Unit 3 macroeconomics academic
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Unit 3 macroeconomics academic Unit 3 macroeconomics academic Presentation Transcript

  • Unit 3 Macroeconomics - Academic
  • I. Measuring the Economy
  • A. GDP
        • Defined – $ value of products made within a country’s borders.
        • Used by economists & leaders to analyze domestic and foreign economic policy.
        • Calculates foreign and domestic production within a nation-state.
  • B. Ways of Calculating GDP
          • Expenditure Approach - Add together
            • Add together all goods and services.
            • Net exports or imports of goods and services.
          • Income Approach
            • Add together all incomes in the economy.
            • Much more accurate
  • C. Downsides of using GDP
          • It does not take into account..
          • Types of items produced – Higher quality of work
          • Health – ailments cost money, lower standard of living
          • Black Market – large in some nations
          • Households – Services provided without value
          • Amount produced per person – efficiency of production
          • How goods are distributed – Income Gap
          • Over adjustment for inflation – Fixed by real GDP
  • D. A Wealthy Nation has the following…
          • Amounts of natural resources (including productive labor) within a nation.
            • USA has oil, water, timber, arable soil, freshwater, natural gas, etc
            • Russia has oil and natural gas
            • China has labor
          • Technology and equipment available to a nation – USA has high level of use, production, and skill
          • Skill and educational level of workforce – USA guarantees education of all
          • Price levels – Price levels in USA mostly stable
          • Capital deepening – more spent on capital with each worker.
          • Savings invested in the economy help spur growth – China and India have large amount of savings
          • Population increase means more workers for more production – Declining population is bad
          • Government investing in public goods – Infrastructure especially
          • Foreign trade increases growth if we export goods or import investments – USA world’s leading importer and exporter
  • E. Other Measurements
    • Real GDP – adjusted for inflation
    • Purchasing Power Parity – How much can be bought with money
    • Unemployment – amount unemployed
    • Inflation – rate of rising prices
    • Average life expectancy
    • Infant Mortality Rate
    • Gross National Product – value of everything produced within a country’s borders.
    • Literacy Rate.
  • F. Ups & Downs
        • Phases – Business cycle
          • Expansion – Period of economic growth
          • Peak – height of economic expansion.
          • Contraction – period of economic decline
          • Trough – Lowest point in an economic contraction.
          • Not all cycles are shaped the same
  • 2. Negative Parts of the Cycle
          • Recession – ½ year of declining GDP.
          • Depression – Recession that is especially long and severe, longer than 1 year
          • Stagflation – Decline in real GDP combined with a rise in the price level.
  • F. What can impact GDP?
          • Business investment – increased investment will lead to employment
          • Interest rates and credit – Rates must remain low for easy access to cash
          • Consumer expectations – Must remain high, economics is a game of emotion
          • External shocks (bad weather & war) good for foreign victor, but for domestic victor, worse for lose.
  • G. Historical Examples
        • Great depression –
          • GDP falls over 10%
          • unemployment rate - over 20%.
          • Leads to political radicalism in world
          • FDR and Democrats win control of DC
        • 1970’s
          • Greatest example of stagflation.
          • OPEC reduces supply, prices rise
          • Increased government spending
          • Production slows due to end of Vietnam
  • H. World’s GDP (PPP)
    • USA – 14.2 trillion
    • China – 7.9 trillion
    • Japan – 4.3 trillion
    • India – 3.2 trillion
    • Germany 3.6 trillion
    • 11. Mexico – 1.5 trillion
    • Haiti – 11.5 billion
    • 151.Sierra Leone – 4.2 billion
  • II. Unemployment
  • A. Types
          • Frictional – When people take time off to find a job.
          • Seasonal – Industries slow or shut down for the season
          • Structural – Workers’ skills do not match the jobs that are unavailable.
          • Cyclical – unemployment that increases with economic hard times
  • B. Measuring
          • Unemployment rate = number of people unemployed divided by the labor force
          • National unemployment is for USA as a whole. Different from state to state.
          • Unemployment is usually short.
          • Noticeable unemployment is long-term.
          • Few workers make up jobless rate for extensive periods of time.
  • C. Problems
    • Its difficult to distinguish a person who is unemployed from a person who isn’t in labor force.
