Post on 19-Oct-2014
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Macroeconomics
The study of behavior and decision-making of entire economies
Macroeconomic QuestionsWhy does output fluctuate?
What determines economic growth?
Why do we have unemployment?
Why do we have inflation?
Which governmental policy affects output, growth, unemployment, and inflation?
How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?
How do domestic economic activities affect other countries and our trade? And vice-versa, no?
GDP• value of all final goods produced
consumption + investment + Gov’t. purchases + exports – import spending = GDP
• better measure of production than GNP (NET exports)
Macroeconomic QuestionsWhy does output fluctuate?
What determines economic growth?
Why do we have unemployment?
Why do we have inflation?
Which governmental policy affects output, growth, unemployment, and inflation?
How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?
How do domestic economic activities affect other countries and our trade? And vice-versa, no?
How to measure if the econ. growing?
• Durable goods
How to measure if the econ. growing?
• Durable goods• CPI
How to measure if the econ. growing?
• Durable goods• CPI - market basket
How to measure if the econ. growing?• Durable goods• CPI (market basket)
O%
-1
-2
+1
+.25
O%
+.50
-.25
Consumer Price Index All Goods
CPI
LESS Food and EnergyJan ‘99 Oct ‘09
How to measure if the econ. growing?
• Durable goods• CPI • inflation diff. in CPI divided by base CPI
(we’ll calculate it shortly)
How to measure if the econ. growing?
• Durable goods• CPI • inflation diff. in CPI divided by base CPI
(we’ll calculate it shortly)
• unemployment
Macroeconomic QuestionsWhy does output fluctuate?
What determines economic growth?
Why do we have unemployment?
Why do we have inflation?
Which governmental policy affects output, growth, unemployment, and inflation?
How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?
How do domestic economic activities affect other countries and our trade? And vice-versa, no?
Macroeconomic Goals
•Full Employment
•Price Stability
•Economic Growth
Inflation and Unemployment!!
Two Things that’ll Make You Sad ‘ ,_,__
Why do we have inflation?Two Theories on Inflation
• cost-push - increase wages, raise prices, pay high prices, demand higher wage, etc. (PRODUCERS)
• demand-pull - too much demand (CONSUMERS)
Workers’ wages ↑
Company ↑ prices to pay for ↑ wages
Consumers pay ↑ prices
Workers (consumers) demand ↑ wages b/c prices
going up
Inflation
• Purchasing power• Real income effect
Calculating Inflation
• CPI recent yr.– CPI earlier yr. X 100 = Inflation
CPI earlier yr.
(% change in price)
EX = 2004 Honda Accord $20,000 2005 Honda Accord $21,5007.5% increase in price
Another Macroeconomic Measure: Unemployment
Jan ‘99
4
66
88
10%
Oct. ‘09Jan ‘06Jan ‘03
U.S. Unemployment Rate 1999-2009
Definitions of Employed, Unemployedand Unemployment Rate
•Employed = everyone currently working
•Unemployed = people looking or temp. laid off from work
•Labor force = employed + unemployed
•Unemployment Rate = unemployed labor force
Why do we have unemployment?Types of Unemployment
• seasonal • cyclical• structural • frictional
Fini!