1 The Bird’s-Eye View of the Economy Chapter 4. 2 Macroeconomics is the study of the aggregate...
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Transcript of 1 The Bird’s-Eye View of the Economy Chapter 4. 2 Macroeconomics is the study of the aggregate...
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The Bird’s-Eye View of the Economy
Chapter 4
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Macroeconomics is the study of the aggregate moods of the economy.
First major macroeconomist:
John Maynard KeynesThe General Theory of
Employment, Interest and Money (1936)
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In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm
is long past the ocean is flat again.--John Maynard Keynes
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The Major Economic Issues
• Economic Growth
• Productivity
• Recessions and Expansions
• Unemployment
• Inflation
• Economic Interdependence of Nations
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1. Economic Growth
2. Productivity
3. Recessions and Expansions
4. Unemployment
5. Inflation
6. Economic Interdependence of Nations
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Growth
Real output growth in the U.S. has been 2.5 to 3.5 percent per year since the late 19th century.
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• Economic Growth• Productivity• Recessions and
Expansions• Unemployment • Inflation• Economic
Interdependence of Nations
Total output divided by total number of hours worked.
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The economy’s short run changes.
Trend versus cycle.
• Economic Growth• Productivity• Recessions and
Expansions• Unemployment • Inflation• Economic
Interdependence of Nations
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Expansion ExpansionRecession
The Phases of the Business Cycle
Boom
Secular growth trend
DownturnUpturn
Trough
Peak
0Jan.-Mar
Tot
al O
utpu
t
Apr.-June
July-Sept.
Oct.-Dec.
Jan.-Mar
Apr.-June
July-Sept.
Oct.-Dec.
Jan.-Mar
Apr.-June
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
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U. S. Business Cycles
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10
0
–10
–20
‘90‘801860 ‘70 1900 ‘10 ‘20 ‘30 ‘40 ‘50 ‘60 ‘70 ‘80 ‘90 ‘102000
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
Civil War
Recoveryof 1895
World War I
Panicof 1893 Panic
of 1907Great
Depression
Korean War Vietnam War
World War II
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• Economic Growth• Productivity• Recessions and
Expansions• Unemployment • Inflation• Economic
Interdependence of Nations
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Calculating the Unemployment Rate
• The unemployment rate – the number of unemployed individuals divided by the number of people in the civilian labor force then multiplied by 100.
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How Accurate Is the Official Unemployment Rate?
• The unemployment rate includes as unemployed, people who say they are looking for a job who are really not.
• Many are “working off the books, others are vacationing.
• But does not include discouraged workers who have left the labor force.
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• Economic Growth• Productivity• Recessions and
Expansions• Unemployment • Inflation• Economic
Interdependence of Nations
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Inflation Since 1900
McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
3020101900 40 50 60 70 80 90 2000
–10
–5
0
5
10
15
20
25
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Real and Nominal Concepts
• Nominal output is the total amount of goods and services measured at current prices.
• Real output is the total amount of goods and services produced, adjusted for price level changes.
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• Economic Growth• Productivity• Recessions and
Expansions• Unemployment • Inflation• Economic
Interdependence of Nations
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Types of Economic Policy
• Fiscal
• Monetary
• Structural
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Positive versus Normative Statement
• Positive
How things are.
• Normative
How things should be.
