1. Presentation 1- Economic Growth
Macro Chapter 7
Presentation 1- Economic Growth

2. Consumer Price Index (CPI)
CPI reports inflation each month and year
Reports the price of a basket of 300 consumer goods a typical urban consumer would buy
Includes foreign goods
CPI
Price of the Most Recent Market
Basket in the Particular Year
Price of the Same Market
Basket in = x
100

3. GDP per Capita Divide GDP by the size of the pop.
US GDP 2010 was 14.3 Trillion
Population of US was 310 million
Per Capita = 14.3 trillion/310 million
= $46,860
US #13 (1. Luxembourg 2. Norway 3. Qatar
4. Switzerland 5. UAE)

4. Economic Growth An increase in real GDP over some time period
An increase in real GDP per capita occurring over some period of time

5. Main Sources of Growth Society can grow through:
1. Increasing inputs of resources
2. Increasing the productivity of the resources used
Productivity- real output per unit of input

6. Rule of 70 Approx number of years required to double GDP
= 70/annual percentage rate of growth
Ex- If China’s growth rate is 8%, it will take their economy about 9 years to double GDP
= 70/8= appx. 9

7. The Business Cycle

8. Downturn Recession / Contraction
6 months or more of decline in total output, income and unemployment
The period of time during which aggregate economic activity is falling
If the recession is particularly severe, it becomes a depression.
During a recession
Many sectors of the economy experience declining sales and production
Workers are laid off or forced to work only part-time
Peak: the point in which output starts to decline

9. Upturn
After reaching the low point of the contraction (the trough), aggregate economic activity begins to increase.
The period of time during which aggregate economic activity grows is an expansion or a boom.
The high point of the expansion is called a peak.

10. Demand-Pull Inflation
When resources are fully employed, the business sector cannot respond to excess demand by increasing output
Excess demand causes an increase in cost
“too much spending chasing too few goods”

11. Cost-Push Inflation
Rising per-unit costs of production lower profits and force the prices up
Supply Shock- abrupt increases in the cost of raw materials
Ex. Skyrocketing prices of oil in and
Per unit cost=
total input cost/# of units of output

12. Hyperinflation An extremely high and fast inflation rate
Ex- Germany in post-WW1
Serbia in 1994 the inflation rate went up 1.56 million %

13. COLA Cost of Living Adjustment
An increase in benefits as inflation occurs
EX- Retirement of Firemen increases by 3% each to keep up with the increased cost of living

14. Who is Hurt by Inflation?
1. Fixed Income Receivers- not adjusted for cost-of-living
2. Savers- real purchasing power of a saved account deteriorates
3. Creditors- lenders are repaid with money that has less purchasing power

15. Who is Not Hurt by Inflation?
1. Flexible income receivers- cost-of-living adjustments
2. Debtors- pay back loans with less valuable money