AP Macroeconomics

Intro to Macroeconomics

Macroeconomics is concerned with the overall ups and downs in the

economy, whereas Microeconomics is concerned with how people make decisions and how those decisions

interact.

What is it?

When did “the study” begin?In the 1930s, the field of Macroeconomics was still in its infancy.

After the Great Depression, “the study” of Macroeconomics really picked up speed.

What are some of “the field’s” major concerns?•Business cycles

•Employment

•Aggregate output

•Price stability

•Economic growth

•(or lack thereof)

Business Cycles…

•The alternation between economic downturns and upturns in the macroeconomy is known as the business cycle

•A depression is a very deep and prolonged downturn (the last Depression the US experienced was the Great

Depression of the 1930s

•Less prolonged economic downturns are known as recessions. Are we still in one?

•Usually, recessions are followed by expansions, or economic upturns (periods in which output and

employment are rising

FYI: Average length of the business cycle is 5 yrs 7mos. What can you do in that amount of time?

Employment, Unemployment, and the Business Cycle…

•Employment is the total number of people currently working for $$$

•Unemployment is the total number of people actively looking for work, but aren’t currently employed.

The labor force = employment + unemployment

Unemployment rate is the % of the labor force unemployed – do you know what it is in the US?

The business cycle involves more than just J.O.B.S!

The business cycle is also concerned with OUTPUT, or the quantity of goods and services produced.

OUTPUT & UNEMPLOYMENT MOVE IN OPPOSITE DIRECTIONS…

Lower output = fewer workers desired = unemployment

goes up, up, and away!

AGGREGATE OUTPUT & THE BUSINESS CYCLE

How do we measure the rise & fall of an economy’s output?

A little somethin’ somethin’ called “aggregate output,” or the economy’s total production of goods & services for a given time period (typically, one year)

INFLATION, DEFLATION, & PRICE STABILITY

Inflation = a rise in the overall price level in the economy <causes cash to lose value>

Deflation = well, the opposite of inflation (that is, a fall in the overall price level)

Does not apply to change in prices for a few items…it refers to an overall trend for general items in the economy

So what’s the big deal? Inflation and deflation can cause major problemos for the economy! That is, if the $ goes up (inflates), then it does not go as

far as it did beforeThat is, if the $ goes down (deflates), then it will buy

more than before. Therefore, people will not invest.

As always, we seek a balance…Price stability – the overall price level is changing either not at all or only verrrrrry sloooooowly.

Stabilizes an otherwise unstable economy

Don’t you wish this logic would apply to your girlfriend/boyfriend?

Economic growth – or an increase in the maximum possible output of an economy – is the answer to why we are able to afford things like iPods, iPads, fancy cars, washing machines (sometimes for as little as $100!), houses too large to live in, flat-screen TVs, Prada bags, and other luxuries that people would otherwise have been unable to afford many moons ago.

Economic Growth +++++++++++++++++

And how do we measure all these things?Why, silly, we use models – any simplified version of reality that is used to better understand real-life situations. Very often in the form of a graph.

Lucky for you, we’ve already been using them!

And Now…

www.reffonomics.com

Macroeconomics

Works CitedThe Economics of Seinfeld. http://

yadayadayadaecon.com/clip/Krugman, Paul, and Robin Wells. Krugman’s

Economics for AP. New York, Worth Publishers.

Reffonomics. www.reffonomics.com.