ECON 103 Principles of Macroeconomics Instructor: Bernard Malamud –Office: BEH 502 Phone (702) 895 –3294 Fax: 895 – 1354 » Website: Office hours: MTWThF 11:30-12:30 pm; and by appointment

Gauging Your Opinions – I The U.S. government is bankrupt... or soon will be bankrupt. a)Trueb) False I expect to receive Social Security benefits when I retire. a)Yesb) No The US unemployment rate as officially measured is usually around a) 2%b) 5%c) 8%d) 10% The US unemployment rate as officially measured is now around a) 2%b) 5%c) 8%d) 10% The US unemployment rate is probably greater than/less than the rate that is officially measured. a) greater thanb) less than

Macro Objectives Talk’n’ Economics –Vocabulary: GDP, Unemployment, Inflation, Debt, Supply, Demand…and much, much more Economic Facts –Descriptions of the US and world economies Economic Models –Simplifying a complex reality Economic Policy Analysis –Laissez – faire vs. activism The Economic Way of Thinking From micro: Incentives matter!

The Macroeconomy

Macro Concerns Jobs Growth Price Stability Government Budget Balance of Payments Exchange Value of Dollar

Macro Pictures: Jobs

Macro Facts: Growth, Recession and Slump The Long Slump The Long Slump

Deviation of Actual from Potential GDP (Fraction of Potential)

Macro Pictures: Unemployment Great Moderation

Inflation Rates: CPI and Core CPI CRISIS

Monetary Policy and Interest Rates London Interbank Offer Rate (LIBOR) Federal Funds Rate

Macro Pictures: Exchange Rate

What We’ll Cover Macro measurement: output, income, employment, prices, inflation, interest rates Aggregate demand: C,I,G,NX … what’s bought Money … what’s spent Demand-side policies Aggregate supply: Short-run responses to prices Adjustment to long-run output potential Policy Debates Economic Growth

Remember the Numbers? The US unemployment rate as officially measured is now around a) 2%b) 5%c) 8%d) 10% The US inflation rate is now around a) 2%b) 5%c) 8%d) 10% The US balance of trade in goods and services is a) positiveb) negativec) balanced...it has to balance

Micro Foundations: A Brief Review Production Possibilities Frontier Quantity of Computers Produced Quantity of Cars Produced A 0 B Feasible but Inefficient C D Production Possibilities Frontier  Efficient Points

Micro Foundations: Macro Application Production Possibilities Frontier Private Sector Output Government Purchases A 0 B Feasible but Inefficient C D Production Possibilities Frontier  Efficient Points When economy is at full employment (C), an increase in bovernment purchases raises prices and “crowds out” private activity

Micro Foundations: Macro Application Production Possibilities Frontier Private Sector Output Government Purchases A 0 B Feasible but Inefficient C D Production Possibilities Frontier  Efficient Points When economy is at less than full employment (B), an increase in government purchases increases incomes and spurs additional private sector activity as well (multiplier effect)

Supply Demand Price of Ice-Cream Cone Quantity of Ice-Cream Cones Micro Foundations: A Brief Review Supply and Demand $ Equilibrium

AS AD Price Index Real GDP Macroeconomics: Aggregate Demand and Aggregate Supply Potential Real GDP