    • Discouraged workers, those who like to work but give up searching for jobs after unsuccessful attempts, aren’t in statistics.
    • Some people may claim to be jobless to receive assistance, even if they aren’t searching for work.
  • C. Full Employment
    • No cyclical unemployment.
    • Few people left for employers to hire.
    • Companies raise pay, pass on costs to customers = inflation.
  • III. Inflation
        • A. Defined
          • General increase in prices.
          • Creeping – Slow inflation rate between 1 -3% annually.
          • Chronic – Accelerated and hard on the economy. Hard to predict.
          • Hyperinflation – Inflation that rises rapidly as high as 100-500% per month. Hyperinflation is equivalent with total economic collapse.
  • B. Measuring
          • Price index – measured amount of price increases for a standard group of goods over a period of time.
          • Consumer price index is computed by the Bureau of Labor Statistics.
          • CPI = updated costs x 100
    • Base period cost
  • C. Causes
          • Quantity – too much money in the economy causes prices to rise.
          • Demand-pull – When demands for goods and services exceeds supplies.
          • Cost-push – producers raise prices in order to pay increased costs.
  • D. Trends
      • Last 60 years, prices have gone up about 5 percent per year.
      • Deflation, occurred during the 1800’s in the USA.
      • Hyperinflation has occurred in Confederate States of America, Weimar Germany, and Zimbabwe
      • During 1970s Costs went up 7 percent annually.
      • In 1990s, prices went up 2 percent per year.
  • D. Effects
          • Purchasing power – as prices increase, your purchasing power decreases.
          • Fixed income recipients like those on social security, have less purchasing power when prices rise.
          • The amount of interest you receive from investments will be of less value.
          • When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account.
          • Inflation causes dollars at different times to have different real values.
          • Therefore, with rising prices, it is more difficult to compare real revenues, costs, and profits over time.
  • IV. Poverty
        • A. Measured
          • Poverty Threshold – income below which is sufficient to support a family or household.
          • varies among size of the household.
          • Poverty is higher for
            • African-Americans
            • Hispanics
            • Single mothers
            • Children
            • Inner cities
            • Isolated rural regions
  • Figure 1 The Poverty Rate Copyright©2003 Southwestern/Thomson Learning Percent of the Population below Poverty Line 1960 1965 1970 1975 1980 1985 1990 1995 2000 5 10 15 20 25 Poverty rate
  • B. Causes
          • Lack of Education – as you increase a person’s education, the average level of income also increases.
          • Location – Inner city residents –less likely to own automobiles. Rural residents distant from everything.
          • Discrimination –
            • European descent earn more than racial minority groups
            • Men earn more than women.
            • Discrimination is diminishing.
            • Programs like affirmative-action don’t close the gap.
          • Economic Shifts –bad times hurt poor worse.
          • Family Structure - Two incomes are better than one..
  • C. Income
          • 1. Average income in the USA $37,000.
          • Income inequality is decided by…
            • Ranking the nation’s household incomes
            • Dividing them into quintiles
            • Average each quintile’s income]
            • Then calculate their share of total income.
          • Uneven distribution is caused by lack of skills, education, and inheritances.
          • From 1935-1970, the distribution of income gradually became more equal.
          • In more recent years, this trend has reversed itself.
          • The following have tended to reduce the demand for unskilled labor and raise the demand for skilled labor:
            • Increases in international trade with low-wage countries
            • Changes in technology
          • Therefore, the wages of unskilled workers have fallen relative to the wages of skilled workers.
          • This has resulted in increased inequality in family incomes.
  • Table 1 The Distribution of Income in the United States: 2000 Copyright©2004 South-Western
  • D. Antipoverty
          • Enterprise zones – area of underdevelopment that businesses are lured to by tax breaks.
          • Government employment assistance: training, unemployment, and minimum wage.
          • Welfare: Begun by President Johnson, reformed by President Clinton.
            • Food Stamps
            • WIC
            • Cash assistance’
            • Heating.
            • Housing.
            • Welfare to work.
    • Negative income tax gets revenue from wealthy households, transfers to poor.
      • Rich pay a tax based earnings.
      • Poor receive a assistance—a “negative tax.”
      • Poor families receive aid with no demonstration of need.
    • In-kind transfers are to poor = goods and services (Food stamps and Medicaid)