1. Econ 102 Introduction Instructor for Econ 102
Dr (Mrs) Nkechi S. Owoo
OH- Fridays: 12- 1pm
Format of Course Instruction for this semester
Other lecturer
Dr William Bekoe
Course Outline
Econ 102 Course Outline 2014_2015.doc
Class account

2. Econ 102- Lecture 1 General Expectatations Class Representative
Attend all class sessions
Class disruptions
PARTICIPATE in class
Class sample problems
‘Take-home’ questions
Class Representative
Class account?

3. An Introduction to Macroeconomics
Lecture 1
An Introduction to
Macroeconomics

4. Macroeconomic Goals Photographs of earth taken from satellites
What does earth look like? Seas? Mountains?
Customary view of earth surface
Cars, trees, buildings…
Different ways of viewing the economy
Macroeconomic view
Microeconomic view

5. Macroeconomic Goals Which view is better? Depends on aim But..
Why are computers getting better and cheaper every year?
Why are earnings of skilled workers rising every year while earning of unskilled workers fall?
But..
Overall level of economic activity in economy
What percentage of the workforce is unemployed

6. Macroeconomic Goals Microeconomics Macroeconomics
Behavior of individual decision makers and individual markets
Who?
Macroeconomics
Broad outlines of the economy
Although disagreement about how to make macroeconomy perform well;
Economic growth
Full employment
Stable prices
Why?

7. The History of Macroeconomics
The Great Depression was a period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.
Causes
Stock bubbles
Unregulated markets
Contractionary monetary policy
Consequences
Decline in economic activity
Rapid deflation
Production – declined 30%
Unemployment rate
Increased from 3% to 25%

8. The History of Macroeconomics
The Great Depression,
Revolution in economic thought
Before: economy corrects itself
After: decrease in aggregate demand cannot recover by themselves (J. M. Keynes)
Monetary & fiscal policy needed
Development of macroeconomics
Keynes believed governments could intervene in the economy and affect the level of output and employment.
During periods of low private demand, the government can stimulate aggregate demand to lift the economy out of recession.
In 1936, John Maynard Keynes published The General Theory of Employment, Interest, and Money

9. Macroeconomic Concerns
Three of the major concerns of macroeconomics are:
Economic growth
Unemployment
Inflation

10. Economic Growth
Typical Ghanaian living at beginning of the 20th century…
Work a full week, and yearly salary of Ghc500 would buy a bit less than Ghc20,000 would buy today
Expect to die at age of about 40
If fell seriously ill, doctor couldn’t help much- no X-ray machines, blood tests, etc
Today, typical Ghanaian much better off….
Greater variety of goods and services.
Can expect to live much longer than 40 years
Better diagnostic medical instruments to cure diseases
Machines to make life easier- laundry, dishes, cars, etc

11. Economic Growth What is responsible for dramatic changes?
Increase in production of goods and services
Real GDP
Total quantity of goods and services produced in a country over a year
Increasing faster than the population in some countries
When real GDP rises faster than population growth, output per person and average standard of living rises
Average person today consumes much more than in the year 1990

12. Economic Growth
Figure 1 U.S. Real Gross Domestic Product, 1929–2006

13. Ghana GDP trend,

14. Economic Growth What do you notice about the two graphs wrt to:
GDP over time
Rate of growth over time

15. Economic Growth Growth increases size of economic pie
Everyone gets a larger slice... In principle
Does growth really benefit everyone in practice?

16. Economic Growth Going forward:
What makes real GDP grow in the first place?
Why does it grow faster in some periods than in others?
Why do some countries experience very rapid growth (e.g. US) while other countries hardly grow at all?
Can government policy do anything to alter the rate of growth?
Are there any downsides to such policies?

17. High Employment/Low Unemployment
Economic growth not only important goal in macroeconomics
Suppose real GDP growing at 4% but about 10% of workforce was unable to find work…
Would the economy be performing well?
Why/ why not?

18. High Employment/Low Unemployment
Unemployment affects distribution of economic well-being among unemployed citizens
People who cannot find jobs suffer loss of income and lower living standards
Unemployment also affects those who have jobs
Many people who could be working to increase the amount of goods and services in economy are not doing so
Lower average standard of living

19. High Employment/Low Unemployment
Unemployment rate
Percentage of the workforce that is searching for a job but hasn’t found one
High unemployment rate implies economy is not achieving its full economic potential

20. U.S. Unemployment Rate, 1920–2006
Figure 2 U.S. Unemployment Rate, 1920–2006

21. Ghana Unemployment Rate, 1992- 2010

22. Employment and the Business Cycle
Real GDP and employment are closely related
How?

23. Employment and the Business Cycle
Real GDP and employment are closely related
How?
Firms produce more
Hire more workers
Firms produce less
Lay off workers
Business cycles
Fluctuations in real GDP around its long-term growth trend

24. The Business Cycle Figure 3 The Business Cycle Time Real GDP
Long-run upward trend of real GDP
The business cycle fluctuation of actual output around its long-run trend.
Expansion
Recession
Expansion

25. Employment and the Business Cycle
Expansion
A period of increasing real GDP
Increasing employment
Contraction
A period of declining real GDP
Decreasing employment
Recession
A contraction of significant depth and duration
Depression
An unusually severe recession

26. Unemployment Going forward....
Why is unemployment often higher than the intended target?
What causes average unemployment rate to fluctuate from year to year?
Why are there business cycles?
Is there anything we can do to prevent recessions from occurring, or at least make them milder and shorter?

27. Inflation and Deflation
an increase in the overall price level.
Hyperinflation
a period of very rapid increases in the overall price level.
Hyperinflations are rare, but have been used to study the costs and consequences of even moderate inflation.
Deflation
a decrease in the overall price level.
Prolonged periods of deflation can be just as damaging for the economy as sustained inflation.

28. Stable Prices- Inflation
Percentage increase in the average level of prices
Extreme case- Zimbabwe
For a period, inflation had been above 100% since 2001
In Nov 2008, annual rate of inflation was ,700,000,000,000,000,000, (89.7 sextillion)
Prices were doubling every day
If an item cost you a dollar at the beginning of the month, would cost $1bn at the end of the month

29. Stable Prices A low inflation rate - important macroeconomic goal
Inflation is costly to society
Why?

30. Stable Prices
No-one willing to hold domestic currency, or accept it as payment
Extreme case- people waste time and resources bartering with each other
Little time left for producing goods and services
Average standard of living falls

31. Stable Prices ...However, some level of inflation good Why?
What is Ghana’s current inflation rate?

32. Stable Prices Going forward.... What causes inflation/deflation?
How would a moderately high inflation rate of say 7 or 8% harm society?
How does a recession bring down the inflation rate, and how does the government actually create a recession?
Why might a period of decreasing prices be a threat to the economy?

33. Next Class The circular flow of income and expenditure
National Income Accounting
Definition (and measurement) of national income