Lecture 9

download report

Transcript Lecture 9

Lecture 9: focusing on
Macro Issues
 Macro Questions
 What are the facts
 What is Real GDP?
 Policy issues
 Role of Government
 Practice with EIA to illustrate
 What will the exam cover?????
ECON
111
HOFFMAN
MACRO HAPPENS
Overheating?
 Production expanded quickly in the United
States during 1994/95/96.
 This rapid growth caused fear that the
economy was overheating.
 An overheated economy is prone to
increasing inflation and a balance of
payments deficit.
 What, if anything, can be done?
ECON
111
HOFFMAN
MACRO HAPPENS
Origins and Issues of
Macroeconomics
 Modern macroeconomics emerged
during the Great Depression.
 People began to doubt the free
market economy.
ECON
111
HOFFMAN
MACRO HAPPENS
 John Maynard Keynes, in 1936,
published The General Theory of
Employment, Interest, and Money.
Origins and Issues of
Macroeconomics
 Macroeconomic Problems
1) Economic Growth
2) Unemployment
3) Inflation
4) Deficits
ECON
111
HOFFMAN
MACRO HAPPENS
Origins and Issues of
Macroeconomics
 Short-Term Versus Long-Term Goals
 Keynes focused on the short-term
primarily
• He felt the depression was caused by insufficient
private spending
• Government should increase its spending
ECON
111
HOFFMAN
MACRO HAPPENS
Origins and Issues of
Macroeconomics
 Short-Term Versus Long-Term Goals
 Long-term consequences were virtually
disregarded
• “In the long run, we’re all dead”
ECON
111
HOFFMAN
MACRO HAPPENS
Origins and Issues of
Macroeconomics
 Short-Term Versus Long-Term Goals
 Today, macroeconomics is concerned
with:
• Long-term economic growth and inflation
• Short-term business fluctuations and unemployment
ECON
111
HOFFMAN
MACRO HAPPENS
Origins and Issues of
Macroeconomics
 The Road Ahead
 The focus of macroeconomics has
shifted:
• Depression
• Inflation of the 1970’s
• International economics of today
ECON
111
HOFFMAN
MACRO HAPPENS
ECON
111
HOFFMAN
Economic Growth
MACRO HAPPENS
 Economic growth is the expansion of
the economy’s production
possibilities.
 Measured by real gross domestic
product (Real GDP)
 The value of the total production of all
the nation’s farms, factories, shops, and
offices linked back to the prices of a
single year (1992)
Economic Growth in the
United States
 The Growth of Potential GDP
 When an economy’s labor, capital, land,
and entrepreneurial ability are fully
employed
 Real GDP fluctuates around potential
GDP
 Growth slowed during the 1970s
 Productivity growth slowdown
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth in the
United States
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth in the
United States
 Fluctuations Around Potential GDP
 The business cycle is the periodic but
irregular up-and-down movement in
production.
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth in the
United States
 Phases of the Business Cycle
 Recession
• Period during which real GDP decreases for two
successive quarters
 Expansion
• Period during which real GDP increases
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth in the
United States
 Turning Points
 Peak
• Expansion ends, recession begins
 Trough
• Recession ends, expansion begins
ECON
111
HOFFMAN
MACRO HAPPENS
The Most Recent
U.S. Business Cycle
ECON
111
HOFFMAN
MACRO HAPPENS
Long-Term Economic
Growth
in the United States
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth Around
the World
 Real GDP per person
 The growth rate of real GDP divided by
the population is used to compare
growth rates over time and across
countries.
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth Around
the World
 Growth rates in the U.S., Germany,
and Japan have features that are
distinct
 Similar productivity growth slowdowns
 Similar business cycles
 Different long-term trends in potential
GDP
ECON
111
HOFFMAN
MACRO HAPPENS
Economic Growth in
Three Large Economies
ECON
111
HOFFMAN
MACRO HAPPENS
Growth Rates Around the
World
ECON
111
HOFFMAN
MACRO HAPPENS
Benefits and Costs of
Economic Growth
 Benefits
 Expanded production possibilities
•
•
•
•
•
health care
ECON
medical research
111
HOFFMAN
space exploration
MACRO HAPPENS
roads
environmental improvements (if resources are
devoted to solving environmental problems)
Benefits and Costs of
Economic Growth
 Costs
ECON
111
HOFFMAN
1) Foregone consumption
MACRO HAPPENS
2) Depletion of natural resources
3) Increased pollution
4) More frequent job and location
changes