Macroeconomics Basics Macroconomics

The Business Cycle  The entire Business Cycles is measured by..  The elapsed time between peaks in the cycle.

The Business Cycle  A Peak is when business activity teaches a temporary maximum  Full employment  Near capacity output  Unemployment rate at its lowest

The Business Cycle  A Recession is a decline in..  Total output  Income  Employment  Trade lasting six months or more  Unemployment rate is beginning to rise

The Business Cycle  The Trough is the bottom of the Recession period.  Unemployment rate is at its highest.

The Business Cycle  Recovery is when …  Output and employment are expanding toward full- employment.  Unemployment is beginning to fall.

Employment and Unemployment Population is divided among … 1. < 16 years old 1.Not counted 2.Labor force 1.Employed 2.Unemployed – actively looking for employment 3.‘not in the labor force’

Employment and Unemployment Employed (E) are people who … 1. work at a job for pay 2.Without pay at least 15 hours 1.Family business

Employment and Unemployment Unemployed (U) are people who … 1. have no job 2.Temporarily laid off BUT actively looking for work

Labor Force Labor Force (LF) = E + U

Unemployment Rate Unemployment Rate (UR) is … % of the LF that is not employed UR% = 100(#U) / (#LF)

Aggregate Output  Aggregate Output is …  Economy’s total output of good and services  Given time period – usually a year  Closely related to Business Cycle  Strong economy  Many goods and service produced  Employment high  Unemployment low  Week economy is just the opposite for a strong economy

Inflation  Inflation is the rise in overall price level.  BAD because …  Reduces our ability to purchase goods/services  Our $$ does not go as far

Deflation  Inflation is the fall in the overall price level.  BAD because …  Consumers hold onto money waiting for a lower price.  Producers cannot sell  Producers lower prices  Consumers wait for still lower prices

The Use of Models in Economics  The Scientific Method  Used to establish theories, laws, and principles.  Theoretical Economics  Systematic arranging of facts  Interpretation of the facts  Making generalizations  “Other things equal”  Used to judge the effect one variable has upon another