Transcript MacroEconomic Goals - JV Penguinomics

MACROECONOMIC GOALS
Barnett
UHS
AP Econ
UNO
Full Employment
That does NOT mean that everybody has a job
There is always going to be some people
unemployed
Civilian Labor Force: People 16 or older who
have looked for a job in the past 4 weeks
Goal: 5-6% unemployment rate considered the
“natural rate” or “target rate”
Every tenth of a point = 150,000 workers
UNO
In order for unemployment to decrease 1
one percent, the economy must grow an
extra 2 percent. (Okun’s rule of thumb).
Current Rate: 7.7%
FED goal: 6.6%
Would require 1.9 million jobs created
Job growth averaging around 150,000 each
month
Should take around _____ to reach goal
But…
Unemployment in Other Countries
UNO
Three types of unemployment
 Frictional Unemployment – Temporary
Workers moving from one job to another
Students heading off into the “real world”
UNO
Three types of unemployment
 Structural Unemployment - Permanent
When there is a mismatch between the skills
of unemployed workers and the needs of the
economy
Can retrain themselves
Be entrepreneurial and use their skills in novel
ways
Can move to where their skills are in demand
Assembly line workers replaced by robots
UNO
Three types of unemployment
 Cyclical Unemployment
Due to contractions (downs) from normal
business cycles
Businesses lay off workers when the
economy goes down
DOS
Second Goal: Stable Prices – Reasonable
inflation rate
 Inflation – Increase in the average level of
prices over a given time period
Goal: 3% inflation rate (considered stable prices)
 Mo’ Money, Mo’ Tomatoes
DOS
Second Goal: Stable Prices – Reasonable
inflation rate
 Disinflation: When the price level increases
from year to year but at decreasing rate
Year 1 to Year 2 = 3% increase in prices
Year 2 to Year 3= 2% increase in prices
DOS
Second Goal: Stable Prices – Reasonable
inflation rate
 Deflation: Price level increase is actually
negative
Price level drops to -1% in a year
 Buy 2 cars now?
DOS
 How is inflation rate measured?
 CPI (Consumer Price Index)
 PPI (Producer Price Index)
 GDP deflator = (Nominal GDP/Real GDP) x 100
 CPI

Current CPI inflation rate is: 1 .8 percent

later year - earlier year x 100

earlier year
DOS
 GDP Deflator
 Uses 2005 as base year. Set to 100 with other years reported relative to
the 2005 dollar.
 The GDP Deflator for 2010 was 110.99. On average the 2005 dollar
could buy (10.99/100) 10.99% more than the 2009 dollar.
 The GDP Deflator for 1950 was 14.65. On average the 1950 dollar
could buy (100/14.65) 6.82 times as many goods as the 2005
dollar.
CPI
Current Consumer Price Index
Year
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Avg
2010
216.687
216.741
217.631
218.009 218.178
217.965 218.011
218.312 218.439
NA
NA
NA
NA
2009
211.143
212.193
212.709
213.240 213.856
215.693 215.351
215.834 215.969 216.177
216.330
215.949
214.537
2008
211.080
211.693
213.528
214.823 216.632
218.815 219.964
219.086 218.783 216.573
212.425
210.228
215.303
2007
202.416
203.499
205.352
206.686 207.949
208.352 208.299
207.917 208.490 208.936
210.177
210.036
207.342
2006
198.3
198.7
199.8
201.5
202.5
202.9
203.5
203.9
202.9
201.8
201.5
201.8
201.6
2005
190.7
191.8
193.3
194.6
194.4
194.5
195.4
196.4
198.8
199.2
197.6
196.8
195.3
2004
185.2
186.2
187.4
188.0
189.1
189.7
189.4
189.5
189.9
190.9
191.0
190.3
188.9
2003
181.7
183.1
184.2
183.8
183.5
183.7
183.9
184.6
185.2
185.0
184.5
184.3
183.96
2002
177.1
177.8
178.8
179.8
179.8
179.9
180.1
180.7
181.0
181.3
181.3
180.9
179.88
2001
175.1
175.8
176.2
176.9
177.7
178.0
177.5
177.5
178.3
177.7
177.4
176.7
177.07
2000
168.8
169.8
171.2
171.3
171.5
172.4
172.8
172.8
173.7
174.0
174.1
174.0
172.2
Get more Historical Data from InflationData.com
Inflation Rate 2000 - 2010
TRES
Third Goal: Economic Growth
 Determined by growth in Real
GDP
GDP = Gross Domestic Product
GDP = Market value of all final
goods and services produced in
an economy in a year
Goal: 3% annual growth
TRES
Third Goal: Economic Growth
Difference between nominal and real GDP
Nominal – does not include inflation
Real GDP - includes inflation
Real –
TRES
 GDP Components
 Components:
C = consumption
70

I = investment
17

G = government expenditures
17

Nx = net exports
-4
 ______________________________________________________

100 percent
 The allocation will vary from year to year but must add up to 100
percent.
CUATRO
Fourth Goal: Favorable
Balance of Trade
 X = exports
 M = imports
 X>M = trade surplus
 X<M = The USA! (trade deficit)
 2008 trade deficit = $673 billion
 Better to have strong or weak
currency?
CINCO
 Fifth Goal: Limiting Government Growth/Spending
 Measured by looking at the rate of government
spending relative to the real GDP growth
HIGH FIVES FOR MACRO!





1.
2.
3.
4.
5.
Full Employment
Stable Prices
Economic Growth
Favorable Balance of Trade
Limiting Government Growth