NATIONAL ECONOMIC GOALS

• Growth of output

• Price stability

• Full employment

COMPONENTS OF OUTPUT

• Household consumption

• Business investment

• Government expenditures

• Net Exports (Exports-Imports)

• $8 Trillion GDP

PRICE STABILITY

• Zero Inflation

• Measured by CPI

• Productivity gains reduce inflation

• Inflation overstated

FULL EMPLOYMENT

• Set at 5.75% unemployment

• NAIRU rate

• Actual rate is < 4.25%

• Upward pressure on wages

ECONOMIC POLICY

• FISCAL– Government Expenditures– Tax Policy

• MONETARY (Federal Reserve)– Discount Rate– Reserve Requirements– Open Market Operations

LINK TO FOREIGN ECONOMIES

• Globalization of U.S. industry

• Technology changes

• Exchange rates

STRATEGY IN ACTION

1. Monetary policy has been the policy of choice.

2. It is executed by the Federal Reserve.

3. Decisions are made by the federal open market committee.

4. Interest rates have increased by .0075 within the last year.

5. The effect will be to slow down the rate of growth of output.

6. The effect will be felt on durable goods because their purchase is interest rate sensitive.

7. A reduction in money supply causes interest rates to rise.

STRATEGY IN ACTION

1. New single family home sales have fallen since January, 1999.

2. Both the S&P 500 and the Nasdaq Composite averages

have fallen since January, 2000.

3. From 1st quarter, 1999 to today interest rates on 30- year Treasuries have risen from 6.2% to 6.75%.

4. Inflation in 1999 was about 2.0%.

5. The only bad news (for the Fed) is that vehicle sales set a record with 17 million in 1999.

STRATEGY IN ACTIONTHE EXTERNAL ENVIRONMENT

1. Demographics suggest the “aging” of our population.

2. Per capita prescription use is 7 per year.

3. The forecast is that per capita prescription use will be 22 per year by 2010.

4. Industry sales are forecast to increase by 45% over the same period.

5. You have just looked at the industry--- If you were a manager in this industry what would you do with the information in this slide?

Macroeconomic Readings

Here are some up-to-date readings that will help you understand the Macroeconomic Economy.

.The Case For a Soft Landing, Rick Miller, Business Week, Jan. 24, 2000, page 48.See also the section, Economic Analysis for a discussion of interest rates.

.Was it the Rates?, Marcia Vickers, Business Week, Jan. 17, 2000, page 32.See also the section, Economic Analysis for a discussion of interest rates.

.A Global New Economy, Michael J. Mandel, Business Week, Jan. 31, 2000, page 73.See also the section, Economic Analysis for a discussion of interest rates.

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