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26 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics .

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Page 1: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

26

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

An Introduction to Macroeconomics

.

Page 2: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Performance and Policy

• Real GDP

• Corrects for price changes

• Nominal GDP

• Uses current prices

• Unemployment

• Inflation

• Increase in overall level of prices

LO1

Page 3: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Performance and Policy

• Can governments:

• Promote economic growth?

• Reduce severity of recession?

• Is monetary or fiscal policy more effective at mitigating recession?

• Is there a tradeoff between inflation and unemployment?

• Is anticipated or unanticipated government policy more effective?

LO2

Page 4: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Performance and Policy

• Output growth

• 2.7% per year 1995-2007

• Unemployment rate

• 4.6% in 2007

• Inflation rate

• 2.7% in 2007

LO2

Page 5: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Modern Economic Growth

• Standard of living measured by output per person

• No growth in living standards prior to Industrial Revolution

• Modern economic growth

• Output per person rises

• Not experienced by all countries

LO3

Page 6: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Global Perspective

LO3

Page 7: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Savings and Investment

• Saving

• Trade-off current for future consumption

• Investment

• Financial investment

• Economic investment

• Banks and financial institutions

LO4

Page 8: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Uncertainty, Expectations, and Shocks

• The future is uncertain

• Expectations affect investment

• Shocks

• What happens is not what you expected

• Demand shocks

• Supply shocks

LO5

Page 9: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Uncertainty, Expectations, and Shocks

• Demand shocks and flexible prices

• Price falls if demand is low

• Sales unchanged

• Demand shocks and sticky prices

• Maintain inventory

• Sales change

• Business cycles

LO5

Page 10: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Demand Shocks

Cars per week

Pri

ce

DM

DL

DH

900

$40,000

$37,000

$35,000

Flexible Prices

LO5

Page 11: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Demand Shocks

Cars per week

DMDL

DH

700 900 1150

$37,000

Fixed Prices

Pri

ce

LO5

Page 12: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Sticky Prices

LO5

Item MonthsCoin-operated laundry machines 46.4

Newspapers 29.9

Haircuts 25.5

Taxi fare 19.7

Veterinary services 14.9

Magazines 11.2

Computer software 5.5

Beer 4.3

Microwaves ovens 3.0

Milk 2.4

Electricity 1.8

Airline tickets 1.0

Gasoline 0.6Source: Mark Bils and Peter J. Klenow, “Some Evidence on the Importance of Sticky Prices”, Journal of Political Economy, October 2004, pp 947-985, Used with permission of The University of Chicago Press.

Page 13: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Sticky Prices

• Many prices are sticky in the short run

• Consumers prefer stable prices

• Firms want to avoid price wars

• All prices are flexible in the long run

• Firms adjust to unexpected, but permanent changes in demand

LO5

Page 14: 26 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. An Introduction to Macroeconomics

Inventory Management

• Computerized inventory tracking

• Unexpected changes in demand are easier to observe

• Firms make better output and employment decisions

• Less severe business cycles

• Before 2007, only two mild recessions since adoption

• Possible explanationLO5


McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Confidence Intervals Chapter 8

Chapter 8 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

CHAPTER 11. PERFECT COMPETITION McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Computer Hardware Chapter 3 McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 12. LABOUR McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12

Chapter 15 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter 5 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter 18W McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter 7 Trade McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved

Competing in Foreign Markets McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved

McGraw-Hill/IrwinCopyright ©2008 The McGraw-Hill Companies, Inc. All rights reserved. Fundamentals of Variance Analysis Chapter 16

11 Salesperson Compensation and Incentives McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

McGraw-Hill/IrwinCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. SURVEYS Chapter 10

Chapter 16 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

34 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Money, Banking, and Financial Institutions McGraw-Hill/IrwinCopyright

Chapter 3 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter Mutual Funds McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 4

Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Values, Attitudes, and Job Satisfaction 6 McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill

Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Creating Effective Organizations 17 McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill

Computer Software Chapter 4 McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 03 Professional Ethics McGraw-Hill/IrwinCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 7. PRODUCTION McGraw-Hill/IrwinCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7

16 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Wage Determination

Chapter Interest Rates McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. 9

Economic Growth 8 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

12 Cost Analysis McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter One Managers and Managing McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 17 Auditors’ Reports McGraw-Hill/IrwinCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 8 Costs McGraw-Hill/IrwinCopyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved

Chapter 10 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter 7 McGraw-Hill/IrwinCopyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved

Chapter © 2008The McGraw-Hill Companies, Inc. All rights reserved. Foundations of Motivation 8 McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies,

Chapter 4 Risk Assessment McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

CHAPTER 12. MONOPOLY McGraw-Hill/IrwinCopyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter 07 Internal Control McGraw-Hill/IrwinCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved