Intro to Macroeconomics Define Macroeconomics and Contrast with Microeconomics

U.S. Economic Confidence We often hear about our economy being “bad,” “unhealthy,” etc. What do YOU think makes an economy healthy or unhealthy?

Economic Confidence Do YOU think our economy is getting better, or getting worse? Why? How would YOU rate the economic conditions in the U.S.? – Excellent, very good, good, bad, very bad, terrible – Why?

Do YOU think the United States is in a Recession or not? Why? One year from now, do you think the national economy will be better, the same, or getting worse? Why?

Macroeconomics focuses on the ENTIRE economy (all people and all goods) at once. Some questions to consider… - How healthy is the economy? -What is the unemployment rate? -Is the economy “growing”? -How does inflation affect us?

Let’s meet our key players in Macroeconomics: GovernmentFederal Reserve Banks People

There are three major goals of Macroeconomics for an economy to be healthy. Full Employment Stable Prices Economic Growth

The Labor Force (work force) consists of the people the government considers to be employed or unemployed.

The labor force includes anyone that is (or could be) working In the labor force… year-olds Are counted as being either EMPLOYED or UNEMPLOYED NOT in the labor force… 65 -in jail -full-time students choosing not to work -disabled/hospitalized -housewife/stay-at- home parents -retired

One method the government uses to research unemployment is the labor force phone survey

Full employment (95-96%) is one element of a healthy economy. Why is “Full Employment” not 100%???

The current unemployment rate is 6.7% (March 2014) Is this good or bad? It depends…… (10.5 Million people—3.5 million unemployed long term –27 weeks or more) What about those “discouraged” workers? What types of jobs are being added to the work force?

“Discouraged” workers are NOT counted as being unemployed There were 855,000 “discouraged” workers in February. Is this a big deal? It depends on how long they are discouraged for!

An UNDEREMPLOYED person works full-time, but receives no healthcare/vacation benefits Then

Does Unemployment mirror poverty? RACEUNEMPLOYMENT RATE POVERTY RATE White6.8% (February 2013) 9.8% Black13.8% (February 2013) 27.6% Hispanic9.6 % (February 2013) 25.3% Asian6.1% (February 2013) 12.3%

Bell work: Discuss with a partner… What is the ideal rate for “full employment”? Why can’t it be at 100%? Who is in the labor force? Who is not in the labor force? What is the difference between an underemployed worker and a discouraged worker?

The second goal of a healthy economy is stable (unchanging) prices. Inflation: Sustained and continuous increase in the average of all prices over time. Deflation: A decrease in the average of all prices over time. VS.

The ideal rate of price stability is 3.5% INFLATION

Inflation and Purchasing Power Purchasing Power- the ability to purchase goods and services As prices rise, the purchasing power of money declines.

The government uses two methods to measure price changes. 1.Producer Price Index (PPI) Producers are randomly chosen and monitored to analyze price changes 2. Consumer Price Index (CPI) Thousands of consumer goods analyzed over time for changes that occur

The current CPI is 1.6% INFLATION February Is this good or bad? Who gains from prices increasing? -Producers make more money! Who loses from prices increasing? -Consumers pay higher prices!

To Review, discuss with a partner… What is inflation? Deflation? What is the ideal rate of price stability? How do we measure price stability?

A third goal for a healthy economy is economic growth, which is measured as Gross Domestic Product (GDP). GDP is the value of all goods and services produced inside a country’s borders within one year’s time.

The ideal rate of economic growth is approximately 3.5% real GDP Why do you think the government pays attention to the amount and value of all things produced in the U.S. in a year’s time? If more goods/services are produced, what MIGHT this tell us about what’s going on in the rest of the economy?

Is Economic growth a good thing? Theory says… -More goods/services being produced -More productivity -More jobs (lower unemployment level) But, reality tells us… -Wasted resources/goods we don’t need? -Happy workers? -Workers replaced by technology?

What happens when GDP decreases? -Recession: negative growth in GDP for 6 to 9 months -Depression: negative growth in GDP for 1 year +

Current GDP Increase from 2011 to % Increase from 2012 to % Is this good or bad? What might be reasons? I

There are some PROBLEMS with using GDP to measure the growth of an economy. 1.It doesn’t measure illegal activities (babysitting, “under the counter” payments) 2.It doesn’t measure well-being and quality of life (leisure time is not measured, etc.) 3.Negative outcomes are rewarded (ex. Depleting/destroying the environment can lead to an increase in GDP!)

To review, discuss with a partner… What is GDP? What does it mean when GDP increases? Decreases? What are the problems with GDP?

To Review…. For the categories below, explain the main idea and compare the optimal rates with their current rates: 1.Employment/unemployment: 2.Inflation: 3.Economic growth: