macroeconomics the study of the economy as a whole
TRANSCRIPT
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MACROECONOMICS
THE STUDY OF THE ECONOMY AS A
WHOLE.
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GROSS DOMESTIC PRODUCT
• IS A YARDSTICK FOR THE ECONOMY'S PERFORMANCE
• CONSUMPTION + INVESTMENT + GOVERNMENT SPENDING + (EXPORTS - IMPORTS) = GDP
• C + I + G + (X - IM) = GDP
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CONSUMPTION
• WHAT WAS BOUGHT OR USED BY PEOPLE IN A SOCIETY IN A GIVEN PERIOD OF TIME.
• THE AMOUNT OF MONEY WE SPENT BUYING THINGS.
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INVESTMENT
• THE AMOUNT OF MONEY BUSINESSES SPEND ON CAPITAL EQUIPMENT USED FOR PRODUCTION.
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GOVERNMENT SPENDING
• THE AMOUNT OF MONEY THE GOVERNMENT SPENT IN THE ECONOMY. ( DOES NOT INCLUDE MONEY SPENT ON PAYING OFF THE NATIONAL DEBT)
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EXPORTS
• THE DOLLAR VALUE OF AMERICAN MADE GOODS AND SERVICES THAT ARE SOLD TO FOREIGN COUNTRIES.
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IMPORTS
• GOODS AND SERVICES THAT ARE PURCHASED BY AMERICAN CONSUMERS AND BUSINESSES THAT ARE NOT OWNED BY AMERICAN COMPANIES.
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Business Cycles
• Systematic ups and downs of the GDP.
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Phases of the Business Cycle
PeakRecession
Trough
Expansion
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Peak- the point where the Real GDP stops going up
PeakRecession
Trough
Expansion
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Recession-A period where the real GDP declines for Two quarters in
a row (6 months)
PeakRecession
Trough
Expansion
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Trough: the turnaround point where the GDP stops going down
PeakRecession
Trough
Expansion
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Expansion: a period of recovery from a recession
PeakRecession
Trough
Expansion
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Depression
• A severe recession with high unemployment, shortages, and excess capacity in manufacturing.
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Causes of the Business Cycle
• Capital Expenditures: growth or decline of expanding inventories of businesses
• Inventory Adjustments: changes in the level of business inventories
• Innovation: New products or new methods
• Monetary Factors: Credit and loan policies of the FED- Easy money vs. Tight Money
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External Shocks to Business Cycles
• Increased Oil Prices- OPEC shortages in 1970s
• Wars
• International Conflicts
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Business Cycle Effects
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1. Unemployment
• Unemployment Rate: # of unemployed people divided by total # of people in the labor force.
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Types of Unemployment
• Frictional: Unemployment caused by workers who are between jobs
• Structural: A fundamental change in the economy- outdated technology
• Cyclical: Changes based on the business cycle• Seasonal: Changes based on the weather, or
demand for certain products. • Technological: Changes caused by jobs being
replaced by machines/automation
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Inflation
• General Increase of products
• Types of Inflation:• Creeping: inflation in between 1-3%• Galloping: inflation that can go as high as
100 to 300%• Hyperinflation: 500% + (Germany during
the Great Depression)
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Inflation Causes
• Demand pull Theory: all sectors of the economy try to buy more goods and services than can be produced
• Federal Deficit: Government spending• Rising Input Costs: Rising cost of
manufacturing increasing prices (Labor)• Excessive Monetary Growth: Money supply
grows faster than Real GDP.
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Poverty
Causes of PovertyEducation
Wealth- Distribution of wealth uneven.
Discrimination
Ability
Monopoly Power- limited professions or membership- Unions, ABA, AMA
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Stabilizing the GDP- Demand Side
• Fiscal Policy- Federal Government’s attempt to stabilize the economy through taxes and spending.
• Concepts created by economist John Maynard Keynes.
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Demand Side Limits
• Government spending counteracting Business Investing
• Government unable to control spending
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Supply Side Policies
• Policies designed to stabilize the economy by increasing production rather than demand.
• Became popular during the Reagan administration.
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Supply Side Limits
• Lack of experience using Supply side
• Policies designed to promote growth not stability.
• Weakens the stabilizers of the economy
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• Supply- Side• Stimulate production• Cut Taxes and
Regulations.• Reduce Government
• Businesses invest and expand, creating jobs
• Investment increases
• Demand- Side• Stimulate
consumption• Cut taxes or increase
Federal spending. • More Money= More
Consumption• Businesses increase
output