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Macro Chapter 7

Macro Chapter 7. Presentation 1- Economic Growth. Price of the Most Recent Market Basket in the Particular Year. x. CPI. =. 100. Price of the Same Market Basket in 1982-1984. Consumer Price Index (CPI). CPI reports inflation each month and year

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Macro Chapter 7

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  1. Macro Chapter 7 Presentation 1- Economic Growth

  2. Price of the Most Recent Market Basket in the Particular Year x CPI = 100 Price of the Same Market Basket in 1982-1984 Consumer Price Index (CPI) • CPI reports inflation each month and year • Reports the price of a basket of 300 consumer goods a typical urban consumer would buy • Includes foreign goods

  3. GDP per Capita • Divide GDP by the size of the pop. • US GDP 2010 was 14.3 Trillion • Population of US was 310 million • Per Capita = 14.3 trillion/310 million • = $46,860 • US #13 (1. Luxembourg 2. Norway 3. Qatar 4. Switzerland 5. UAE)

  4. Economic Growth • An increase in real GDP over some time period • An increase in real GDP per capita occurring over some period of time

  5. Main Sources of Growth • Society can grow through: • 1. Increasing inputs of resources • 2. Increasing the productivity of the resources used • Productivity- real output per unit of input

  6. Rule of 70 • Approx number of years required to double GDP • = 70/annual percentage rate of growth • Ex- If China’s growth rate is 8%, it will take their economy about 9 years to double GDP • = 70/8= appx. 9

  7. The Business Cycle

  8. Downturn • Recession / Contraction • 6 months or more of decline in total output, income and unemployment • The period of time during which aggregate economic activity is falling • If the recession is particularly severe, it becomes a depression. • During a recession • Many sectors of the economy experience declining sales and production • Workers are laid off or forced to work only part-time • Peak: the point in which output starts to decline

  9. Upturn • After reaching the low point of the contraction (the trough), aggregate economic activity begins to increase. • The period of time during which aggregate economic activity grows is an expansion or a boom. • The high point of the expansion is called a peak.

  10. Demand-Pull Inflation • When resources are fully employed, the business sector cannot respond to excess demand by increasing output • Excess demand causes an increase in cost • “too much spending chasing too few goods”

  11. Cost-Push Inflation • Rising per-unit costs of production lower profits and force the prices up • Supply Shock- abrupt increases in the cost of raw materials • Ex. Skyrocketing prices of oil in 1973-74 and 1979-80 • Per unit cost= total input cost/# of units of output

  12. Hyperinflation • An extremely high and fast inflation rate • Ex- Germany in post-WW1 • Serbia in 1994 the inflation rate went up 1.56 million %

  13. COLA • Cost of Living Adjustment • An increase in benefits as inflation occurs • EX- Retirement of Firemen increases by 3% each to keep up with the increased cost of living

  14. Who is Hurt by Inflation? • 1. Fixed Income Receivers- not adjusted for cost-of-living • 2. Savers- real purchasing power of a saved account deteriorates • 3. Creditors- lenders are repaid with money that has less purchasing power

  15. Who is Not Hurt by Inflation? • 1. Flexible income receivers- cost-of-living adjustments • 2. Debtors- pay back loans with less valuable money

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