Introduction to Macroeconomics LAST! ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

Three major macroeconomic goals: 1.EMPLOYMENT & UNEMPLOYMENT Maintaining employment of ________ resources at relatively high levels 2.INFLATION Maintaining prices at a relatively _________ level as consumers & producers can make better decisions 3.ECONOMIC FLUCTUATIONS The 4 phases in the changes in the _________ ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 Macroeconomic Goals

Gross domestic product, GDP Total value of all final ________ & ___________ Produced in a given period of time, such as a year or a quarter Real gross domestic product, RGDP Total value of all final goods and services Produced in a given ________, such as a year or a quarter Adjusted for _________ ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Macroeconomic Goals

Consequences of high unemployment Lower ______ prices Financial ___________ and a great deal of anxiety Increase tensions and despair Great suffering Society ________ some potential output of goods Loss in efficiency Labor force The number of people aged 16 and older who are available for employment Not counted in the labor force People in the __________ services Those in prisons or _________ hospitals Homemakers, retirees, and full-time students ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part EMPLOYMENT AND UNEMPLOYMENT

Unemployment rate The ___________ of the population aged 16 and older Who are willing and able to _______ But are unable to obtain a job ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 Employment and Unemployment

U.S. Unemployment Rates, 1960–2012 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 EXHIBIT 11.2

Unemployment in the United States by Age, Sex, and Race ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 EXHIBIT 11.3

Categories of unemployed workers Job losers: those who have been temporarily laid off or fired Job leavers: those who have ______ their jobs Reentrants: those who worked ________ and are reentering the labor force New entrants: those entering the labor force for the _______ time (primarily ____________) ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 Employment and Unemployment

Reasons for Unemployment ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 EXHIBIT 11.5

Duration of Unemployment ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 EXHIBIT 11.6

Labor Force Participation Rates for Men and Women ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11 EXHIBIT 11.7

Unemployment Rates of Five Industrialized Nations, 2001–2011 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12 EXHIBIT 11.8

At wages higher than the equilibrium wage Quantity __________ of labor is higher than the quantity ___________ of labor Surplus of ________ Unemployment Reasons Minimum wage Unions Efficiency ________ theory ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 Reasons for Unemployment

Wages above Equilibrium Lead to Greater Unemployment ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14 EXHIBIT 11.9 Real Wage Quantity of Labor 0 Labor Supply Labor Demand WEWE W1W1 QSQS Surplus of Labor (Unemployment) QDQD QEQE

Price level Average level of _________ in the economy Inflation A rise in the overall price level / __________ the purchasing power of money Deflation A decrease in the overall price level / Increases the purchasing power of money Disinflation A reduction in the rate of ___________ Purchasing power How much a dollar can buy of _______ & __________ Relative price The price of a specific good compared to the price of other goods Price index A measure of the trend in prices _____ for a certain bundle of goods and services over a given period Consumer price index, CPI A measure of the cost of a market __________ that represents the consumption of a typical household ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part INFLATION

The Typical CPI Shopping Basket of Goods and Services ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16 EXHIBIT 11.11

Inflation Rates of Five Industrialized Nations, 2001–2011 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17 EXHIBIT 11.13

Business cycles Short-term ____________ in the economy relative to the long-term trend in output Short-term ups and downs in __________ activity Four phases Expansion Peak Contraction Trough ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ECONOMIC FLUCTUATIONS

Business Cycles and Economic Growth ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19 EXHIBIT 11.14

Four Phases of a Business Cycle ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20 EXHIBIT 11.15

Expansion When output (real GDP) is rising __________ Period between the trough of a recession and the next peak Peak Point in time when ___________ comes to an end When output is at the highest point in the cycle Contraction When the economy is _________ down Measured from the peak to the trough Trough Point in time when output ________ declining When business activity is at its ________ point in the cycle ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21 Economic Fluctuations

Recession Period of significant _________ in output and employment Lasting more than a few months Depression Severe __________ or contraction in output Boom Period of prolonged economic __________ ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 Economic Fluctuations

A Historical Record of U.S. Recessions, 1920–2011 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23 EXHIBIT 11.16