Intro Lecture Notes Ch09 Macroeconomics

7/31/2019 Intro Lecture Notes Ch09 Macroeconomics

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EconomicsDr. Saue

Lecture Chapter 9: Keeping Score

I. Economic Fluctuations

Economic activity is ____________________________.

The Parts of a Business Cycle:

The US economy has had mostly _________________ and ____________________.

- troughs at positive growth

It has had very ___________ contractions and recoveries.

A _____________________ is 2 consecutive quarters of falling Real GDP.

- contract for 2 quarters

A _____________________ is a severe recession.


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The Recent Recession:Part 1: Housing Bubble Burst

Part 2: Financial Sector

Part 3: Financial System Seizes UpPart 4: Recession Spreads Internationally

Key Facts about Economic Fluctuations1. They are __________________________ and varied.

- describing them after the fact is easy, predicting them is not

2. Many macroeconomic variables fluctuate ___________________.

- different amounts, different directions

3. As output ___________, unemployment _________.

4. Fluctuations occur in both the ________________ and long run.

III. Gross Domestic Product (GDP)

An economy is measured by the ________________ of the goods and services it produces.

Gross Domestic Product

is the market valueof all final goods and services

produced

within a countrys borders

in a given time.

2010 GDP (source: IMF)

Rank Country

GDP (millions of

USD)

World 61,963,429

European Union 16,106,896

1 United States 14,624,184

2 China 5,745,133

3 Japan 5,390,897

4 Germany 3,305,898

5 France 2,555,439

6 United Kingdom 2,258,5657 Italy 2,036,687

8 Brazil 2,023,528

9 Canada 1,563,664

10 Russia 1,476,912


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GDP has 4 components:_______________________ (C) = spending by households on goods and services

_______________________(I) = spending by firms on capital equipment, inventories, and structures

_______________________(G) = spending on goods and services by local, state, and federal

government

______________________ (NX) = value of exportsvalue of imports

There are 2 types of GDP: Real and NominalNominal GDP = the production of goods and services valued at ____________________.

Real GDP = the production of goods and services valued at ______________________. (adjusted forinflation)

GDP Growth (aka economic growth):

_________________________________ is measured by the percent change in RGDP over a timeperiod. (inflation adjusted GDP)

%RGDP = RGDP2RGDP1 x 100

RGDP1

Economic growth can be _____________.

GDP is calculated _____________________ by the Bureau of Economic Analysis. www.bea.gov

GDP is a decent measure of economic ___________________.Explain:

GDP __________________ tells us more about economic well-being than GDP does.

Using GDP as a measure of social progress has its __________________1. unpaid economic activity

2. environmental issues

3. value judgments

4. leisure5. distribution of income

III. Inflation

Inflation is an increase in the overall ___________________.

The inflation rate is the percent change in the price level.

formula:

Inflation Rate = Price Level 2Price Level 1 x 100

Price Level 1


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The ______________________________ is a way to measure the price level

It measures changes in the overall cost of the goods and services that a _____________ household buys.

Compiled ____________________ by the Bureau of Labor Statistics. www.bls.gov

BLS has classified all expenditure items into more than 200 categories, arranged into eight major

groups:

Calculate the inflation rate for December 2010:

Calculate the inflation rate from January 2000 to December 2010:

43.4

15.3

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6.3

6.4

5.73.7 3.4

Contents of the BasketHousing

Transportation

Food and

BeveragesEducation andCommunicationMedical Care


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Inflation is a ________________ occurrence in an economy.

- some inflation is just fine

- high inflation erodes purchasing power

It is usually the job of the _______________________ to keep inflation under control.

In general, if a countrys economic growth rate is faster than its inflation rate, then inflation ________

very harmful.

________________________ is actually quite harmful to an economy.

- consistently falling prices lead consumers to _______________ purchases- firms see a reduction in sales and cut back on production and employees

- consumers fear job losses and so delay purchases

- the _______________ is very hard to break

IV. UnemploymentA person is _____________________________ if they are available to work and are actively seeking

work, but cannot find a job.-just because a person doesnt have a job, doesnt mean they are unemployed

Start with the entire population.

Then ____________:children (


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The unemployment rate is _______________________.

Some unemployment is __________________ for an economy.

- Even if a job exists and a person exits with matching skills, it takes time for the person to find

the job and go through the hiring process. (_____________________ unemployment)

- As an economy grows and changes, some jobs become obsolete and new industries are created.When a person loses a job due to a fundamental change in the structure of the economy, it takes

time for them to get retrained for the new jobs. (___________________unemployment)

The rate of unemployment that an economy normally experience is called the __________________ of

unemployment.

- different countries have different natural rates of unemployment

- depends on the structure of the ______________________- minimum wage laws

- hiring/firing laws- unemployment benefits

When the economy goes into a recession and unemployment rises above the natural rate, that is the

bad kind of unemployment. (_________________ unemployment).

V. Government Policy

_______________Policy is when the government taxes or spends money.


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Explain the recent stimulus bill.Spending:

Taxes:

In reality, fiscal policy might ___________ be a good answer to a recession.

Three requirements for successful fiscal policy:

1.

2.3.

_____________________ policy refers to the actions undertaken by the Federal Reserve, specifically

the raising and lowering of interest rates.

__________________________________________________________________________________

Summary:

The economy fluctuates in the short and long run.

GDP, Inflation, and Unemployment are three basic indicators of the health of the economy.

Documents

Intro Lecture Notes Ch09 Macroeconomics