Transcript Macroeconomics: The Bird`s

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Macroeconomics:
The Bird’s-Eye View
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Macroeconomics
Macroeconomics
The study of the performance of national
economies
The policies governments use to try and
improve that performance
Macroeconomic policies
Government actions designed to affect the
performance of the economy as a whole
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Living Standards
Standard of living: The degree to which
people have access to goods and
services that make their lives easier,
healthier, safer, and more enjoyable
In wealthy industrialized nations the
standard of living is better than at any
previous time or place in history
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Economic Growth
Economic growth
A process of steady increase in the
quantity and quality of goods and services
the economy can produce
A process that says the more we produce
the more we can consume
A process that brings improvement in the
average person’s standard of living
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Fig. 5.1
Output of the U.S. Economy, 1900-1999
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Output Per Person
One reason for the increased growth is
the rapid growth of U.S. population
More workers available to make more
output. But, more people are sharing those
goods and services
Hence, output per person is a better
indicator of the average living standard
over time
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Fig. 5.2
Output per Person and per Worker in
the U.S. Economy, 1900-1999
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Productivity
Average labor productivity
Output per employed worker
Slowing productivity growth leads to less
rapid improvements in living standards
Rate of improvement has slowed since the
1970s
1950-1973: 2.1%
1973-1999: <1%
1999-2000 it has picked up again
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Recessions and Expansions
Growth is not always steady
Recessions: Slowdowns in economic
growth
Depressions: Severe recessions
Expansions: Periods of rapid economic
growth
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Unemployment
Unemployment rate
The fraction of people who would like to
be employed but can’t find work
Key indicator of the state of the labor
market
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Fig. 5.3
The U.S. Unemployment Rate,
1900-1999
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Inflation
Inflation
The rate at which prices in general are
increasing over time
Imposes a variety of costs on the economy
In recent years it has been relatively low
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Fig. 5.4
The U.S. Inflation Rate, 19001999
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Interdependence among
Nations
National economies are increasingly
interdependent
Trade imbalances
Exist when the quantity of goods and services that
a country sells abroad (exports) differs
significantly form the quantity of goods and
services its citizens buy from abroad (imports)
Trade deficits
Exist when imports are larger than exports
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Fig. 5.5
Exports and Imports as a Share of U.S.
Output, 1900-1999
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Macroeconomic
Monetary Policy
Monetary policy
Determination of the nation’s money supply
Changes in the money supply affect
National output
Employment
Interest rates
Inflation
Stock prices
International value of the dollar
Controlled by a central bank: The Federal
Reserve System in the U.S.
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Macroeconomic
Fiscal Policy
Fiscal policy
Decisions that determine the government’s
budget: expenditures and revenues of the
governments
A Deficit
Government spends more than what is collected
A Surplus
Government spends less than what is collected
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Structural Policy
Structural policy
A government policy aimed at changing
the underlying structure, or institutions, of
the nation’s economy
There are many forms of government
policies; there is a move away from
government control to a market-oriented
approach in Eastern Europe
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Positive v. Normative
Analysis
Positive analysis
Addresses the economic consequences of a
particular event or policy
Doesn’t judge whether those consequences are
desirable
Normative analysis
Addresses the question of whether a policy should
be used
Does involve the values of the person doing the
analysis
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Micro and Macro
Microeconomists
“Ground level”
Macroeconomists
“Bird’s-eye view”
Both use the basic principles of
economics
Behavior of households individually
Behavior of households aggregated
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
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Aggregation
Aggregation
The adding up of individual economic
variables to obtain economy-wide totals
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Plan of Attack
Part II-Introduction and Measurement
Part III-Long run
Provides important background for
understanding short-term fluctuations
Part IV-Short-term fluctuations
Learn what happens during recessions and
expansions
Learn how government policy changes economic
performance
Part V-International trade
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.