Introduction to Macroeconomics The Business Cycle and Measures of Performance.

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Presentation transcript:

Introduction to Macroeconomics The Business Cycle and Measures of Performance

Macroeconomics Focuses on the “ups” and “downs” of the economy – The Big Picture Economic Aggregates – Unemployment Rate – Inflation Rate – Gross Domestic Product (GDP)

The Business Cycle The alternation between economic downturns and upturns in the economy PeakFull employment; near capacity output RecessionA decline in output lasting 6 months or more, usually accompanied by declines in income and employment TroughBottom of a recession; unemployment highest RecoveryExpansion back towards full employment GrowthWhen output exceeds previous peak

The Business Cycle Growt h (Recession)

Employment Labor Force = Employed + Unemployed Employed Work for pay OR 15 hours of unpaid work in family business OR Temporarily absent from work Unemployed Did no work for pay or profit Actively looked for work Available for work Not Counted in Labor Force Under 16 Institutionalized (military; prison) People who have stopped seeking work

Unemployment Rate UR = 100 x (Unemployed/Labor Force) Ex: Calculate the Unemployment Rate Labor StatisticNumber Military Personnel1.5 million Population under 16 working part time0.3 million Population over 16 working part time4 million Population over 16 working full time14 million Those without jobs who are actively seeking jobs2 million

GDP= Aggregate Output The economy’s total production of goods and services for a given time period, usually a year Closely tied to employment – Near peak, unemployment is very low – Near trough, unemployment is high

Figure 2.1 The U.S. Unemployment Rate and the Timing of Business Cycles, 1989–2009 Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

Figure 2.2 Growth, the Long View Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers

Price Level Average of all prices in the economy – usually measured by an index Inflation – A rise in the overall price level Deflation – A fall in the overall price level