Copyright The McGraw-Hill Companies 19-1 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show 19 Introduction to Economic Growth Unemployment and Inflation

Copyright The McGraw-Hill Companies 19-2 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Chapter Objectives The Business Cycle and its Primary Phases How Economic Growth is Measured and Why is it Important How Unemployment and Inflation are Measured The Types of Unemployment and Inflation and their Various Economic Impacts

Copyright The McGraw-Hill Companies 19-3 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth Increase in Real GDP Increase in Real GDP Per Capita Growth as a Goal Arithmetic of Growth –Rule of 70 Approximate number of years required to double real GDP = 70 annual percentage rate of growth 19.1

Copyright The McGraw-Hill Companies 19-4 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth in SA (1) Year (2) Real GDP (4) Real GDP per capita (5) % Change in Real GDP Per Capita (Year to Previous Year) …in millions of rands (3) % Change in Real GDP (Year to Previous Year) Source:

Copyright The McGraw-Hill Companies 19-5 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth Main Sources of Growth Increases in Inputs Increases in Resource Productivity Growth in S.A. –Improved Products and Services –Added Leisure –Other Impacts

Copyright The McGraw-Hill Companies 19-6 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show The Business Cycle Level of Real Output Time Peak Recession Expansion Trough Growth Trend 19.1 Phases of the Business Cycle Cyclical Impact: Durables and Nondurables

Copyright The McGraw-Hill Companies 19-7 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Twin Problems of the Business Cycle –Unemployment –Inflation Measurement of Unemployment Labor Force Unemployment Rate –Part-Time Employment –Discouraged Workers Unemployment Rate Unemployed Labor Force = x

Copyright The McGraw-Hill Companies 19-8 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Types of Unemployment –Frictional Unemployment –Structural Unemployment –Cyclical Unemployment Full Employment –Natural Rate of Unemployment (NRU)

Copyright The McGraw-Hill Companies 19-9 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment in SA % 57.7% % 56.3% % 54.8% % -2.9% Population Labour Force Employed Unemployed Not Economically Active Unemployment rate Labour Force Participation rate Jul-Sept 2008 Year on Year Change …in thousands Source: Apr-Jun 2009 Jul-Sept 2009

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Economic Cost of Unemployment Potential Output GDP Gap Actual GDPPotential GDP = -

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Unequal Burdens –Occupation –Age –Race and Ethnicity –Gender –Education –Duration Noneconomic Costs

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Inflation Defined Measurement of Inflation –Consumer Price Index CPI Price of the Most Recent Market Basket in the Particular Year Price of the Same Market Basket in = x 100

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Annual Inflation Rate in South Africa, Source: StatsSA

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Source: Bureau of Labor Statistics U.S. Germany Italy Japan France Inflation Rate (percent) Inflation Rates in Five Industrial Nations, GLOBAL PERSPECTIVE

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Types of Inflation –Demand Pull Inflation –Cost-Push Inflation Per Unit Production Costs Redistributive Effects –Nominal and Real Income –Anticipations Anticipated Inflation Unanticipated Inflation 19.3

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Who is Hurt by Inflation? –Fixed-Income Receivers –Savers –Creditors Who is Unaffected or Hurt by Inflation? –Flexible-Income Receivers Cost-of-Living Adjustments (COLAs) –Debtors

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Anticipated Inflation –Nominal Interest Rate –Real Interest Rate –Inflation Premium Nominal Interest Rate Real Interest Rate Inflation Premium 11% 5% 6% =+ 19.2

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Cost-Push Inflation and Real Output Demand-Pull Inflation and Real Output Inflation targeting in S.A. Hyperinflation –Case of Zimbabwe

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show The Stock Market and the Economy Supply and Demand in the Stock Market Collective Expectations of Future Profits and Losses Volatility of the Stock Market Wealth Effect Investment Effect Studies Show Consumption and Investment Unaffected Little Impact on Macro economy Stock Market Bubbles Do Have an Impact Stock Price Cycle Predictions Index of Leading Indicators Stock Prices Not a Reliable Predictor Alone Last Word Do Stock Prices Affect Macroeconomic Instability?

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Key Terms economic growth real GDP per capita rule of 70 business cycle peak recession trough expansion labor force unemployment rate frictional unemploymentfrictional unemployment structural unemploymentstructural unemployment cyclical unemployment natural rate of unemployment (NRU)natural rate of unemployment (NRU) potential output GDP gap inflation Consumer Price Index (CPI)Consumer Price Index (CPI) demand-pull inflation cost-push inflation per-unit production costsper-unit production costs nominal income real income anticipated inflation unanticipated inflation real interest rate nominal interest rate Inflation targeting hyperinflation

Copyright The McGraw-Hill Companies Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Next Chapter Preview… Government and Market Failure