Unit 3 Macroeconomics
I.  Measuring the Economy
A.  GDP <ul><ul><ul><li>Defined – $ value of products made within a country’s borders.  </li></ul></ul></ul><ul><ul><ul><l...
B.  Ways of Calculating GDP <ul><ul><ul><ul><li>Expenditure Approach   -  Add together  </li></ul></ul></ul></ul><ul><ul><...
C.  Downsides of using GDP <ul><ul><ul><ul><li>It does not take into account.. </li></ul></ul></ul></ul><ul><ul><ul><ul><l...
D.  A Wealthy Nation has the following… <ul><ul><ul><ul><li>Amounts of natural resources (including productive labor) with...
E.  Ups & Downs <ul><ul><ul><li>Phases – Business cycle  </li></ul></ul></ul><ul><ul><ul><ul><li>Expansion – Period of eco...
2.  Negative Parts of the Cycle <ul><ul><ul><ul><li>Recession – ½ year of declining GDP. </li></ul></ul></ul></ul><ul><ul>...
F.  What can dramatically change GDP?  <ul><ul><ul><ul><li>Investment. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Intere...
G.  Historical Examples <ul><ul><ul><li>Great depression – </li></ul></ul></ul><ul><ul><ul><ul><li>GDP falls over 10% </li...
II.  Unemployment
A.  Types <ul><ul><ul><ul><li>Frictional – When people take time off to find a job. </li></ul></ul></ul></ul><ul><ul><ul><...
B.  Measuring <ul><ul><ul><ul><li>Unemployment rate = number of people unemployed divided by the labor force </li></ul></u...
C.  Full Employment <ul><li>No cyclical unemployment. </li></ul><ul><li>Few people left for employers to hire. </li></ul><...
III.  Inflation <ul><ul><ul><li>A.  Defined </li></ul></ul></ul><ul><ul><ul><ul><li>General increase in prices.  </li></ul...
B.  Measuring <ul><ul><ul><ul><li>Price index – measured amount of price increases for a standard group of goods over a pe...
C.  Causes <ul><ul><ul><ul><li>Quantity – too much money in the economy causes prices to rise. </li></ul></ul></ul></ul><u...
D.  Effects <ul><ul><ul><ul><li>Purchasing power – as prices increase, your purchasing power decreases.  </li></ul></ul></...
IV.  Poverty <ul><ul><ul><li>A.  Measured </li></ul></ul></ul><ul><ul><ul><ul><li>Poverty Threshold – income below which i...
B.  Causes <ul><ul><ul><ul><li>Lack of Education – as you increase education, the average income also increases.  </li></u...
C.  Income <ul><ul><ul><ul><li>1.  Average income in the USA $37,000. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Income ...
D.  Antipoverty <ul><ul><ul><ul><li>Enterprise zones – area of underdevelopment that businesses are lured to by tax breaks...
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Macroeconomics

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Macroeconomics

  1. 1. Unit 3 Macroeconomics
  2. 2. I. Measuring the Economy
  3. 3. A. GDP <ul><ul><ul><li>Defined – $ value of products made within a country’s borders. </li></ul></ul></ul><ul><ul><ul><li>Used by economists & leaders to analyze domestic and foreign economic policy. </li></ul></ul></ul>
  4. 4. B. Ways of Calculating GDP <ul><ul><ul><ul><li>Expenditure Approach - Add together </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Add together all goods and services. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Net exports or imports of goods and services. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Income Approach… Add together all incomes in the economy. </li></ul></ul></ul></ul>
  5. 5. C. Downsides of using GDP <ul><ul><ul><ul><li>It does not take into account.. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Types of items produced </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Health </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Black Market </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Households </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Amount produced per person </li></ul></ul></ul></ul><ul><ul><ul><ul><li>How goods are distributed </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Over adjustment for inflation. </li></ul></ul></ul></ul>
  6. 6. D. A Wealthy Nation has the following… <ul><ul><ul><ul><li>Amounts of natural resources (including productive labor) within a nation. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Technology and equipment available to a nation. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Skill and educational level of workforce. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Price levels. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Capital deepening – more spent on capital with each worker. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Savings invested in the economy help spur growth. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Population increase means more workers for more production. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Government investing in public goods (roads, school) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Foreign trade increases growth if we export goods or import investments. </li></ul></ul></ul></ul>
  7. 7. E. Ups & Downs <ul><ul><ul><li>Phases – Business cycle </li></ul></ul></ul><ul><ul><ul><ul><li>Expansion – Period of economic growth </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Peak – height of economic expansion. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Contraction – period of economic decline </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Trough – Lowest point in an economic contraction. </li></ul></ul></ul></ul>
  8. 8. 2. Negative Parts of the Cycle <ul><ul><ul><ul><li>Recession – ½ year of declining GDP. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Depression – Recession that is especially long and severe. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Stagflation – Decline in real GDP combined with a rise in the price level. </li></ul></ul></ul></ul>
  9. 9. F. What can dramatically change GDP? <ul><ul><ul><ul><li>Investment. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Interest rates, credit. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Consumer expectations. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>External shocks (bad weather & war). </li></ul></ul></ul></ul>
