1. Copyright 20011 The McGraw-Hill Companies 19-1 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show 19 Introduction to Economic Growth Unemployment and Inflation

2. Copyright 20011 The McGraw-Hill Companies 19-2 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Chapter Objectives The Business Cycle and its Primary Phases How Economic Growth is Measured and Why is it Important How Unemployment and Inflation are Measured The Types of Unemployment and Inflation and their Various Economic Impacts

3. Copyright 20011 The McGraw-Hill Companies 19-3 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth Increase in Real GDP Increase in Real GDP Per Capita Growth as a Goal Arithmetic of Growth –Rule of 70 Approximate number of years required to double real GDP = 70 annual percentage rate of growth 19.1

4. Copyright 20011 The McGraw-Hill Companies 19-4 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth in SA 671 652 803 427 935 617 1 000 737 1 086 901 1 134 582 1 301 773 1 571 082 1 814 521 5.2 1.7 6.6 -1.2 -0.3 3.1 4.2 5.3 3.7 29 881 31 736 32 883 31 384 30 648 28 815 29 792 33 176 36 951 2.5 -0.06 4.2 -3.4 -2.4 1.0 2.1 3.9 2.5 1970 1975 1980 1985 1990 1995 2000 2005 2009 (1) Year (2) Real GDP (4) Real GDP per capita (5) % Change in Real GDP Per Capita (Year to Previous Year) …in millions of rands (3) % Change in Real GDP (Year to Previous Year) Source: www.resbank.co.za

5. Copyright 20011 The McGraw-Hill Companies 19-5 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Economic Growth Main Sources of Growth Increases in Inputs Increases in Resource Productivity Growth in S.A. –Improved Products and Services –Added Leisure –Other Impacts

6. Copyright 20011 The McGraw-Hill Companies 19-6 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show The Business Cycle Level of Real Output Time Peak Recession Expansion Trough Growth Trend 19.1 Phases of the Business Cycle Cyclical Impact: Durables and Nondurables

7. Copyright 20011 The McGraw-Hill Companies 19-7 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Twin Problems of the Business Cycle –Unemployment –Inflation Measurement of Unemployment Labor Force Unemployment Rate –Part-Time Employment –Discouraged Workers Unemployment Rate Unemployed Labor Force = x 100 19.2

8. Copyright 20011 The McGraw-Hill Companies 19-8 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Types of Unemployment –Frictional Unemployment –Structural Unemployment –Cyclical Unemployment Full Employment –Natural Rate of Unemployment (NRU)

9. Copyright 20011 The McGraw-Hill Companies 19-9 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment in SA 30 801 17 777 13 655 4122 13 024 23.2% 57.7% 31 080 17 495 13 369 4 125 13 585 23.6% 56.3% 31 172 17 077 12 885 4 192 14 095 24.5% 54.8% 371 -700 -770 70 1 071 1.3% -2.9% Population 15-64 Labour Force Employed Unemployed Not Economically Active Unemployment rate Labour Force Participation rate Jul-Sept 2008 Year on Year Change …in thousands Source: www.resbank.co.za Apr-Jun 2009 Jul-Sept 2009

10. Copyright 20011 The McGraw-Hill Companies 19-10 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Economic Cost of Unemployment Potential Output GDP Gap Actual GDPPotential GDP = -

11. Copyright 20011 The McGraw-Hill Companies 19-11 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Unemployment Unequal Burdens –Occupation –Age –Race and Ethnicity –Gender –Education –Duration Noneconomic Costs

12. Copyright 20011 The McGraw-Hill Companies 19-12 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Inflation Defined Measurement of Inflation –Consumer Price Index CPI Price of the Most Recent Market Basket in the Particular Year Price of the Same Market Basket in 1982-1984 = x 100

13. Copyright 20011 The McGraw-Hill Companies 19-13 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Annual Inflation Rate in South Africa, 1967-2010 Source: StatsSA

14. Copyright 20011 The McGraw-Hill Companies 19-14 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Source: Bureau of Labor Statistics U.S. Germany Italy Japan France 199520002005 Inflation Rate (percent) Inflation Rates in Five Industrial Nations, 1995-2005 GLOBAL PERSPECTIVE

15. Copyright 20011 The McGraw-Hill Companies 19-15 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Types of Inflation –Demand Pull Inflation –Cost-Push Inflation Per Unit Production Costs Redistributive Effects –Nominal and Real Income –Anticipations Anticipated Inflation Unanticipated Inflation 19.3

16. Copyright 20011 The McGraw-Hill Companies 19-16 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Who is Hurt by Inflation? –Fixed-Income Receivers –Savers –Creditors Who is Unaffected or Hurt by Inflation? –Flexible-Income Receivers Cost-of-Living Adjustments (COLAs) –Debtors

17. Copyright 20011 The McGraw-Hill Companies 19-17 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Anticipated Inflation –Nominal Interest Rate –Real Interest Rate –Inflation Premium Nominal Interest Rate Real Interest Rate Inflation Premium 11% 5% 6% =+ 19.2

18. Copyright 20011 The McGraw-Hill Companies 19-18 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Inflation Cost-Push Inflation and Real Output Demand-Pull Inflation and Real Output Inflation targeting in S.A. Hyperinflation –Case of Zimbabwe

19. Copyright 20011 The McGraw-Hill Companies 19-19 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show The Stock Market and the Economy Supply and Demand in the Stock Market Collective Expectations of Future Profits and Losses Volatility of the Stock Market Wealth Effect Investment Effect Studies Show Consumption and Investment Unaffected Little Impact on Macro economy Stock Market Bubbles Do Have an Impact Stock Price Cycle Predictions Index of Leading Indicators Stock Prices Not a Reliable Predictor Alone Last Word Do Stock Prices Affect Macroeconomic Instability?

20. Copyright 20011 The McGraw-Hill Companies 19-20 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Key Terms economic growth real GDP per capita rule of 70 business cycle peak recession trough expansion labor force unemployment rate frictional unemploymentfrictional unemployment structural unemploymentstructural unemployment cyclical unemployment natural rate of unemployment (NRU)natural rate of unemployment (NRU) potential output GDP gap inflation Consumer Price Index (CPI)Consumer Price Index (CPI) demand-pull inflation cost-push inflation per-unit production costsper-unit production costs nominal income real income anticipated inflation unanticipated inflation real interest rate nominal interest rate Inflation targeting hyperinflation

21. Copyright 20011 The McGraw-Hill Companies 19-21 Economic Growth The Business Cycle Unemployment Labor Force Composition Types of Unemployment Unequal Burdens Inflation Consumer Price Index (CPI) Types of Inflation Premium Last Word Key Terms End Show Next Chapter Preview… Government and Market Failure