1. Chapter 1: A Tour of the World 1-1 The United States, 2007 $GDP ~ $13.8 Trillion Figure 1 - 1 The United States

2. Chapter 1: A Tour of the World The United States 1994-2000: one of the best periods in recent memory  The average rate of growth was 3.9% per year.  The average unemployment rate was 4.9%.  The average inflation rate was 1.8%.  High productivity growth: New economy?  dot.com bubble … prelude to housing bubble Table 1-1 Growth, Unemployment, and Inflation in the United States, 1960-2004 1960-2000 (average) 1994-2000 (average) 2001200220032007 Output growth rate3.23.90.51.93.02.8 Unemployment rate6.14.94.85.86.04.7 Inflation rate3.91.82.41.71.84.2 Output growth rate: annual rate of growth of output. Unemployment rate: average over the year. Inflation rate: annual rate of change of the price level (GDP deflator).

3. Chapter 1: A Tour of the World Has the United States Entered a New Economy? The average rate of growth of output per worker decreased in the mid 1970’s. It appears to have increased again since the mid 1990’s. Rate of Growth of Output per Worker in the United States Since 1960. Figure 1 - 2

4. Chapter 1: A Tour of the World Should you worry about the U.S. Budget Deficit? The U.S. Budget Deficit, Since 1990 (Ratio to Output, in percent). The U.S. budget has gone from large deficits in the early 1990’s to surpluses in the late 1990’s, and back to increasing deficits since 2001. Figure 1 - 3

5. Chapter 1: A Tour of the World The European Union The European Union, 2003

6. Chapter 1: A Tour of the World How Can European Unemployment Be Reduced? Unemployment Rates: Europe versus the United States since 1960 The European unemployment rate has gone from being much lower than that of the United States to being much higher  EUROSCLEROSIS  Rigid labor markets?  Tight money? Figure 1 - 5

7. Chapter 1: A Tour of the World Japan 1-3 Japan 2003 Figure 1 - 6

8. Chapter 1: A Tour of the World Japan Since 1960, Japan’s output has grown at an average annual growth rate of ~4.4%, 1 + % higher than the growth rate of the U.S. 1980s: Japan as Number One? 1990s – present: The bubble economy Table 1-2 Growth, Unemployment, and Inflation in Japan, 1960-2004 1960-2000 (average) 1994-2000 (average) 20012002 20032004 Output growth rate4.7 1.40.4  0.3 2.53.0 Unemployment rate2.0 3.7 5.0 5.4 5.34.8 Inflation rate5.1  0.1  1.5  1.2  2.5 -2.0 Output growth rate: annual rate of growth of output. Unemployment rate: average over the year. Inflation rate: annual rate of change of the price level (GDP deflator.

9. Chapter 1: A Tour of the World What Triggered the Slump? The large increase in the index in the second half of the 1980s was followed by an equally sharp decline in the early 1990s. Japanese real estate prices paralleled stock prices. A housing bubble and a stock price bubble Figure 1 - 7 The Japanese Stock Market Index since 1980