  10. 10. G. Historical Examples <ul><ul><ul><li>Great depression – </li></ul></ul></ul><ul><ul><ul><ul><li>GDP falls over 10% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>unemployment rate - over 20%. </li></ul></ul></ul></ul><ul><ul><ul><li>1970’s </li></ul></ul></ul><ul><ul><ul><ul><li>Greatest example of stagflation. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>OPEC reduces supply, prices rise </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Production slows due to end of Vietnam </li></ul></ul></ul></ul>
  11. 11. II. Unemployment
  12. 12. A. Types <ul><ul><ul><ul><li>Frictional – When people take time off to find a job. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Seasonal – Industries slow </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Structural – Workers’ skills do not match. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cyclical –economic hard times </li></ul></ul></ul></ul>
  13. 13. B. Measuring <ul><ul><ul><ul><li>Unemployment rate = number of people unemployed divided by the labor force </li></ul></ul></ul></ul><ul><ul><ul><ul><li>National unemployment is for USA as a whole. Different from state to state. </li></ul></ul></ul></ul>
  14. 14. C. Full Employment <ul><li>No cyclical unemployment. </li></ul><ul><li>Few people left for employers to hire. </li></ul><ul><li>Companies raise pay, pass on costs to customers = inflation. </li></ul>
  15. 15. III. Inflation <ul><ul><ul><li>A. Defined </li></ul></ul></ul><ul><ul><ul><ul><li>General increase in prices. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Creeping – Slow inflation rate between 1 -3% annually. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Chronic – Accelerated and hard on the economy. Hard to predict. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Hyperinflation – Inflation that rises rapidly as high as 100-500% per month. Hyperinflation is equivalent with total economic collapse. </li></ul></ul></ul></ul>
  16. 16. B. Measuring <ul><ul><ul><ul><li>Price index – measured amount of price increases for a standard group of goods over a period of time. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Consumer price index is computed by the Bureau of Labor Statistics. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>CPI = updated costs x 100 </li></ul></ul></ul></ul><ul><li> Base period cost </li></ul>
  17. 17. C. Causes <ul><ul><ul><ul><li>Quantity – too much money in the economy causes prices to rise. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Demand-pull – When demands for goods and services exceeds supplies. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cost-push – producers raise prices in order to pay increased costs. </li></ul></ul></ul></ul>
  18. 18. D. Effects <ul><ul><ul><ul><li>Purchasing power – as prices increase, your purchasing power decreases. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fixed income recipients like those on social security, have less purchasing power when prices rise. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>The amount of interest you receive from investments will be of less value. </li></ul></ul></ul></ul>
  19. 19. IV. Poverty <ul><ul><ul><li>A. Measured </li></ul></ul></ul><ul><ul><ul><ul><li>Poverty Threshold – income below which is sufficient to support a family or household. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>varies among size of the household. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Poverty is higher for </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>African-Americans </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Hispanics </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Single mothers </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Children </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Inner cities </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Isolated rural regions </li></ul></ul></ul></ul></ul>
  20. 20. B. Causes <ul><ul><ul><ul><li>Lack of Education – as you increase education, the average income also increases. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Location – Inner city residents –less likely to own autos. Rural residents distant from everything. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Discrimination – </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Europeans earn more than racial minority groups </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Men earn more than women. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Discrimination is diminishing. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Programs like affirmative-action don’t close gap. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Economic Shifts –bad times hurt poor worse. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Family Structure - Two incomes are better than one.. </li></ul></ul></ul></ul>
  21. 21. C. Income <ul><ul><ul><ul><li>1. Average income in the USA $37,000. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Income inequality is decided by… </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Ranking the nation’s household incomes </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Dividing them into quintiles </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Average each quintile’s income </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Then calculate their share of total income. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Uneven distribution is caused by lack of skills, education, and inheritances. </li></ul></ul></ul></ul>
  22. 22. D. Antipoverty <ul><ul><ul><ul><li>Enterprise zones – area of underdevelopment that businesses are lured to by tax breaks. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Government employment assistance: training, unemployment, and minimum wage. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Welfare: Begun by President Johnson, reformed by President Clinton. </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Food Stamps </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>WIC </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Cash assistance’ </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Heating. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Housing. </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Welfare to work. </li></ul></ul></ul></ul></ul>
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