Barnett UHS AP Econ MACROECONOMIC GOALS

 Full Employment  That does NOT mean that everybody has a job  There is always going to be some people unemployed  Civilian Labor Force:People 16 or older who have looked for a job in the past 4 weeks  Goal: 5-6% unemployment rate considered the “natural rate” or “target rate”  Every tenth of a point = 150,000 workers UNO

 In order for unemployment to decrease 1 one percent, the economy must grow an extra 2 percent. (Okun’s rule of thumb).  Current Rate: 7.7% FED goal: 6.6%  Would require 1.9 million jobs created  Job growth averaging around 150,000 each month  Should take around _____ to reach goal  But… UNO

Unemployment in Other Countries

 Three types of unemployment  Frictional Unemployment – Temporary  Workers moving from one job to another  Students heading off into the “real world” UNO

 Three types of unemployment  Structural Unemployment - Permanent  When there is a mismatch between the skills of unemployed workers and the needs of the economy  Can retrain themselves  Be entrepreneurial and use their skills in novel ways  Can move to where their skills are in demand  Assembly line workers replaced by robots UNO

 Three types of unemployment  Cyclical Unemployment  Due to contractions (downs) from normal business cycles  Businesses lay off workers when the economy goes down UNO

 Second Goal: Stable Prices – Reasonable inflation rate  Inflation – Increase in the average level of prices over a given time period  Goal: 3% inflation rate (considered stable prices)  Mo’ Money, Mo’ Tomatoes DOS

 Second Goal: Stable Prices – Reasonable inflation rate  Disinflation: When the price level increases from year to year but at decreasing rate  Year 1 to Year 2 = 3% increase in prices  Year 2 to Year 3= 2% increase in prices DOS

 Second Goal: Stable Prices – Reasonable inflation rate  Deflation: Price level increase is actually negative  Price level drops to -1% in a year  Buy 2 cars now? DOS

 How is inflation rate measured?  CPI (Consumer Price Index)  PPI (Producer Price Index)  GDP deflator = (Nominal GDP/Real GDP) x 100  CPI  Current CPI inflation rate is: 1.8 percent  later year - earlier year x 100  earlier year DOS

 GDP Deflator  Uses 2005 as base year. Set to 100 with other years reported relative to the 2005 dollar.  The GDP Deflator for 2010 was On average the 2005 dollar could buy (10.99/100) 10.99% more than the 2009 dollar.  The GDP Deflator for 1950 was On average the 1950 dollar could buy (100/14.65) 6.82 times as many goods as the 2005 dollar. DOS

Current Consumer Price Index YearJanFebMarAprMayJunJulAugSepOctNovDecAvg NA Get more Historical Data from InflationData.com CPI

Inflation Rate

 Third Goal: Economic Growth  Determined by growth in Real GDP  GDP = Gross Domestic Product  GDP = Market value of all final goods and services produced in an economy in a year  Goal: 3% annual growth TRES

 Third Goal: Economic Growth  Difference between nominal and real GDP  Nominal – does not include inflation  Real GDP - includes inflation  Real – TRES

 GDP Components  Components:C = consumption70  I = investment17  G = government expenditures17  Nx = net exports-4  ______________________________________________________  100 percent  The allocation will vary from year to year but must add up to 100 percent. TRES

 Fourth Goal: Favorable Balance of Trade  X = exports  M = imports  X>M = trade surplus  X<M = The USA! (trade deficit)  2008 trade deficit = $673 billion  Better to have strong or weak currency? CUATRO

 Fifth Goal: Limiting Government Growth/Spending  Measured by looking at the rate of government spending relative to the real GDP growth CINCO

 1. Full Employment  2. Stable Prices  3. Economic Growth  4. Favorable Balance of Trade  5. Limiting Government Growth HIGH FIVES FOR MACRO!