I NTRODUCTION TO MACROECONOMICS. Key Economic Concept For This Module: A general understanding of the business cycle:

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Presentation transcript:

I NTRODUCTION TO MACROECONOMICS

Key Economic Concept For This Module: A general understanding of the business cycle:

The Business Cycle Peak - business activity reaches a temporary maximum and unemployment rate is at its lowest level. Recession - decline in total output, income, employment, and trade lasting six months or more. The unemployment rate is beginning to rise. Trough - bottom of the recession period. The unemployment rate is at its highest level. Recovery - output and employment are expanding and unemployment rate is beginning to fall.

Employment/Unemployment The population is divided into three groups for the purpose of surveying labor force participation: 1. those under age 16 or institutionalized (in the military or incarcerated) are not surveyed. 2. the labor force, which includes people working (employed) and those not working, but are actively seeking work (unemployed). 3. those “not in labor force.”

Unemployment Rate Employed-worked at least ONE paid hour Unemployed-actively looking for work E + U =Labor Force UR% is the % of people looking for work that cannot find work.

Unemployment rates by nation

Unemployment Unemployment can create some desperate acts… Seinfeld Clip

Aggregate Output Aggregate output: the economy’s total production of goods and services for a given time period, usually a year Aggregate output is closely related to employment. When the economy is strong & unemployment is low, you have higher output When the economy is weak & unemployment is high, you have lower output

Inflation/Deflation Inflation: a rise in the overall price level. Inflation reduces our ability to purchase goods and services. Deflation: a fall in the overall price level. When overall prices are falling, consumers will hold onto their dollars and continue to wait for lower and lower prices.

Economic Growth Gross Domestic Product is a measurement of the economy.

The Use of Models in Economics Economists use scientific methods to establish theories, laws, and principles through the creation of models. Models allow economists to focus on the effects of only one change at a time This is called “All other things equal assumption” or ceteris paribus in Latin