1. Barnett UHS AP Econ MACROECONOMIC GOALS

3.  Full Employment  That does NOT mean that everybody has a job  There is always going to be some people unemployed  Civilian Labor Force:People 16 or older who have looked for a job in the past 4 weeks  Goal: 5-6% unemployment rate considered the “natural rate” or “target rate”  Every tenth of a point = 150,000 workers UNO

4.  In order for unemployment to decrease 1 one percent, the economy must grow an extra 2 percent. (Okun’s rule of thumb).  Current Rate: 7.7% FED goal: 6.6%  Would require 1.9 million jobs created  Job growth averaging around 150,000 each month  Should take around _____ to reach goal  But… UNO

7. Unemployment in Other Countries

9.  Three types of unemployment  Frictional Unemployment – Temporary  Workers moving from one job to another  Students heading off into the “real world” UNO

10.  Three types of unemployment  Structural Unemployment - Permanent  When there is a mismatch between the skills of unemployed workers and the needs of the economy  Can retrain themselves  Be entrepreneurial and use their skills in novel ways  Can move to where their skills are in demand  Assembly line workers replaced by robots UNO

11.  Three types of unemployment  Cyclical Unemployment  Due to contractions (downs) from normal business cycles  Businesses lay off workers when the economy goes down UNO

19.  Second Goal: Stable Prices – Reasonable inflation rate  Inflation – Increase in the average level of prices over a given time period  Goal: 3% inflation rate (considered stable prices)  Mo’ Money, Mo’ Tomatoes DOS

20.  Second Goal: Stable Prices – Reasonable inflation rate  Disinflation: When the price level increases from year to year but at decreasing rate  Year 1 to Year 2 = 3% increase in prices  Year 2 to Year 3= 2% increase in prices DOS

21.  Second Goal: Stable Prices – Reasonable inflation rate  Deflation: Price level increase is actually negative  Price level drops to -1% in a year  Buy 2 cars now? DOS

22.  How is inflation rate measured?  CPI (Consumer Price Index)  PPI (Producer Price Index)  GDP deflator = (Nominal GDP/Real GDP) x 100  CPI  Current CPI inflation rate is: 1.8 percent  later year - earlier year x 100  earlier year DOS

23.  GDP Deflator  Uses 2005 as base year. Set to 100 with other years reported relative to the 2005 dollar.  The GDP Deflator for 2010 was 110.99. On average the 2005 dollar could buy (10.99/100) 10.99% more than the 2009 dollar.  The GDP Deflator for 1950 was 14.65. On average the 1950 dollar could buy (100/14.65) 6.82 times as many goods as the 2005 dollar. DOS

24. Current Consumer Price Index YearJanFebMarAprMayJunJulAugSepOctNovDecAvg 2010216.687216.741217.631218.009218.178217.965218.011218.312218.439NA 2009211.143212.193212.709213.240213.856215.693215.351215.834215.969216.177216.330215.949214.537 2008211.080211.693213.528214.823216.632218.815219.964219.086218.783216.573212.425210.228215.303 2007202.416203.499205.352206.686207.949208.352208.299207.917208.490208.936210.177210.036207.342 2006198.3198.7199.8201.5202.5202.9203.5203.9202.9201.8201.5201.8201.6 2005190.7191.8193.3194.6194.4194.5195.4196.4198.8199.2197.6196.8195.3 2004185.2186.2187.4188.0189.1189.7189.4189.5189.9190.9191.0190.3188.9 2003181.7183.1184.2183.8183.5183.7183.9184.6185.2185.0184.5184.3183.96 2002177.1177.8178.8179.8 179.9180.1180.7181.0181.3 180.9179.88 2001175.1175.8176.2176.9177.7178.0177.5 178.3177.7177.4176.7177.07 2000168.8169.8171.2171.3171.5172.4172.8 173.7174.0174.1174.0172.2 Get more Historical Data from InflationData.com CPI

25. Inflation Rate 2000 - 2010

27.  Third Goal: Economic Growth  Determined by growth in Real GDP  GDP = Gross Domestic Product  GDP = Market value of all final goods and services produced in an economy in a year  Goal: 3% annual growth TRES

28.  Third Goal: Economic Growth  Difference between nominal and real GDP  Nominal – does not include inflation  Real GDP - includes inflation  Real – TRES

29.  GDP Components  Components:C = consumption70  I = investment17  G = government expenditures17  Nx = net exports-4  ______________________________________________________  100 percent  The allocation will vary from year to year but must add up to 100 percent. TRES

30.  Fourth Goal: Favorable Balance of Trade  X = exports  M = imports  X>M = trade surplus  X<M = The USA! (trade deficit)  2008 trade deficit = $673 billion  Better to have strong or weak currency? CUATRO

31.  Fifth Goal: Limiting Government Growth/Spending  Measured by looking at the rate of government spending relative to the real GDP growth CINCO

32.  1. Full Employment  2. Stable Prices  3. Economic Growth  4. Favorable Balance of Trade  5. Limiting Government Growth HIGH FIVES FOR MACRO!