MBMC Macroeconomics: The Bird’s-Eye View of the Economy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 2 Introduction The Great Depression In the U.S.:  Factories cut production 31%  Number of people without jobs nearly tripled by 1933 when the unemployment rate hit 25%  Stocks lost a third of their value in 3 weeks

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 3 Introduction The Great Depression In Germany:  Nearly a third of all workers were without jobs  Banking system collapsed

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 4 Introduction The Great Depression The cause?  The Stock market?  Capitalism?  Poor economic planning?

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 5 Introduction The Great Depression The response:  Macroeconomic policies oGovernment actions designed to affect the performance of the economy as a whole

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 6 The Major Macroeconomic Issues Standard of Living The degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 7 The Major Macroeconomic Issues Economic Growth A process of steady increases in the quantity and quality of the goods and services the economy can produce

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 8 Output of the U.S. Economy, In 2001 output of the U.S. economy was: 25 times the 1900 level 5 times the 1950 level

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 9 Output per Person and per Worker in the U.S. Economy, In 2001: Output/person was 7 times the 1900 level Output/worker was 5 times the 1900 level

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 10 The Major Macroeconomic Issues In the U.S.: 60 million households own two or more automobiles. 98% of household own a television (95% a color TV). 67% of households subscribe to cable.

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 11 The Major Macroeconomic Issues In the U.S.: In 2002, 60 % of adults were regular Internet users. 80% of the adult population has a high school diploma. 25% of the adult population has a college degree.

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 12 The Major Macroeconomic Issues Productivity In 2001 the average U.S. worker could produce five times more than in Average labor productivity:

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 13 The Major Macroeconomic Issues Productivity U.S. trends in output per employed worker  : increased 2.1%/yr  : increased less than 1%/yr  present: increased nearly 2%/yr

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 14 The Major Macroeconomic Issues Productivity and Living Standards in China and the United States 2001United StatesChina Output$10,200 billion$1,160 billion (U.S.) Population285 million1,262 million Employed135 million710 million Output/person$35,790$919 Average labor productivity$75,556$1,634

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 15 Output of the U.S. Economy, Recessions: slowdowns in economic growth 1930s (depression); 1941-’45; 1973-’75; 1981-’82; 1990-’91;2001

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 16 Output of the U.S. Economy, Expansions: periods of rapid economic growth 1945-’48; 1961-’69; 1975-’80; 1982-’90;

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 17 The U.S. Unemployment Rate, The unemployment rate: % of the labor force that is out of work Observations: Rises during recessions Always greater than zero

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 18 Increases In Unemployment During Recessions Unemployment rate at beginning of recession (%) 4.8 (Nov. 1973)9.0 (May 1975) (Jan. 1980)10.8 (Nov./Dec. 1982) (July 1990)7.8 (June 1992)+ 2.3 Peak unemployment rate (%) Increase in unemployment rate (%)

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 19 The Major Macroeconomic Issues Unemployment rates differ from country to country: For the past 20 years, more than 10% of the European workforce has been unemployed. European unemployment is double the rate in the U.S. During the 1950s & ‘60s, the European unemployment rate was generally lower than in the U.S.

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 20 The U.S. Inflation Rate, Inflation The rate prices in general are increasing over time Varies over time -- high in the ‘70s and low in the ‘90’s and today Varies between countries -- in % in U.S. & 400% in Ukraine

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 21 The Major Macroeconomic Issues National economies are becoming increasingly interdependent: In 1999 the U.S.:  Exported 10.8% of all goods and services produced.  Imported 13.3% of the goods and services used by Americans.

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 22 The Major Macroeconomic Issues The international flows create political and economic issues: The impact of trade on jobs  The steel and textile industries  Trade agreements (NAFTA) Trade imbalances  When exports and imports differ significantly  Trade deficit: exports < imports  Trade surplus: exports > imports

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 23 Exports and Imports as a Share of U.S. Output,

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 24 The Major Macroeconomic Issues The Major Economic Issues Economic growth and living standards Productivity Recessions and expansions Unemployment Inflation Economic interdependence among nations

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 25 Macroeconomic Policy Monetary Policy Determination of the nation’s money supply Controlled by the central bank or, in the U.S., the Federal Reserve System (Fed)

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 26 Fiscal Policy Decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues Macroeconomic Policy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 27 Fiscal policy influences the balance between government spending and taxes: A deficit occurs when government spending is greater than tax revenue. A surplus occurs when government spending is less than tax revenue. Macroeconomic Policy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 28 Structural Policy Government policies aimed at changing the underlying structure, or institutions, of the nation’s economy Macroeconomic Policy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 29 Positive versus Normative Analyses of Macroeconomic Policy Positive Analysis  Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable Macroeconomic Policy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 30 Positive versus Normative Analyses of Macroeconomic Policy Normative Analysis  Addresses the question of whether a policy should be used; normative analysis inevitably involves the values of the person doing the analysis Macroeconomic Policy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 31 Aggregation The adding up of the individual economic variables to obtain economywide totals Used to take a “bird’s-eye view” of the economy

MBMC Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 17: Macroeconomics:The Bird's-Eye View of the Economy Slide 32 Aggregation Aggregate measurements in dollar values allow economists to compare broad categories of goods and services, such as exports and imports. Aggregation often obscures the fine detail of an economic situation.

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