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

MB MC

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



Economic GrowthA process of steady increases in the

quantity and quality of the goods and services the economy can produce


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


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



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.



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.



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



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


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


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


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 (%)



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.


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


Macroeconomic Policy

Monetary PolicyDetermination of the nation’s money supplyControlled by the central bank or, in the

U.S., the Federal Reserve System (Fed)


Fiscal PolicyDecisions that determine the government’s

budget, including the amount and composition of government expenditures and government revenues



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.



Positive versus Normative Analyses of Macroeconomic PolicyPositive Analysis

Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable



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



Aggregation

AggregationThe adding up of the individual economic

variables to obtain economywide totalsUsed to take a “bird’s-eye view” of the

economy

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

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