ECON 103 Principles of Macroeconomics Instructor: Bernard Malamud Office: BEH 502

1. ECON 103 Principles of Macroeconomics • Instructor: Bernard Malamud • Office: BEH 502 • Phone (702) 895 –3294 • Fax: 895 – 1354 • Email: bernard.malamud@unlv.edu • Website: www.unlv.edu/faculty/bmalamud • Office hours: MTWThF11:30-12:30 pm; and by appointment

2. Gauging Your Opinions – I The U.S. government is bankrupt ... or soon will be bankrupt. True b) False I expect to receive Social Security benefits when I retire. Yes b) No The US unemployment rate as officially measured is usually around a) 2% b) 5% c) 8% d) 10% The US unemployment rate as officially measured is now around a) 2% b) 5% c) 8% d) 10% The US unemployment rate is probably greater than/less than the rate that is officially measured. a) greater than b) less than

3. Macro Objectives • Talk’n’ Economics • Vocabulary: GDP, Unemployment, Inflation, Debt, Supply, Demand…and much, much more • Economic Facts • Descriptions of the US and world economies • Economic Models • Simplifying a complex reality • Economic Policy Analysis • Laissez – faire vs. activism The Economic Way of Thinking From micro: Incentives matter!

4. The Macroeconomy

5. Macro Concerns • Jobs • Growth • Price Stability • Government Budget • Balance of Payments • Exchange Value of Dollar

6. Macro Pictures: Jobs

7. Macro Facts: Growth, Recession and Slump The Long Slump The Long Slump

8. Deviation of Actual from Potential GDP (Fraction of Potential)

9. Macro Pictures: Unemployment Great Moderation

10. Inflation Rates: CPI and Core CPI CRISIS

11. Monetary Policy and Interest Rates Federal Funds Rate London Interbank Offer Rate (LIBOR)

13. Macro Pictures: Exchange Rate

14. What We’ll Cover • Macro measurement: • output, income, employment, prices, inflation, interest rates • Aggregate demand: • C,I,G,NX … what’s bought • Money … what’s spent • Demand-side policies • Aggregate supply: • Short-run responses to prices • Adjustment to long-run output potential • Policy Debates • Economic Growth

15. Remember the Numbers? The US unemployment rate as officially measured is now around a) 2% b) 5% c) 8% d) 10% The US inflation rate is now around a) 2% b) 5% c) 8% d) 10% The US balance of trade in goods and services is a) positive b) negative c) balanced...it has to balance

16. Micro Foundations: A Brief Review Production Possibilities Frontier Quantity of Computers Produced D C A Production Possibilities B Feasible but Inefficient Frontier Efficient Points Quantityof Cars Produced 0

17. Micro Foundations: Macro Application Production Possibilities Frontier When economy is at full employment (C), an increase in bovernment purchases raises prices and “crowds out” private activity Private Sector Output D C A Production Possibilities B Feasible but Inefficient Frontier Efficient Points Government Purchases 0

18. Micro Foundations: Macro ApplicationProduction Possibilities Frontier When economy is at less than full employment (B) , an increase in government purchases increases incomes and spurs additional private sector activity as well (multiplier effect) Private Sector Output D C A Production Possibilities B Feasible but Inefficient Frontier Efficient Points Government Purchases 0

19. Supply Equilibrium Demand Micro Foundations: A Brief ReviewSupply and Demand Price of Ice-Cream Cone $3.00 2.50 2.00 1.50 1.00 0.50 Quantity of Ice-Cream Cones 0 1 2 3 4 5 6 7 8 9 10 11 12

20. AS AD Macroeconomics: Aggregate Demand and Aggregate Supply Price Index Potential Real GDP 3.00 2.50 2.00 1.50 1.00 0.50 Real GDP 0 1 2 3 4 5 6 7 8 9 10 11 12