Macroeconomics & the World Economy Day 1 – Macroeconomics Sometimes bigger IS better

Objectives Understand the difference between Macro and Micro Economics Terms: Microeconomics Macroeconomics Fiscal Policy Identify the 3 Measures of Performance Conservative Liberal Monetary Policy Compare inflation and deflation Inflation Deflation

Remind Me… What is the goal of Government in Economic Transactions? How do they accomplish this? How are governments NOT like businesses? Today… what happens if we’re looking at larger countries, or the economies between countries…. Things are about to go MACRO

Two Types of Economics… Micro Macro What we’ve been studying mostly What we began with Governments Individual Behavior Aggregate (or total) behavior Consumers, Producers Governments and Countries Small pieces The entire Puzzle

How KFC is doing = How all restaurants are doing = What Sesante wants to buy = What all Cadets are buying = How an entire country is doing = How the world economy is doing = Micro Macro Micro* Both MACRO

Principles of Macroeconomics How do we measure success in Macroeconomics? Can we judge governments the same way we judge businesses? 3 Measures of Performance Output (GDP) Unemployment Inflation

Principles of Macroeconomics We will discuss GDP on Wednesday, and Unemployment next week, but the way a country is “graded” in Macro is… 3 Measures of Performance Output (GDP) Unemployment Inflation

Principles of Macroeconomics So governments, are usually in charge of running a “Macroeconomy” (Economy as a whole) How do they do this? Fiscal Policy How a government changes spending levels and tax rates to influence the Economy i.e. we need more “growth” and we charge less in tax so people will spend

Fiscal Policy Some are very Conservative Some more Liberal They spend very little (get involved very little) Some more Liberal Spend a lot (and get involved a lot) These are also where those terms come from politically…

Monetary Policy Governments can also control the actual supply of money Monetary Policy How a Central “Authority” changes the money supply Wait… how is that even possible?

Monetary Policy We don’t mean just printing and giving out money, necessarily. We are talking about the “money” available to be borrowed. Banks, you see, borrow money from a central source In the U.S. it’s called the Federal Reserve How much they are willing to loan affects how much banks are willing to loan, and that affects interest rates, homes, etc.

Monetary Policy If the money supply grows too fast, inflation will result A general increase in price Decrease in purchasing value of money If it grows too slowly, economic growth will slow down So what does that actually mean? …

Inflation Do NOT confuse it with just the price of one good going up (like gas prices) But, for example, in 1950 a bottle of Coca-Cola was $0.05 Average in 2017 was $1.32 What’s the difference? Did the product change? Did the cost change? NO, in fact the average price of ALL products has changed proportionally since 1950 Deflation is the opposite – the purchasing power of money increase, and average price decreases

Next Time… GDP – How it measures an Economy as a whole and where does the U.S. rank And Next Week – The Labor Force And THAT will be it for Economics 101 

Objectives Understand the difference between Macro and Micro Economics Terms: Microeconomics Macroeconomics Fiscal Policy Identify the 3 Measures of Performance Conservative Liberal Monetary Policy Compare inflation and deflation Inflation Deflation