1. Macroeconomics
The Economy of a Nation

2. Microeconomics
Microeconomics examines the behavior of individual decision-making units—business firms and households.

3. Macroeconomics Macroeconomics deals with the economy as a whole
Concerned with 3 things
Output
Unemployment
Inflation/Deflation

4. Roots of Macroeconomics (Don’t Write)
In 1936, John Maynard Keynes published The General Theory of Employment, Interest, and Money
Keynes believed governments could intervene in the economy and affect the level of output and employment

5. Output
A nation’s output is measured by its Gross Domestic Product (GDP)
GDP is the total market value of all the final goods and services produced by an economy during a given year.
Does not include Intermediate Goods, which are good used in the production process (i.e. steel used in making cars)
Only includes newly produced goods that year. (i.e. a newly built house would be counted, but a house resold that was already built would NOT count)

6. GDP GDP is comprised of 4 things: 1.) Consumer Purchasing
2.) Private Investment Spending
3.) Government Purchasing
4.) Net Exports
(Total Exports-Total Imports)
Trade Deficit – when Imports are higher than Exports

7. Nominal vs. Real GDP
Nominal GDP – The value of GDP in current year prices
Real GDP – measure of GDP that controls for changes in prices

8. Nominal vs. Real GDP (example)
2002
2012
2 cars X $25,000/car=$50,000
3 computers X $2,000/computer= $6,000
Nominal GDP = $56,000
Real GDP = $56,000
2 cars X $50,000/car=$100,000
3 computers X $4,000/computer= $12,000
Nominal GDP = $112,000
Real GDP = $56,000

9. Output (part II)
GDP per capita shows the average productive capacity of a nation’s people.
We want to see annual GDP growth around 3%.
You can increase output in 2 ways
Adding laborers (more people)
Increased productive capacity (smarter people)

10. Top 20 GDP per capita

11. GDP Fluctuations
Recession – When Real GDP falls for 6 consecutive months (2 Quarters)
Depression – a severe and prolonged Recession. No exact measurement

12. US GDP

13. Labor Force
U.S. population 16 years and older falls into one of 2 categories
1.) Total Labor Force
Civilian employed
Armed Forces
unemployed (actively looking for work)
2.) Not in the Labor Force

14. Unemployment Rate
Unemployed – People without a job, and looking for a job
Labor Force – Total # of workers, both employed and unemployed
Unemployment Rate – The % of the Labor force that is Unemployed
Unemployed
labor force
X 100

15. Unemployment Rate (part II)
Unemployment rate of 5% is considered full employment
Doesn’t account for the following:
Involuntary part-time workers (only have to work 1 hour/week to be considered employed)
Discouraged workers (people looking, but quit looking after a while
People not looking for other reasons (no transportation, childcare, etc…)

16. Origin of Data?? (Don’t have to write!!)
Where do we get all this data??
Dept. of Labor (one of 13 Executive Departments)
Bureau of Labor Statistics (B.L.S.)
They conduct random surveys of households every month.

17. Types of Unemployment
1.) Cyclical – occurs when GDP falls or grows. (caused by changes in the Business Cycle)
2.) Frictional – occurs naturally during the workings of an economy. (changing jobs; post-graduation, etc…)
3.) Structural – occurs when the economy evolves. (ex. Telephone Operators)
4.) Seasonal – caused by recurring calendar events. (Teens working in summer; stores hiring ppl for Christmas; etc…)

18. Recent Unemployment Data (Don’t have to write!)
Total – 6.6%
Adult Men (20+) – 6.2%
Adult Women – 5.9%
Teens (16-19) – 20.7%
White – 5.7%
Black – 12.1%
Asian – 4.8%
Hispanic/Latino – 8.4%
Total (25yrs +) – 5.4%
No H.S. diploma – 9.6%
H.S. (no college) – 6.5%
Some college or 2-yr degree – 6.0%
Bachelors Degree or more – 3.2%

19. Tennessee Unemployment Rate

20. TN Unemployment

21. Inflation Federal Reserve Bank
Created to put an end to the periodic financial panics of the late 1880’s.
Created in 1913 by the Federal Reserve Act
Called “the Fed”

22. Federal Reserve Functions
Acts as a bank for the nation’s commercial banks
Commercial banks keep their reserves at the Federal Reserve Bank in their district
Issue and redeem currency
Clear and collect checks
Lend money to the banks
Central Bank of the United States
Regulates the Money supply of our nation

23. Money Supply Tight vs. Loose Monetary supply
Tight – Credit is hard and expensive to get.
Loose – Credit is easy and inexpensive to get.
Fractional Reserve Banking
Banks only have to keep a fraction of the deposits on hand, then rest can be used to make loans.
Reserve Requirements
The % of a banks deposits that must be kept on hand.

24. Regulating the Money Supply
Changing the Reserve requirements
Increasing the req. will take more money out of circulation, which will slow the economy.
Decreasing the Req. will put more money in circulation, which will spur growth.
Changing the Interest Rate
Lowering the rate will make it easier to get loans
Raising the rate will make loans more difficult to obtain.