Macroeconomics: The Bird’s-Eye View of the Economy
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Transcript of Macroeconomics: The Bird’s-Eye View of the Economy
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Macroeconomics: The Bird’s-Eye View
of the Economy
Macroeconomics: The Bird’s-Eye View
of the Economy
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 2
The Major Macroeconomic Issues
Economic growth and living standardsProductivityRecessions and expansionsUnemploymentInflationMacroeconomic Policies
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 3
The Major Macroeconomic Issues
Economic GrowthA process of steady increases in the
quantity and quality of the goods and services the economy can produce
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 4
Output of the U.S.Economy, 1900-2001
In 2001 output of the U.S. economy was:•25 times the 1900 level•5 times the 1950 level
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 5
Output per Person and per Worker in the U.S. Economy, 1900-2001
In 2001:•Output/person was 7 times the 1900 level•Output/worker was 5 times the 1900 level
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 6
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.
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 7
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.
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 8
The Major Macroeconomic Issues
ProductivityIn 2001 the average U.S. worker could
produce five times more than in 1900.Average labor productivity:
workeremployed per output employed people of Number
output Total
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 9
The Major Macroeconomic Issues
ProductivityU.S. trends in output per employed worker
1950 - 1973: increased 2.1%/yr1973 - 1995: increased less than 1%/yr1995 - present: increased nearly 2%/yr
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 10
Recessions and Expansions
Recessions: slowdowns in economic growth•1930s (depression); 1944-’45; 1973-’75; 1981-’82; 1990-’91;2001.Expansions: periods of rapid economic growth•1945-’48; 1961-’69; 1975-’80; 1982-’90; 1991-2001
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 11
The U.S. UnemploymentRate, 1900-2001
The unemployment rate:•% of the labor force that is out of workObservations:•Rises during recessions•Always greater than zero
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 12
Increases In Unemployment During Recessions
Unemployment rate at beginning of recession (%)
4.8 (Nov. 1973) 9.0 (May 1975) + 4.2
6.3 (Jan. 1980) 10.8 (Nov./Dec. 1982) + 4.5
5.5 (July 1990) 7.8 (June 1992) + 2.3
Peak unemployment
rate (%)
Increase in unemployment
rate (%)
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 13
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.
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 14
The U.S. Inflation Rate, 1900-2001
Prices in general are increasing over time.Inflation Rate measures the growth rate of the price level at a point in time.•Varies over time -- high in the ‘70s and low in the ‘90’s and today•Varies between countries -- in 2001 3% in U.S. & 400% in Ukraine
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 15
Macroeconomic Policy
Monetary PolicyDetermination of the nation’s money supplyControlled by the central bank or, in the
U.S., the Federal Reserve System (Fed)
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 16
Fiscal PolicyDecisions that determine the government’s
budget, including the amount and composition of government expenditures and government revenues
Macroeconomic Policy
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 17
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
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 18
Positive versus Normative Analyses of Macroeconomic PolicyPositive Analysis
Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable
Macroeconomic Policy
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 19
Positive versus Normative Analyses of Macroeconomic PolicyNormative 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
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 20
Aggregation
AggregationThe adding up of the individual economic
variables to obtain economywide totalsUsed to take a “bird’s-eye view” of the
economy