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Macroeconomics: Economic growth and fluctuations

Macroeconomics: Economic growth and fluctuations. Chapter 1. The point of Chapter 1. Macro economics and its uses Historical performance of the US economy Explaining the basic framework used in this text Some agreed-upon facts in practical macro economics. Macroeconomics.

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Macroeconomics: Economic growth and fluctuations

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  1. Macroeconomics: Economic growth and fluctuations Chapter 1

  2. The point of Chapter 1 • Macro economics and its uses • Historical performance of the US economy • Explaining the basic framework used in this text • Some agreed-upon facts in practical macro economics

  3. Macroeconomics • Fundamental concern of macroeconomics is the overall performance of the economy. • Output (Income) and output per capita are the usual barometers of performance. • Gross domestic product (GDP) is most comprehensive measure of output. • The central focus of our study is the level and growth of GDP and GDP per capita.

  4. Other barometers of performance • Employment and unemployment • The price level • The interest rate • The exchange rate • The trade balance and the balance of payments • Note that income (revenue) and expenditure (output) are two sides of the same ledger

  5. Recent U.S. Performance

  6. Compare growth rates

  7. Fig. 1.3

  8. 9/11/2001 First oil price shock Great Depression Second oil price shock World War II U.S. Real GDP per capita (2000 dollars) long-run upward trend…

  9. Fig. 1.4

  10. U.S. unemployment rate(% of labor force)

  11. Fig. 1.5

  12. Fig. 1.6

  13. Fig. 1.7

  14. Fig. 1.8

  15. Fig. 1.9

  16. Stylized facts about recent history • GDP grew a 3.73% per annum in 1929-73 and at 2.95% in 1973-2006. • GDP per capita grew 2.44% in 1929–73 and at 1.87% in 1973-2006. • Output and employment moved together; employment percentage seems to be a leading indicator. • Unemployment peaks at the end of a recession.

  17. Inflation seems to increase before a recession hits. • Nominal and real interest rates also increases before the recession occurs.

  18. Three models • Long-run growth • Fluctuations • Macroeconomic policy

  19. Core of practical macro economics • the long-run growth rate • Inflation and unemployment in the long run • Inflation and unemployment in the short run • Rational expectations • Monetary policy rules

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