Intro to Macroeconomics

Define Macroeconomics and

Contrast with Microeconomics

U.S. Economic Confidence

We often hear about our economy being “bad,” “unhealthy,” etc.

What do YOU think makes an economy healthy or unhealthy?

Economic Confidence

• Do YOU think our economy is getting better, or getting worse? Why?

• How would YOU rate the economic conditions in the U.S.?– Excellent, very good, good, bad, very bad, terrible– Why?

• Do YOU think the United States is in a Recession or not? Why?

• One year from now, do you think the national economy will be better, the same, or getting worse? Why?

Macroeconomics focuses on the ENTIRE economy (all people and all goods) at once.

Some questions to consider…• - How healthy is the economy?

-What is the unemployment rate?-Is the economy “growing”?-How does inflation affect us?

Let’s meet our key players in Macroeconomics:

Government Federal Reserve

BanksPeople

There are three major goals of Macroeconomics for an economy to be

healthy.

Full Employment

Stable Prices

Economic Growth

The Labor Force (work force) consists of the people the government considers to be employed or unemployed.

The labor force includes anyone that is (or could be) working

In the labor force…16-65 year-olds

Are counted as being either EMPLOYED or UNEMPLOYED

NOT in the labor force…<16 and >65-in jail-full-time students choosing not to work-disabled/hospitalized-housewife/stay-at-home parents-retired

One method the government uses to research unemployment is the labor force phone survey

Full employment (95-96%) is one element of a healthy economy.

Why is “Full Employment” not 100%???

The current unemployment rate is 5.9%(Sept 2014)

• Is this good or bad? It depends……

9.3 Million Unemployed in September–

• What about those “discouraged” workers?• What types of jobs are being added to the

work force?

“Discouraged” workers are NOT counted as being unemployed

There were 698,000 “discouraged” workers in February.

Is this a big deal?

It depends on how long they are discouraged for!

An UNDEREMPLOYED person works full-time, but receives no healthcare/vacation benefits

Then

Does Unemployment mirror poverty?

RACE UNEMPLOYMENT RATE

POVERTY RATE

White 5.1% Sept 2014 9.6%

Black 11% Sept 2014 27%

Hispanic 6.9% Sept 2014 24%

Asian 4.3% Sept 2014 10%

Table Talk: Discuss with a partner…

• What is the ideal rate for “full employment”? Why can’t it be at 100%?

• Who is in the labor force? Who is not in the labor force?

• What is the difference between an underemployed worker and a discouraged worker?

The second goal of a healthy economy is stable (unchanging) prices.

Inflation: Sustained and continuous increase in the

average of all prices over time.

Deflation: A decrease in the average of all prices

over time.

VS.

The ideal rate of price stability is 3.5% INFLATION

Inflation and Purchasing Power

• Purchasing Power- the ability to purchase goods and services

• As prices rise, the purchasing power of money declines.

The government uses two methods to measure price changes.

1. Producer Price Index (PPI)•Producers are randomly chosen and monitored to analyze price changes

2. Consumer Price Index (CPI)•Thousands of consumer goods analyzed over time for changes that occur

The current CPI is 1.6% INFLATION February

• Is this good or bad?

• Who gains from prices increasing?-Producers make more money!

• Who loses from prices increasing?-Consumers pay higher prices!

To Review, discuss with a partner…

• What is inflation? Deflation? • What is the ideal rate of price stability? How

do we measure price stability?

A third goal for a healthy economy is economic growth, which is measured as Gross Domestic Product (GDP). GDP is the value of all goods and services produced inside a country’s borders within one

year’s time.

The ideal rate of economic growth is approximately 3.5% real GDP

•Why do you think the government pays attention to the amount and value of all things produced in the U.S. in a year’s time?

If more goods/services are produced, what MIGHT this tell us about what’s going on in the rest of the economy?

Is Economic growth a good thing?

Theory says…

-More goods/services being produced-More productivity-More jobs (lower unemployment level)

But, reality tells us…

-Wasted resources/goods we don’t need?

-Happy workers?-Workers replaced by

technology?

What happens when GDP decreases?

-Recession: negative growth in GDP for 6 to 9 months

-Depression: negative growth in GDP for 1 year +

Current Figures@ GDP

• 2nd Quarter 2014 increase to 4.6%Seasonally adjusted annual rate (Sept )

• Highest growth rate in 2.5 years What might be reasons?

I

There are some PROBLEMS with using GDP to measure the growth of an economy.

1. It doesn’t measure illegal activities (babysitting, “under the counter” payments)

2. It doesn’t measure well-being and quality of life (leisure time is not measured, etc.)

3. Negative outcomes are rewarded (ex. Depleting/destroying the environment can lead to an increase in GDP!)

To review, discuss with a partner…

• What is GDP?• What does it mean when GDP increases?

Decreases? • What are the problems with GDP?

To Review….

For the categories below, explain the main idea and compare the optimal rates with their current rates:

1. Employment/unemployment:2. Inflation:3. Economic growth: