MBMC 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 standards Productivity Recessions and expansions Unemployment Inflation Macroeconomic Policies

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 3 The Major Macroeconomic Issues Economic Growth A process of steady increases in the quantity and quality of the goods and services the economy can produce

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 4 Output of the U.S. Economy, In 2001 output of the U.S. economy was: 25 times the 1900 level 5 times the 1950 level

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 5 Output per Person and per Worker in the U.S. Economy, In 2001: Output/person was 7 times the 1900 level Output/worker was 5 times the 1900 level

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 6 The Major Macroeconomic Issues 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.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 7 The Major Macroeconomic Issues 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.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 8 The Major Macroeconomic Issues Productivity In 2001 the average U.S. worker could produce five times more than in Average labor productivity:

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 9 The Major Macroeconomic Issues Productivity U.S. trends in output per employed worker  : increased 2.1%/yr  : increased less than 1%/yr  present: increased nearly 2%/yr

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 10 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;

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 11 The U.S. Unemployment Rate, The unemployment rate: % of the labor force that is out of work Observations: Rises during recessions Always greater than zero

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 12 Increases In Unemployment During Recessions Unemployment rate at beginning of recession (%) 4.8 (Nov. 1973)9.0 (May 1975) (Jan. 1980)10.8 (Nov./Dec. 1982) (July 1990)7.8 (June 1992)+ 2.3 Peak unemployment rate (%) Increase in unemployment rate (%)

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 13 The Major Macroeconomic Issues 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.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 14 The U.S. Inflation Rate, 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 % in U.S. & 400% in Ukraine

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 15 Macroeconomic Policy Monetary Policy Determination of the nation’s money supply Controlled by the central bank or, in the U.S., the Federal Reserve System (Fed)

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 16 Fiscal Policy Decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues Macroeconomic Policy

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 17 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. Macroeconomic Policy

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 18 Positive versus Normative Analyses of Macroeconomic Policy Positive Analysis  Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable Macroeconomic Policy

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 19 Positive versus Normative Analyses of Macroeconomic Policy Normative Analysis  Addresses the question of whether a policy should be used; normative analysis inevitably involves the values of the person doing the analysis Macroeconomic Policy

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy Slide 20 Aggregation The adding up of the individual economic variables to obtain economywide totals Used to take a “bird’s-eye view” of the economy