Macroeconomics: The BirdsEye View of the Economy

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Macroeconomics The Birds-Eye View of the Economy
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The Major Macroeconomic Issues

• Standard of Living
• The degree to which people have access to goods
  and services that make their lives easier,
  healthier, safer, and more enjoyable

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The Major Macroeconomic Issues

• In the U.S.
• 1.9 automobiles per U.S. household.
• In 2004, a typical U.S. resident consumed over
  eight times the quantity of goods and services
  consumed in 1900.
• In 1960, 8 of the adult population had a college
  degree compared to 25 in 2004.

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The Major Macroeconomic Issues

• Economic Growth
• A process of steady increases in the quantity and
  quality of the goods and services the economy can
  produce

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Output of the U.S.Economy, 1900-2004

• In 2004 output of the U.S. economy was
• 33 times the 1900 level
• 6 times the 1950 level

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Consumption Patternsaround the World
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The Major Macroeconomic Issues

• Productivity
• In 2004 the average U.S. worker could produce six
  times more than in 1900.
• Average labor productivity

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Output per Person and per Worker in the U.S.
Economy, 1900-2004

• In 2004
• Output/person was 8 times the 1900 level
• Output/worker was 6 times the 1900 level

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The Major Macroeconomic Issues

• Productivity
• U.S. trends in output per employed worker
• 1950 - 1973 increased 2.3/yr
• 1973 - 1995 increased by only 1.1/yr
• 1995 - present increased by 2.1/yr

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The Major Macroeconomic Issues

• Productivity and Living Standards in China and
  the United States

2004 United States China
Output 11,375 billion 7,291 billion
(U.S.) Population 294 million 1,300
million Employed 139 million 752
million Output/person 39,915 5,608 Average
labor productivity 84,424 9,695
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Output of the U.S.Economy, 1900-2004

• Recessions slowdowns in economic growth
• 1930s (depression) 1973-75 1981-82
  1990-912001

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Output of the U.S.Economy, 1900-2004

• Expansions periods of rapid economic growth
• 1941-45 1961-69 1975-80 1982-90 1991-2001

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The U.S. UnemploymentRate, 1900-2004

• The unemployment rate
• of the labor force that is out of work
• Observations
• Rises during recessions
• Always greater than zero

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Increases In Unemployment During Recessions
Unemployment rate at beginning of recession ()
Peak unemployment rate ()
Increase in unemployment rate ()
4.8 (Nov. 1973) 9.0 (May 1975) 4.2 6.3 (Jan.
1980) 10.8 (Nov./Dec. 1982) 4.5 5.5 (July
1990) 7.8 (June 1992) 2.3 4.3 (March 2001) 6.3
(June 2003) 2.0
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The U.S. Inflation Rate, 1900-2004

• Inflation
• The rate at which prices in general are
  increasing over time
• Varies over time -- high in the 70s and low in
  the 90s and today
• Varies between countries -- in 2004 3 in U.S.
  400/yr in Ukraine in the 90s

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The Major Macroeconomic Issues

• National economies are becoming increasingly
  interdependent
• In 2004 the U.S.
• Exported 10.0 of all goods and services
  produced.
• Imported 14.4 of the goods and services used by
  Americans.

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The Major Macroeconomic Issues

• The international flows create political and
  economic issues
• The impact of trade on jobs
• The steel and textile industries
• Trade agreements (NAFTA)
• Trade imbalances
• When exports and imports differ significantly
• Trade deficit exports lt imports
• Trade surplus exports gt imports

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Exports and Imports as a Share of U.S. Output,
1900-2004.
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The Major Macroeconomic Issues

• The Major Economic Issues
• Economic growth and living standards
• Productivity
• Recessions and expansions
• Unemployment
• Inflation
• Economic interdependence among nations

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Macroeconomic Policy

• Monetary Policy
• Determination of the nations money supply
• Controlled by the central bank or, in the U.S.,
  the Federal Reserve System (Fed)

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Macroeconomic Policy

• Fiscal Policy
• Decisions that determine the governments budget,
  including the amount and composition of
  government expenditures and government revenues

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Macroeconomic Policy

• Fiscal policy influences the balance between
  government spending and taxes
• A deficit occurs when government spending is
  greater than tax revenue.
• A surplus occurs when government spending is less
  than tax revenue.

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Macroeconomic Policy

• Structural Policy
• Government policies aimed at changing the
  underlying structure, or institutions, of the
  nations economy

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Macroeconomic Policy

• Positive versus Normative Analyses of
  Macroeconomic Policy
• Positive Analysis
• Addresses the economic consequences of a
  particular event or policy, not whether those
  consequences are desirable

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Macroeconomic Policy

• Positive versus Normative Analyses of
  Macroeconomic Policy
• Normative Analysis
• Addresses the question of whether a policy should
  be used normative analysis inevitably involves
  the values of the person doing the analysis

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Aggregation

• Aggregation
• The adding up of the individual economic
  variables to obtain economywide totals
• Used to take a birds-eye view of the economy

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Aggregation

• Aggregation
• Aggregate measurements in dollar values allow
  economists to compare broad categories of goods
  and services, such as exports and imports.
• Aggregation often obscures the fine detail of an
  economic situation.