Transcript Chapter 23 PowerPoint Presentation - McGraw

23
An Introduction to Macroeconomics
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Performance and Policy
• Real GDP
• Corrects for price changes
• Nominal GDP
• Uses current prices
• Unemployment
• Inflation
• Increase in overall level of prices
LO1
23-2
Performance and Policy
• Can governments:
• Promote economic growth?
• Reduce severity of recession?
• Is monetary or fiscal policy more
•
•
LO2
effective at mitigating recession?
Is there a tradeoff between inflation
and unemployment?
Is anticipated or unanticipated
government policy more effective?
23-3
Performance and Policy
• Output growth
• 2.7% per year 1995-2007
• Unemployment rate
• 4.6% in 2007
• Inflation rate
• 2.7% in 2007
LO2
23-4
Modern Economic Growth
• Standard of living measured by output
•
•
LO3
per person
No growth in living standards prior to
Industrial Revolution
Modern economic growth
• Output per person rises
• Not experienced by all countries
23-5
Global Perspective
LO3
23-6
Savings and Investment
• Saving
• Trade-off current for future
•
•
LO4
consumption
Investment
• Financial investment
• Economic investment
Banks and financial institutions
23-7
Uncertainty, Expectations, and Shocks
• The future is uncertain
• Expectations affect investment
• Shocks
• What happens is not what you
•
•
LO5
expected
Demand shocks
Supply shocks
23-8
Uncertainty, Expectations, and Shocks
• Demand shocks and flexible prices
• Price falls if demand is low
• Sales unchanged
• Demand shocks and sticky prices
• Maintain inventory
• Sales change
• Business cycles
LO5
23-9
Demand Shocks
Flexible
Prices
Price
$40,000
$37,000
$35,000
DM
DH
DL
900
Cars Per Week
LO5
23-10
Demand Shocks
Price
Fixed Prices
$37,000
DH
DL
700
900
DM
1150
Cars Per Week
LO5
23-11
Sticky Prices
• Many prices are sticky in the short run
• Consumers prefer stable prices
• Firms want to avoid price wars
• All prices are flexible in the long run
• Firms adjust to unexpected, but
permanent changes in demand
LO5
23-12