Macroeconomics: The Bird's-Eye View of the Economy

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Macroeconomics: The Bird’s-Eye View

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MacroeconomicsMacroeconomics The study of the performance of national economies The policies governments use to try and improve that performance Macroeconomic policies Government actions designed to affect the performance of the economy as a whole

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Living StandardsStandard of living: The degree to which people have access to goods and services that make their lives easier, healthier, safer, and more enjoyable In wealthy industrialized nations the standard of living is better than at any previous time or place in history

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Economic GrowthEconomic growth A process of steady increase in the quantity and quality of goods and services the economy can produce A process that says the more we produce the more we can consume A process that brings improvement in the average person’s standard of living

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Fig. 5.1 Output of the U.S. Economy, 1900-1999

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Output Per PersonOne reason for the increased growth is the rapid growth of U.S. population More workers available to make more output. But, more people are sharing those goods and services Hence, output per person is a better indicator of the average living standard over time

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Fig. 5.2 Output per Person and per Worker in the U.S. Economy, 1900-1999

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ProductivityAverage labor productivity Output per employed worker Slowing productivity growth leads to less rapid improvements in living standards Rate of improvement has slowed since the 1970s 1950-1973: 2.1% 1973-1999: <1% 1999-2000 it has picked up again

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Recessions and ExpansionsGrowth is not always steady Recessions: Slowdowns in economic growth Depressions: Severe recessions Expansions: Periods of rapid economic growth

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UnemploymentUnemployment rate The fraction of people who would like to be employed but can’t find work Key indicator of the state of the labor market

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Fig. 5.3 The U.S. Unemployment Rate, 1900-1999

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InflationInflation The rate at which prices in general are increasing over time Imposes a variety of costs on the economy In recent years it has been relatively low

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Fig. 5.4 The U.S. Inflation Rate, 1900-1999

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Interdependence among NationsNational economies are increasingly interdependent Trade imbalances Exist when the quantity of goods and services that a country sells abroad (exports) differs significantly form the quantity of goods and services its citizens buy from abroad (imports) Trade deficits Exist when imports are larger than exports

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Fig. 5.5 Exports and Imports as a Share of U.S. Output, 1900-1999

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Macroeconomic Monetary PolicyMonetary policy Determination of the nation’s money supply Changes in the money supply affect National output Employment Interest rates Inflation Stock prices International value of the dollar Controlled by a central bank: The Federal Reserve System in the U.S.

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Macroeconomic Fiscal PolicyFiscal policy Decisions that determine the government’s budget: expenditures and revenues of the governments A Deficit Government spends more than what is collected A Surplus Government spends less than what is collected

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Structural PolicyStructural policy A government policy aimed at changing the underlying structure, or institutions, of the nation’s economy There are many forms of government policies; there is a move away from government control to a market-oriented approach in Eastern Europe

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Positive v. Normative AnalysisPositive analysis Addresses the economic consequences of a particular event or policy Doesn’t judge whether those consequences are desirable Normative analysis Addresses the question of whether a policy should be used Does involve the values of the person doing the analysis

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Micro and MacroMicroeconomists “Ground level” Macroeconomists “Bird’s-eye view” Both use the basic principles of economics Behavior of households individually Behavior of households aggregated

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AggregationAggregation The adding up of individual economic variables to obtain economy-wide totals

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Plan of AttackPart II-Introduction and Measurement Part III-Long run Provides important background for understanding short-term fluctuations Part IV-Short-term fluctuations Learn what happens during recessions and expansions Learn how government policy changes economic performance Part V-International trade

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Last Updated: 8th March 2018

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