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BarnettUHSAP Econ

MACROECONOMIC GOALS

Full EmploymentThat 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 createdJob growth averaging around 150,000 each month

Should 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 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 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 down

UNO

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 rateYear 1 to Year 2 = 3% increase in pricesYear 2 to Year 3= 2% increase in prices

DOS

Second 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

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.

DOS

Current Consumer Price Index

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg

2010 216.687 216.741 217.631 218.009218.178 217.965218.011 218.312218.439 NA NA NA NA

2009 211.143 212.193 212.709 213.240213.856 215.693215.351 215.834215.969216.177 216.330 215.949 214.537

2008 211.080 211.693 213.528 214.823216.632 218.815219.964 219.086218.783216.573 212.425 210.228 215.303

2007 202.416 203.499 205.352 206.686207.949 208.352208.299 207.917208.490208.936 210.177 210.036 207.342

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

CPI

Inflation 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 growth

TRES

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

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.

TRES

Fourth Goal: Favorable Balance of Trade

X = exportsM = importsX>M = trade surplusX<M = The USA! (trade

deficit)

2008 trade deficit = $673 billion

Better to have strong or weak currency?

CUATRO

Fifth Goal: Limiting Government Growth/Spending

Measured by looking at the rate of government spending relative to the real GDP growth

CINCO

1. Full Employment2. Stable Prices3. Economic Growth4. Favorable Balance of Trade5. Limiting Government Growth

HIGH FIVES FOR MACRO!


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