Macro Chapter 7

1
Macro Chapter 7

• Presentation 1- Economic Growth

2
Consumer Price Index (CPI)

• CPI reports inflation each month and year
• Reports the price of a basket of 300 consumer
  goods a typical urban consumer would buy
• Includes foreign goods

3
GDP per Capita

• Divide GDP by the size of the pop.
• US GDP 2010 was 14.3 Trillion
• Population of US was 310 million
• Per Capita 14.3 trillion/310 million
• 46,860
• US 13 (1. Luxembourg 2. Norway 3. Qatar
• 4. Switzerland 5. UAE)

4
Economic Growth

1. An increase in real GDP over some time period
2. An increase in real GDP per capita occurring over
   some period of time

5
Main Sources of Growth

• Society can grow through
• 1. Increasing inputs of resources
• 2. Increasing the productivity of the resources
  used
• Productivity- real output per unit of input

6
Rule of 70

• Approx number of years required to double GDP
• 70/annual percentage rate of growth
• Ex- If Chinas growth rate is 8, it will take
  their economy about 9 years to double GDP
• 70/8 appx. 9

7
The Business Cycle

8
Downturn

• Recession / Contraction
• 6 months or more of decline in total output,
  income and unemployment
• The period of time during which aggregate
  economic activity is falling
• If the recession is particularly severe, it
  becomes a depression.
• During a recession
• Many sectors of the economy experience declining
  sales and production
• Workers are laid off or forced to work only
  part-time
• Peak the point in which output starts to decline

9
Upturn

• After reaching the low point of the contraction
  (the trough), aggregate economic activity begins
  to increase.
• The period of time during which aggregate
  economic activity grows is an expansion or a
  boom.
• The high point of the expansion is called a peak.

10
Demand-Pull Inflation

• When resources are fully employed, the business
  sector cannot respond to excess demand by
  increasing output
• Excess demand causes an increase in cost
• too much spending chasing too few goods

11
Cost-Push Inflation

• Rising per-unit costs of production lower profits
  and force the prices up
• Supply Shock- abrupt increases in the cost of raw
  materials
• Ex. Skyrocketing prices of oil in 1973-74 and
  1979-80
• Per unit cost
• total input cost/ of units of output

12
Hyperinflation

• An extremely high and fast inflation rate
• Ex- Germany in post-WW1
• Serbia in 1994 the inflation rate went up 1.56
  million

13
COLA

• Cost of Living Adjustment
• An increase in benefits as inflation occurs
• EX- Retirement of Firemen increases by 3 each to
  keep up with the increased cost of living

14
Who is Hurt by Inflation?

• 1. Fixed Income Receivers- not adjusted for
  cost-of-living
• 2. Savers- real purchasing power of a saved
  account deteriorates
• 3. Creditors- lenders are repaid with money that
  has less purchasing power

15
Who is Not Hurt by Inflation?

• 1. Flexible income receivers- cost-of-living
  adjustments
• 2. Debtors- pay back loans with less valuable
  money