8 - 1 copyright mcgraw-hill/irwin, 2002 economic growth the business cycle unemployment inflation...
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8 - 1Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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Introduction to Economic Growth and Instability
8C H A P T E R
8 - 2Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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ECONOMIC GROWTHAn increase in real GDP over some time period
An increase in real GDP per capita over some time period•Growth as a Goal•Arithmetic of Growth
•Rule of 70•Main Sources of Growth
•Increases in Resources•Increases in Productivity
8 - 3Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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ECONOMIC GROWTH
Growth in the United States
•Improved Products and Services
•Added Leisure
•Other Impacts
•Relative International Growth Rates
8 - 4Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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THE BUSINESS CYCLEPhases of the Business CyclePEAK
Le
vel o
f b
usi
ne
ss a
cti
vit
y
Time
RECESSIONTROUGH RECOVERY
GROWTH
TREND
8 - 5Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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THE BUSINESS CYCLECausation: A First Glance •Many Causation Theories•Cyclical Impact
•Capital Goods•Consumer Durables•Service Industries•Nondurable Consumer Goods
8 - 6Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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UNEMPLOYMENTMeasurement of Unemployment, 2000
Employed
Not inlaborforce
Under 16and/or
institutionalized
TotalPopulation275,400,000
Laborforce
140,800,000
65,800,000
68,800,000
Unemployed 5,600,000
135,200,000
8 - 7Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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UNEMPLOYMENTMeasurement of Unemployment, 2000
Unemploymentrate
unemployed
labor forcex100=
Part-Time Employment
Discouraged Workers
8 - 8Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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UNEMPLOYMENTTypes of Unemployment
Frictional UnemploymentStructural UnemploymentCyclical UnemploymentFull-Employment Rate of
UnemploymentNatural Rate of
Unemployment (NRU)
8 - 9Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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UNEMPLOYMENTEconomic Costs of Unemployment
GDP Gap and Okun’s Law
Approximately a2% GDP Gap occurs
For every 1% unemployment exceeds the natural rate...
The amount by which actual GDP falls short of potential GDP
8 - 10Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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UNEMPLOYMENTUnequal Burdens of Unemployment
• Occupation• Age• Race and Ethnicity• Gender• Education• Duration
Noneconomic CostsInternational Comparisons
8 - 11Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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1995
15
10
5
0
France
U.K.Germany
U.S.
Japan
1990 2000
GLOBAL PERSPECTIVEUnemployment Rates in Five Industrial Nations1990 - 2000
Source: Economic Report of the President
8 - 12Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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INFLATIONDefined and Measurement
• A rising general level of prices
• Rate of inflation calculated using index numbers
• Rule of 70•Shortcut to determine doubling time
• Facts of Inflation
8 - 13Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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2000
10
5
01995
France
U.K.
Germany
U.S.
Japan
1990Source: Economic Report of the President
GLOBAL PERSPECTIVEInflation Rates in Five Industrial Nations1990 - 2000
8 - 14Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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Increases in Total
SpendingPri
ce le
vel
Real domestic output & employmentQ
P
Qf
Range 1 Range
2
Ran
ge
3
DEMAND-PULL INFLATION
Full-employmentoutput
INFLATIONTypes of Inflation
8 - 15Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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DEMAND-PULL INFLATION
INFLATIONTypes of Inflation
COST-PUSH INFLATION
•Rising Per-Unit Production Costs
•Supply-Side Inflation
•Supply Shocks
•Complexities
8 - 16Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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REDISTRIBUTIVE EFFECTSOF INFLATION
Nominal Income
Real Income
Anticipations
• Anticipated Inflation
• Unanticipated Inflation
8 - 17Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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REDISTRIBUTIVE EFFECTSOF INFLATION
Who is Hurt by Inflation?
•Fixed-Income
Receivers
•Savers
•Creditors
8 - 18Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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REDISTRIBUTIVE EFFECTSOF INFLATION
Who is Unaffected or Helped by Inflation?
• Flexible-Income Receivers
•Cost of Living Adjustments (COLAs)
•Debtors
8 - 19Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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REDISTRIBUTIVE EFFECTSOF INFLATION
Addenda•Deflation•Mixed Effects•Arbitrariness
8 - 20Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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NominalInterest
Rate
RealInterest
Rate
InflationPremium
=11%
5%
6%+
ANTICIPATED INFLATION
8 - 21Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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EFFECTS OF INFLATION ON OUTPUT
•Cost-Push Inflation and Real Output
•Demand-Pull Inflation and Real Output
•Hyperinflation & Breakdown
Chapter Conclusions
economic growthrule of 70productivitybusiness cyclepeakrecessiontroughrecoverylabor forceunemployment ratediscouraged workersfrictional unemploymentstructural unemploymentcyclical unemploymentfull-employment rate of unemploymentnatural rate of unemployment (NRU)potential output
GDP gap
Okun’s Law
inflation
demand-pull inflation
cost-push inflation
per-unit production costs
nominal income
real income
anticipated inflation
unanticipated inflation
cost of living adjustments COLAs
real interest rate
nominal interest rate
deflation
hyperinflation
Copyright McGraw-Hill/Irwin, 2002ENDBACK
8 - 23Copyright McGraw-Hill/Irwin, 2002
Economic Growth
The Business Cycle
Unemployment
Inflation
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
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BUILDING THEAGGREGATE EXPENDITURES
MODEL
Chapter 9