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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 - PowerPoint PPT Presentation

Text of MacroEconomic Goals

MacroEconomic Goals

BarnettUHSAP EconMacroEconomic Goals

Full EmploymentThat does NOT mean that everybody has a job There is always going to be some people unemployedCivilian Labor Force:People 16 or older who have looked for a job in the past 4 weeksGoal: 5-6% unemployment rate considered the natural rate or target rateEvery 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. (Okuns rule of thumb).

Current Rate: 7.7% FED goal: 6.6%Would require 1.9 million jobs createdJob growth averaging around 150,000 each monthShould take around _____ to reach goal

But

Uno

Unemployment in Other Countries

Three types of unemployment Frictional Unemployment TemporaryWorkers moving from one job to anotherStudents heading off into the real worldUno

Three types of unemployment Structural Unemployment - PermanentWhen there is a mismatch between the skills of unemployed workers and the needs of the economyCan retrain themselves Be entrepreneurial and use their skills in novel waysCan move to where their skills are in demandAssembly line workers replaced by robots

Uno

Three types of unemployment Cyclical UnemploymentDue to contractions (downs) from normal business cycles Businesses lay off workers when the economy goes downUno

Second Goal: Stable Prices Reasonable inflation rate Inflation Increase in the average level of prices over a given time periodGoal: 3% inflation rate (considered stable prices)

Mo Money, Mo TomatoesDos

Second Goal: Stable Prices Reasonable inflation rate Disinflation: When the price level increases from year to year but at decreasing rateYear 1 to Year 2 = 3% increase in pricesYear 2 to Year 3= 2% increase in pricesDosSecond Goal: Stable Prices Reasonable inflation rate Deflation: Price level increase is actually negativePrice 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

CPICurrent CPI inflation rate is: 1.8 percentlater year - earlier year x 100earlier year

Dos

GDP DeflatorUses 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. Dos

Current Consumer Price IndexYearJanFebMarAprMayJunJulAugSepOctNovDecAvg2010216.687216.741217.631218.009218.178217.965218.011218.312218.439NANANANA2009211.143212.193212.709213.240213.856215.693215.351215.834215.969216.177216.330215.949214.5372008211.080211.693213.528214.823216.632218.815219.964219.086218.783216.573212.425210.228215.3032007202.416203.499205.352206.686207.949208.352208.299207.917208.490208.936210.177210.036207.3422006198.3198.7199.8201.5202.5202.9203.5203.9202.9201.8201.5201.8201.62005190.7191.8193.3194.6194.4194.5195.4196.4198.8199.2197.6196.8195.32004185.2186.2187.4188.0189.1189.7189.4189.5189.9190.9191.0190.3188.92003181.7183.1184.2183.8183.5183.7183.9184.6185.2185.0184.5184.3183.962002177.1177.8178.8179.8179.8179.9180.1180.7181.0181.3181.3180.9179.882001175.1175.8176.2176.9177.7178.0177.5177.5178.3177.7177.4176.7177.072000168.8169.8171.2171.3171.5172.4172.8172.8173.7174.0174.1174.0172.2Get more Historical Data from InflationData.comCPIInflation Rate 2000 - 2010

Third Goal: Economic Growth Determined by growth in Real GDPGDP = Gross Domestic Product GDP = Market value of all final goods and services produced in an economy in a year

Goal: 3% annual growthTres

Third Goal: Economic GrowthDifference between nominal and real GDPNominal does not include inflation Real GDP - includes inflationReal Tres

GDP Components

Components:C = consumption70I = investment17G = government expenditures17Nx = net exports-4______________________________________________________ 100 percent

The allocation will vary from year to year but must add up to 100 percent.

Tres

Fourth Goal: Favorable Balance of Trade

X = exportsM = importsX>M = trade surplusX