1. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #1 EC0 301 Intermediate Income Theory Professor Malamud BEH 502 Email: malamud@ccmail.nevada.edumalamud@ccmail.nevada.edu Website: http://www.unlv.edu/faculty/bmalamud

2. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #2 Course Objectives Refresh your command of Macroeconomic terminology  eco-talk Facts Schools of thought

3. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #3 Course Objectives Master MODELS  Demand Side Models  AD Multiplier IS – LM  Supply Side Models  AS Wage setting – Price setting Phillips Curve  Expectations … in theory and practice

4. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #4 Introduction  What’s up … What’s down? The U.S. expansion of the 1990’s Our current recession The Euro Eurosclerosis Recession in Japan The Issues and Approach of Macroeconomics

5. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #5 Variables of MacroeconomicsVariables of Macroeconomics Output Unemployment Inflation  Time-frames of macroanalysis Short-run Medium-run Long-run Variables of Macroeconomics

6. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #6 The United States Question for Discussion: How does the U.S. measure up?

7. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #7 Growth, Unemployment, and Inflation in the U.S., 1960-2001 1960199719982001 (in percent)(latest) Output growth rate3.13.93.70.5 Unemployment rate6.04.94.65.8 Inflation rate4.01.91.01.9

8. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #8 The United States What do we observe?  The 1990’s began with a recession.  1991 ushered in an expansion.  1998 growth (3.7%) was greater than the 1960-1998 average growth rate (3.1%).  A recession began in 2001.  The 1990’s began with a recession.  1991 ushered in an expansion.  1998 growth (3.7%) was greater than the 1960-1998 average growth rate (3.1%).  A recession began in 2001.

9. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #9 Low inflation rate  1998 inflation rate (1.0%) was 3 percentage points below the 1960-1998 average (4.0%)  Inflation remained low throughout the expansion of the 1990s  On last report, producer prices were deflating. The United States – The Expansion

10. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #10 The United States Unemployment averaged 4 % in 2000 Was unemployment too low?  Maybe: Low unemployment causes inflation which leads to recession ??!??  Inflation hawks: fear of high employment Recession danger!

11. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #11 The United States-Recession Danger! Was unemployment too low?  Maybe not: 1998 low unemployment without a rise in inflation  Changes in the labor market Decline in union power Global labor market

12. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #12 Was the stock market too high?  Maybe: A market driven by “irrational exuberance” can experience a sharp decline which can trigger a recession  That decline began in April 2000 The United States-Recession Danger!

13. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #13 The Japanese Stock Market Index, 1980 - 1998

14. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #14 The United States A decrease in the average growth rate Increasing wage inequality Two Long-term Issues

15. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #15 U.S. Output Growth Since 1950

16. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #16 The United States Small changes in the growth rate mean big differences in per capita output Why has growth slowed down?

17. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #17 Some explanations  Research is less productive  Low investment in new capital  Output measures are underestimating the growth rate The United States-Why has growth slowed down?

18. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #18 The United States Two causes  Increasing international trade  The nature of technological progress Why is wage inequality increasing?

19. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #19 The United States For workers who did not complete high school fell 1% per year For workers with graduate degrees rose 1% per year Real average wage 1979-1998

20. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #20 Looking Ahead We will develop tools to address the macroeconomic questions.  What determines expansions and recessions?  What are the interactions between the stock market, foreign exchange market, and economic activity?  Why is inflation so much lower in the 1990s?  Can the unemployment rate be too low?  What causes unemployment  Why do growth rates differ?

21. Chapter 1: A Tour of the WorldBlanchard: Macroeconomics Slide #21 Where to Find the Numbers www.stls.frb.org/fred/index.html www.bls.gov/data/ www.economist.com www.yardeni.com www.bea.doc.gov www.accessgpo.gov/eop/ www.oecd.org