chapter 17 in search of prosperity and stability introduction to economics (combined version) 5th...

Chapter 17In Search of

Prosperity and Stability

Introduction to Economics (Combined Version) 5th Edition

Economic Growth The growth rate of real Gross Domestic Product (GDP) per

capita is the most common measurement of increasing prosperity. Nominal GDP is stated in terms of prices at which goods are

actually bought and sold. Real GDP is adjusted to remove the effects of inflation.

U.S. growth rate of real GDP is about average for the world.


Sources of GrowthGrowth of population

and increased labor force participation.

Growth of productivity (output per worker):Increase in capital per

workerIncrease in total

factor productivity


Industrial equipment like these robots increase the productivity of workers.

Productivity Growth in the United States Productivity growth varies from year to year. In the 1970s, U.S.

productivity growth slowed down. It revived again during the hi-tech boom of the 1990s, but has recently slowed again.


Growth and the Environment In early stages of

economic development, increasing production of material goods often leads to reduced environmental quality (A to B).

In later stages, properly managed growth can increase both production of material goods and environmental quality.


Actual and Natural GDP Growth Because of increasing population and productivity, the nation’s

natural or potential GDP increases steadily over time. As it does so, actual real output is sometimes above and sometimes below the natural level. The difference is called the output gap.


The Business Cycle The movement of GDP

above and below the long-run trend is called the business cycle.

Phases of the business cycle: peak contraction trough expansion

A contraction lasting six months or more is called a recession.


Employment and UnemploymentA person is considered to be employed if he or she

works at least 1 hour per week for pay or at least 15 hours per week as an unpaid worker in a family business.

A person who is not currently employed but is actively looking for work is said to be unemployed.

The employed plus the unemployed—that is, those who are either working or looking for work—constitute the labor force.

The unemployment rate is the ratio of unemployed people to the labor force.


Unemployment in the United States The unemployment rate rises during contractions and falls

during expansions. Because some people are always entering the labor force or changing jobs, it never falls to zero.


Broad vs. Standard Unemployment Rate In addition to the standard

unemployment rate, the BLS also provides a broader measure, U-6.

The numerator of U-6 includes the following: Unemployed persons Marginally attached persons who

would like to work but are not looking for personal reasons or because they think there are no jobs

Part-time workers who would prefer full-time work but can’t find it

The denominator includes the labor force plus the marginally attached.


Unemployment by Duration

During a recession, more people are unemployed, and the average duration of unemployment also increases. Even during a recession, many of the unemployed are out of work for 14 weeks or less. Social costs of unemployment fall most heavily on the long-term unemployed, whose numbers increase greatly during a recession.


Inflation in the United States Inflation means a

sustained rise in the price level.

Deflation means a sustained fall in the price level.

Inflation, as measured by the rate of change of the Consumer Price Index, often varies greatly from month to month.


Follow Ed Dolan’s Econ Blog for monthly updates of inflation data in slideshow format.

http://dolanecon.blogspot.com/



World Inflation Averages Inflation was much

higher in the 1970s and 1980s than it is now.

During the 1990s inflation fell, first in advanced countries and then in developing countries.


Inflation and Interest Rates Inflation affects interest

rates as well as prices. The nominal rate of

interest is expressed in the ordinary way, in current dollars.

The real rate of interest is the nominal rate adjusted by subtracting the rate of inflation.

Let• R = nominal rate of interest• r = real rate of interest• π = rate of inflation

Then r = R - π


chapter 17 in search of prosperity and stability introduction to economics (combined version) 5th...

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economics combined version

growth rate of real

growth of productivity

editionproductivity

managed growth

nominal gdp

potential gdp

actual real output