Intro to Macroeconomics
Define Macroeconomics and
Contrast with Microeconomics
U.S. Economic Confidence
We often hear about our economy being “bad,” “unhealthy,” etc.
What do YOU think makes an economy healthy or unhealthy?
• Do YOU think our economy is getting better, or getting worse? Why?
• How would YOU rate the economic conditions in the U.S.?– Excellent, very good, good, bad, very bad, terrible– Why?
• Do YOU think the United States is in a Recession or not? Why?
• One year from now, do you think the national economy will be better, the same, or getting worse? Why?
Macroeconomics focuses on the ENTIRE economy (all people and all goods) at once.
Some questions to consider…• - How healthy is the economy?
-What is the unemployment rate?-Is the economy “growing”?-How does inflation affect us?
Let’s meet our key players in Macroeconomics:
Government Federal Reserve
There are three major goals of Macroeconomics for an economy to be
The Labor Force (work force) consists of the people the government considers to be employed or unemployed.
The labor force includes anyone that is (or could be) working
In the labor force…16-65 year-olds
Are counted as being either EMPLOYED or UNEMPLOYED
NOT in the labor force…<16 and >65-in jail-full-time students choosing not to work-disabled/hospitalized-housewife/stay-at-home parents-retired
One method the government uses to research unemployment is the labor force phone survey
Full employment (95-96%) is one element of a healthy economy.
Why is “Full Employment” not 100%???
The current unemployment rate is 5.9%(Sept 2014)
• Is this good or bad? It depends……
9.3 Million Unemployed in September–
• What about those “discouraged” workers?• What types of jobs are being added to the
“Discouraged” workers are NOT counted as being unemployed
There were 698,000 “discouraged” workers in February.
Is this a big deal?
It depends on how long they are discouraged for!
An UNDEREMPLOYED person works full-time, but receives no healthcare/vacation benefits
Does Unemployment mirror poverty?
RACE UNEMPLOYMENT RATE
White 5.1% Sept 2014 9.6%
Black 11% Sept 2014 27%
Hispanic 6.9% Sept 2014 24%
Asian 4.3% Sept 2014 10%
Table Talk: Discuss with a partner…
• What is the ideal rate for “full employment”? Why can’t it be at 100%?
• Who is in the labor force? Who is not in the labor force?
• What is the difference between an underemployed worker and a discouraged worker?
The second goal of a healthy economy is stable (unchanging) prices.
Inflation: Sustained and continuous increase in the
average of all prices over time.
Deflation: A decrease in the average of all prices
The ideal rate of price stability is 3.5% INFLATION
Inflation and Purchasing Power
• Purchasing Power- the ability to purchase goods and services
• As prices rise, the purchasing power of money declines.
The government uses two methods to measure price changes.
1. Producer Price Index (PPI)•Producers are randomly chosen and monitored to analyze price changes
2. Consumer Price Index (CPI)•Thousands of consumer goods analyzed over time for changes that occur
The current CPI is 1.6% INFLATION February
• Is this good or bad?
• Who gains from prices increasing?-Producers make more money!
• Who loses from prices increasing?-Consumers pay higher prices!
To Review, discuss with a partner…
• What is inflation? Deflation? • What is the ideal rate of price stability? How
do we measure price stability?
A third goal for a healthy economy is economic growth, which is measured as Gross Domestic Product (GDP). GDP is the value of all goods and services produced inside a country’s borders within one
The ideal rate of economic growth is approximately 3.5% real GDP
•Why do you think the government pays attention to the amount and value of all things produced in the U.S. in a year’s time?
If more goods/services are produced, what MIGHT this tell us about what’s going on in the rest of the economy?
Is Economic growth a good thing?
-More goods/services being produced-More productivity-More jobs (lower unemployment level)
But, reality tells us…
-Wasted resources/goods we don’t need?
-Happy workers?-Workers replaced by
What happens when GDP decreases?
-Recession: negative growth in GDP for 6 to 9 months
-Depression: negative growth in GDP for 1 year +
Current Figures@ GDP
• 2nd Quarter 2014 increase to 4.6%Seasonally adjusted annual rate (Sept )
• Highest growth rate in 2.5 years What might be reasons?
There are some PROBLEMS with using GDP to measure the growth of an economy.
1. It doesn’t measure illegal activities (babysitting, “under the counter” payments)
2. It doesn’t measure well-being and quality of life (leisure time is not measured, etc.)
3. Negative outcomes are rewarded (ex. Depleting/destroying the environment can lead to an increase in GDP!)
To review, discuss with a partner…
• What is GDP?• What does it mean when GDP increases?
Decreases? • What are the problems with GDP?
For the categories below, explain the main idea and compare the optimal rates with their current rates:
1. Employment/unemployment:2. Inflation:3. Economic growth: