Macro Inflation and Unemployment

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Macro Inflation and Unemployment

  1. 1. Macroeconomics<br />The study of behavior and decision-making of entire economies<br />
  2. 2. Macroeconomic Questions<br />Why does output fluctuate?<br />What determines economic growth?<br />Why do we have unemployment?<br />Why do we have inflation?<br />Which governmental policy affects output, growth, unemployment, and inflation?<br />How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?<br />How do domestic economic activities affect other countries and our trade? And vice-versa, no?<br />
  3. 3. GDP<br />value of all final goods produced<br /> consumption<br /> + investment<br /> + Gov’t. purchases<br /> + exports <br />– import spending<br /> = GDP<br />better measure of production than GNP (NET exports)<br />
  4. 4. Macroeconomic Questions<br />Why does output fluctuate?<br />What determines economic growth?<br />Why do we have unemployment?<br />Why do we have inflation?<br />Which governmental policy affects output, growth, unemployment, and inflation?<br />How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?<br />How do domestic economic activities affect other countries and our trade? And vice-versa, no?<br />
  5. 5. How to measure if the econ. growing?<br /> Durable goods<br />
  6. 6. How to measure if the econ. growing?<br />Durable goods<br />CPI<br />
  7. 7. How to measure if the econ. growing?<br />Durable goods<br /> CPI - market basket<br />
  8. 8. How to measure if the econ. growing?<br /> Durable goods<br /> CPI (market basket)<br />Consumer Price Index All Goods<br />+1<br />O%<br />-1<br />-2<br />CPI <br />LESSFood and Energy<br />Oct ‘09<br />Jan ‘99<br />+.50<br />+.25<br />O%<br />-.25<br />
  9. 9. How to measure if the econ. growing?<br /> Durable goods<br /> CPI <br /> inflation  diff. in CPI divided by base CPI (we’ll calculate it shortly)<br />
  10. 10. How to measure if the econ. growing?<br /> Durable goods<br /> CPI <br /> inflation  diff. in CPI divided by base CPI (we’ll calculate it shortly)<br /> unemployment<br />
  11. 11. Macroeconomic Questions<br />Why does output fluctuate?<br />What determines economic growth?<br />Why do we have unemployment?<br />Why do we have inflation?<br />Which governmental policy affects output, growth, unemployment, and inflation?<br />How do changes in the amount of money in the economy affect output, growth, unemployment and inflation?<br />How do domestic economic activities affect other countries and our trade? And vice-versa, no?<br />
  12. 12. Macroeconomic Goals<br /><ul><li>Full Employment
  13. 13. Price Stability
  14. 14. Economic Growth</li></li></ul><li>Inflation and Unemployment!!<br /> Two Things that’ll Make You Sad<br /> ‘<br /> ,<br /> _,__<br />
  15. 15. Why do we have inflation?Two Theories on Inflation<br />cost-push - increase wages, raise prices, pay high prices, demand higher wage, etc. (PRODUCERS)<br />demand-pull - too much demand (CONSUMERS)<br />
  16. 16. Inflation <br />Purchasing power<br />Real income effect<br />
  17. 17. Calculating Inflation<br />CPI recent yr.– CPI earlier yr. X 100 = Inflation<br /> CPI earlier yr. <br /> (% change in price)<br /> EX = 2004 Honda Accord $20,000<br /> 2005 Honda Accord $21,500<br />7.5% increase in price<br />
  18. 18. Another Macroeconomic Measure: Unemployment<br />10%<br />88<br />66<br />4<br />Jan ‘99<br />Oct. ‘09<br />Jan ‘06<br />Jan ‘03<br />U.S. Unemployment Rate 1999-2009<br />
  19. 19. Definitions of Employed, Unemployedand Unemployment Rate<br /><ul><li>Employed = everyone currently working
  20. 20. Unemployed = people looking or</li></ul> temp. laid off from work<br /><ul><li>Labor force = employed + unemployed
  21. 21. Unemployment Rate = unemployed</li></ul> labor force<br />
  22. 22. Why do we have unemployment?Types of Unemployment<br />seasonal <br />cyclical<br />structural <br />frictional <br />
  23. 23. Fini!<br />

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