Economic GrowthBenefits:expanded consumption possibilities.Costs:Forgone consumption in the presentMore rapid depletion of nonrenewable natural resources & environmental effectsMore frequent job changes.Distributional consequences
16 Jobs and Unemployment Jobs The U.S. economy created around 2 million jobs a year, on the average during the 1990s.But the number fluctuates and since 2001 the pace of job creation has been slow.
17 Jobs and Unemployment Unemployment labor force unemployment rate person does not have a job but is available for work, willing to work, and has made some effort to find work within the previous four weeks.labor forcetotal number of people who are employed and unemployed.unemployment rate% of the labor force who are unemployed.discouraged workeravailable for work, willing to work, but who has given up the effort to find work.
18 Jobs and Unemployment Unemployment rate rises during recession, falls during expansion.During the 1930s, the unemployment rate almost hit 25 percentThe lowest rate occurred during WWII at 1.2 percent
19 Unemployment Around the World U.S. unemployment, on average, lies in the middle of the other countries shown.
20 Inflation Inflation is a process of rising prices. We measure the inflation rate as the percentage change in the average level of prices or the price level.The Consumer Price Index—the CPI—is a common measure of the price level.
21 Inflation The inflation rate fluctuates, but is usually positive. A falling price level—a negative inflation rate—is called deflation.
23 Inflation Around the World U.S. inflation has been similar to that in other industrial countriesU.S. inflation has been much lower than that in developing countries
24 Is Inflation a Problem?Income redistribution between borrowers and lendersTax system.Diverts resources from productive activities to inflation forecasting.Eradicating can be costly in terms of unemployment.
25 Surpluses and Deficits Government Budget Surplus and DeficitIf taxes > spending: surplus.If spending > taxes: deficitDeficits tend to be countercyclical.
27 Surpluses and Deficits International Surplus and DeficitIf a nation imports more than it exports, it has a trade deficit (or “international deficit”).If a nation exports more than it imports, it has a trade surplus.The current account deficit or surplus is the balance of exports minus imports plus net interest paid to and received from the rest of the world.
29 Macro Policy Challenges and Tools Five widely agreed policy challenges for macroeconomics are to:Boost economic growthKeep inflation lowStabilize the business cycleMaintain low levels of unemploymentReduce government and international deficits