MAROECONOMICGOALS

WHAT ARE THE COMPONENTS OF GROSS DOMESTIC

PRODUCT?HOW DO WE MEASURE THE

ECONOMY TO SEE IF WE ARE MEETING ECONOMIC GOALS?

FULL EMPLOYMENTPRICE STABILITY

ECONOMIC GROWTH

HOW DO I KNOW

TWO LAWS OF THE LAND

EMPLOYMENT ACT OF 1947

• COMMITTED THE FEDERAL GOVERNMENT TO MAXIMIZE EMPLOYMENT AND ECONOMIC GROWTH, AND MAINTAIN A STABLE PRICE LEVEL

THE FULL EMPLOYMENT AND BALANCED GROWTH ACT OF

1978

• REACH AN UNEMPLOYMENT RATE OF 4%

• STABILIZE THE PRICE LEVEL WITH A TARGET INFLATION RATE OF ZERO %

• MAINTAIN STEADY ECONOMIC GROWTH

FULL EMPLOYMENT

• WHY IS IT IMPORTANT?

ZERO INFLATION

• WHY IS IT IMPORTANT?

STEADY ECONOMIC GROWTH

• WHY IS IT IMPORTANT?

IN GENERAL,THE GOALS CONFLICT

SOCIETY IS FACED WITH TRADE-OFFS

OUR JOB IS

• TO UNDERSTAND THE VALIDITY OF THE MEASUREMENT OF ECONOMIC VARIABLES

IN ORDER TO

UNDERSTAND THE IMPLICATIONS OF THE TRADE-OFFS AMONG GOALS

Read activity 11

THE UNEMPLOYMENT RATE IS A BROAD MEASURE OF ECONOMIC ACTIVITY

• TO EMPLEMENT PROGRAMS TO HELP THE UNEMPLOYED, WE NEED TO KNOW MORE ABOUT THEM– SKILL LEVEL– ETHNIC & RACIAL GROUPS– AGE GROUPS

The unemployed does not include

• The military*

• The too old (over 65)

• The too young (under 16)

• The unable (institutionalized)

• The unwilling

The unemployment rate

number of unemployed

• UR = ---------------------------------- * 100

labor force

The labor force participation rate

number in labor force

• LFPR = ------------------------------ * 100

adult population

CPI – THE CONSUMER PRICE INDEX

current year price

• CPI = --------------------------------- * 100

base year price

Base year index is always 100

• Subtract the base year index

from any year’s index to determine the percent change in prices from the base year

Year to year price change

new cpi – old cpi

• Price change = ------------------------ * 100

old cpi

The cpi

• Measures the price level

• And from this the inflation rate can be calculated

• Includes items people may not buy every year, ie; house, car – thus may overstate actual change in cost of living

Real vs Nominal GDP

• The growth rate of Real GDP is a better measure of macroeconomic conditions than growth rate of Nominal GDP because nominal GDP includes effects of inflation

• The growth rate of real GDP per capita captures a measure of changes in the standard of living

The GDP Deflator

• Real GDP = nominal GDP/the index

Short-run economic growth

• Measures changes in real output because of more or less labor applied to the existing level of technology and capital stock

• Measured quarter to quarter or year to year

The real interest rate

Real rate = nominal rate – rate of inflation

Long-run growth

• Changes in productive capability through changes in the amount of – Plant, equipment and resources– Technology– Labor force: size

• And Quality– Education and skill level

For economists and the AP exam!

• Short-run growth refers to fluctuations in real output

• Economic growth refers to Long-Run growth, changes in the economies ability to produce