8/8/2019 Macro Ch2 F10

1/25

The U.S. Economy

Macroeconomics

Prof. Juan Argaez

Fall 2010

8/8/2019 Macro Ch2 F10

2/25

The U.S.Economy:Myth and Reality

The U.S. economy is inundated with

imports, specially from ChinaBusiness profits account for a third ofthe price we pay

Federal government jobs have grownrapidly in the last decades

8/8/2019 Macro Ch2 F10

3/25

8/8/2019 Macro Ch2 F10

4/25

A private enterprise economy

Private enterprise and capitalism are the rule,not the exception

Most privatized Few industries are publicly owned

Most utilities are run as private enterprises

One of the more marketized economies

Government production a little percentage of totalGDP (nominal and real)

8/8/2019 Macro Ch2 F10

5/25

A relatively closed economyAll nations trade with other nationsU.S. no exception

We produce most of what we consume,and we consume most of what weproduce Exports and imports represent just about

14% of GDP We import more from Canada than China

8/8/2019 Macro Ch2 F10

6/25

Openness of Various NationalEconomies, 2007

8/8/2019 Macro Ch2 F10

7/25

A growing economyReal Gross Domestic Product

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

Yea

r1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

GDP in billions of chained 2000 dollars

8/8/2019 Macro Ch2 F10

8/25

But, with many bumps along the path(recessions)

8/8/2019 Macro Ch2 F10

9/25

One of the consequences: unemployment

8/8/2019 Macro Ch2 F10

10/25

Unemployment and Poverty Rates(1978-2009)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Percent

Below Poverty Line (Females) Unemployment Rate (avg) Below Poverty Line (Males)Source: Bureau of Labor Statisticsand the U.S. Census Bureau (2009)

8/8/2019 Macro Ch2 F10

11/25

Unemployment

During the great depression as high as 25%(nationwide) and some areas 60% or more

Barely over 1% during WWIIRecently: as high as 10.2% (August 2009)and as low as 3.8% (April 2000)

Other countries (July 2009):

France (9.8), avg. other OECD (8.5)

Why? Another reason to study economics

8/8/2019 Macro Ch2 F10

12/25

The Composition of Employment bySex, 1950 and 2007

8/8/2019 Macro Ch2 F10

13/25

8/8/2019 Macro Ch2 F10

14/25

The American workforce: What does it do?

8/8/2019 Macro Ch2 F10

15/25

Labor and capital: Earnings

Labor: 140 million workers

wages represent about 70% of GDPCapital:About 25 million private businesses

average return of 9% Market value of business assets around 30

trillion

8/8/2019 Macro Ch2 F10

16/25

Very rich and efficienteconomy, but wealth is notdistributed equally

8/8/2019 Macro Ch2 F10

17/25

Sources:1947-79: Analysis of U.S. Census Bureau data inEconomic Policy Institute, The State of Working America1994-95, p. 37.1979-2001: U.S. Census Bureau, Historical Income

Tables, Table F-3:http://www.census.gov/hhes/income/histinc/f03.htmlThresholds: U.S. Census Bureau, Historical IncomeTables, Table F-1:http://www.census.gov/hhes/income/histinc/f01.html

Sources: U.S. Census Bureau, Historical IncomeTables, Table F-3:http://www.census.gov/hhes/income/histinc/f03.htmlThresholds: U.S. Census Bureau, Historical IncomeTables, Table F-1:http://www.census.gov/hhes/income/histinc/f01.html

8/8/2019 Macro Ch2 F10

18/25

Income Category 1979 2003 % Change $ Change1979-2003 1979-2003

Lowest fifth $13,500 $14,100 4.4% $600Second fifth $27,300 $30,800 12.8% $3,500Middle fifth $38,900 $44,800 15.2% $5,900Fourth fifth $50,900 $63,600 25.0% $12,700Top fifth $89,700 $138,500 54.4% $48,800

Top 1 Percent $305,800 $701,500 129.4% $395,700

Average After-Tax Income by Income Group(in 2003 dollars)

Source: Congressional Budget Office, Effective Federal Tax Rates: 1979-

2003, December 2005

8/8/2019 Macro Ch2 F10

19/25

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

$7.50

Real (1996 prices)

Minimum Wage (1954-2008)

Source: Bureau of Labor Statistics (2010)

8/8/2019 Macro Ch2 F10

20/25

Minimum Wage

Coverage

Applies to business with total revenue

greater than $500k Does not apply to seasonal, charitable, and

education employees

Must of the workers receiving minimumwage are not poor (stepping stone)

Teenagers, secondary workers, workingpart-time (leisure and hospitality)

8/8/2019 Macro Ch2 F10

21/25

Source:Arthur B. Kennickell, "A Rolling Tide: Changes in the Distribution of Wealth inthe U.S., 1989-2001," Table 10. (Levy Economics Institute: November, 2003)

8/8/2019 Macro Ch2 F10

22/25

What is missing? Government

Traditional roles:

Making and enforcing laws

Regulating business

Providing certain goods and services suchas national defense

Collecting taxes to pay for these goods andservices

Redistributing income

8/8/2019 Macro Ch2 F10

23/25

8/8/2019 Macro Ch2 F10

24/25

Tax Burden (2006)

8/8/2019 Macro Ch2 F10

25/25

Conclusion:Its a Mixed Economy(Private and Public Elements)