Macroeconomics: The Bird’s-Eye View of the Economy

1. Macroeconomics: The Bird’s-Eye View of the Economy

2. The Major Macroeconomic Issues • Economic growth and living standards • Productivity • Recessions and expansions • Unemployment • Inflation • Macroeconomic Policies Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

3. The Major Macroeconomic Issues • Economic Growth • A process of steady increases in the quantity and quality of the goods and services the economy can produce Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

4. Output of the U.S.Economy, 1900-2001 • In 2001 output of the U.S. economy was: • 25 times the 1900 level • 5 times the 1950 level Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

5. Output per Person and per Worker in the U.S. Economy, 1900-2001 • In 2001: • Output/person was 7 times the 1900 level • Output/worker was 5 times the 1900 level Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

6. The Major Macroeconomic Issues • In the U.S.: • 60 million households own two or more automobiles. • 98% of household own a television (95% a color TV). • 67% of households subscribe to cable. Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

7. The Major Macroeconomic Issues • In the U.S.: • In 2002, 60 % of adults were regular Internet users. • 80% of the adult population has a high school diploma. • 25% of the adult population has a college degree. Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

8. The Major Macroeconomic Issues • Productivity • In 2001 the average U.S. worker could produce five times more than in 1900. • Average labor productivity: Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

9. The Major Macroeconomic Issues • Productivity • U.S. trends in output per employed worker • 1950 - 1973: increased 2.1%/yr • 1973 - 1995: increased less than 1%/yr • 1995 - present: increased nearly 2%/yr Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

10. Recessions and Expansions • Recessions: slowdowns in economic growth • 1930s (depression); 1944-’45; 1973-’75; 1981-’82; 1990-’91;2001. • Expansions: periods of rapid economic growth • 1945-’48; 1961-’69; 1975-’80; 1982-’90; 1991-2001 Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

11. The U.S. UnemploymentRate, 1900-2001 • The unemployment rate: • % of the labor force that is out of work • Observations: • Rises during recessions • Always greater than zero Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

12. Increases In Unemployment During Recessions Unemployment rate at beginning of recession (%) Peak unemployment rate (%) Increase in unemployment rate (%) 4.8 (Nov. 1973) 9.0 (May 1975) + 4.2 6.3 (Jan. 1980) 10.8 (Nov./Dec. 1982) + 4.5 5.5 (July 1990) 7.8 (June 1992) + 2.3 Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

13. The Major Macroeconomic Issues • Unemployment rates differ from country to country: • For the past 20 years, more than 10% of the European workforce has been unemployed. • European unemployment is double the rate in the U.S. • During the 1950s & ‘60s, the European unemployment rate was generally lower than in the U.S. Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

14. The U.S. Inflation Rate, 1900-2001 • Prices in general are increasing over time. • Inflation Rate measures the growth rate of the price level at a point in time. • Varies over time -- high in the ‘70s and low in the ‘90’s and today • Varies between countries -- in 2001 3% in U.S. & 400% in Ukraine Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

15. Macroeconomic Policy • Monetary Policy • Determination of the nation’s money supply • Controlled by the central bank or, in the U.S., the Federal Reserve System (Fed) Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

16. Macroeconomic Policy • Fiscal Policy • Decisions that determine the government’s budget, including the amount and composition of government expenditures and government revenues Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

17. Macroeconomic Policy • Fiscal policy influences the balance between government spending and taxes: • A deficit occurs when government spending is greater than tax revenue. • A surplus occurs when government spending is less than tax revenue. Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

18. Macroeconomic Policy • Positive versus Normative Analyses of Macroeconomic Policy • Positive Analysis • Addresses the economic consequences of a particular event or policy, not whether those consequences are desirable Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

19. Macroeconomic Policy • Positive versus Normative Analyses of Macroeconomic Policy • Normative Analysis • Addresses the question of whether a policy should be used; normative analysis inevitably involves the values of the person doing the analysis Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy

20. Aggregation • Aggregation • The adding up of the individual economic variables to obtain economywide totals • Used to take a “bird’s-eye view” of the economy Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy