1. 1 The Bird’s-Eye View of the Economy Chapter 4

2. 2 Macroeconomics is the study of the aggregate moods of the economy. First major macroeconomist: John Maynard Keynes The General Theory of Employment, Interest and Money (1936)

3. 3 In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again. --John Maynard Keynes

4. 4 The Major Economic Issues Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations

5. 5 1.Economic Growth 2.Productivity 3.Recessions and Expansions 4.Unemployment 5.Inflation 6.Economic Interdependence of Nations

6. 6 Growth Real output growth in the U.S. has been 2.5 to 3.5 percent per year since the late 19 th century.

7. 7 Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations Total output divided by total number of hours worked.

8. 8 The economy’s short run changes. Trend versus cycle. Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations

9. 9 Expansion Recession The Phases of the Business Cycle Boom Secular growth trend Downturn Upturn Trough Peak 0 Jan.- Mar Total Output Apr.- June July- Sept. Oct.- Dec. Jan.- Mar Apr.- June July- Sept. Oct.- Dec. Jan.- Mar Apr.- June McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

10. 10 U. S. Business Cycles McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. Civil War Recovery of 1895 World War I Panic of 1893 Panic of 1907 Great Depression Korean War Vietnam War World War II

11. 11 Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations

12. 12

13. 13 Calculating the Unemployment Rate The unemployment rate – the number of unemployed individuals divided by the number of people in the civilian labor force then multiplied by 100.

14. 14 How Accurate Is the Official Unemployment Rate? The unemployment rate includes as unemployed, people who say they are looking for a job who are really not. Many are “working off the books, others are vacationing. But does not include discouraged workers who have left the labor force.

15. 15 Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations

16. 16 Inflation Since 1900 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 30201019004050607080902000 –10 –5 0 5 10 15 20 25

17. 17 Real and Nominal Concepts Nominal output is the total amount of goods and services measured at current prices. Real output is the total amount of goods and services produced, adjusted for price level changes.

18. 18 Economic Growth Productivity Recessions and Expansions Unemployment Inflation Economic Interdependence of Nations

19. 19 Types of Economic Policy Fiscal Monetary Structural

20. 20 Positive versus Normative Statement Positive How things are. Normative How things should be.