econ 103 principles of macroeconomics instructor: bernard malamud office: beh 502

ECON 103Principles of Macroeconomics

Instructor: Bernard Malamud–Office: BEH 502

Phone (702) 895 –3294Fax: 895 – 1354

»Email: bernard.malamud@unlv.eduWebsite: www.unlv.edu/faculty/bmalamudOffice hours: MTWThF 11:30-12:30 pm; and by appointment

Gauging Your Opinions – I

The U.S. government is bankrupt ... or soon will be bankrupt.a) True b) False

I expect to receive Social Security benefits when I retire.b) Yes b) No

The US unemployment rate as officially measured is usually arounda) 2% b) 5% c) 8% d) 10%

The US unemployment rate as officially measured is now arounda) 2% b) 5% c) 8% d) 10%

The US unemployment rate is probably greater than/less than the rate that is officially measured.

a) greater than b) less than

Macro Objectives• Talk’n’ Economics

– Vocabulary: GDP, Unemployment, Inflation, Debt, Supply, Demand…and much, much more

• Economic Facts– Descriptions of the US and world economies

• Economic Models– Simplifying a complex reality

• Economic Policy Analysis– Laissez – faire vs. activism

The Economic Way of ThinkingFrom micro: Incentives matter!

The Macroeconomy

Macro Concerns• Jobs• Growth• Price Stability• Government Budget• Balance of Payments• Exchange Value of Dollar

Macro Pictures: Jobs

Macro Facts: Growth, Recession and Slump

The LongSlump

The LongSlump

Deviation of Actual from Potential GDP(Fraction of Potential)

Macro Pictures: Unemployment

Great Moderation

Inflation Rates: CPI and Core CPI

CRISIS

Monetary Policy and Interest Rates

London Interbank Offer Rate (LIBOR)

Federal Funds Rate

Macro Pictures: Exchange Rate

What We’ll Cover• Macro measurement:

• output, income, employment, prices, inflation, interest rates

• Aggregate demand: • C,I,G,NX … what’s bought• Money … what’s spent• Demand-side policies

• Aggregate supply:• Short-run responses to prices• Adjustment to long-run output potential

• Policy Debates• Economic Growth

Remember the Numbers?The US unemployment rate as officially measured is now around

a) 2% b) 5% c) 8% d) 10%

The US inflation rate is now arounda) 2% b) 5% c) 8% d) 10%

The US balance of trade in goods and services isa) positive b) negative c) balanced...it has to balance

Micro Foundations: A Brief Review Production Possibilities Frontier

Quantity ofComputersProduced

Quantity ofCars Produced

A

0

B Feasible but Inefficient

CD

ProductionPossibilitiesFrontier

EfficientPoints

Micro Foundations: Macro Application Production Possibilities FrontierPrivate SectorOutput

GovernmentPurchases

A

0

B Feasible but Inefficient

CD

ProductionPossibilitiesFrontier

EfficientPoints

When economy is at full employment (C), an increase in bovernment purchases raises prices and “crowds out” private activity

Micro Foundations: Macro Application Production Possibilities FrontierPrivate SectorOutput

GovernmentPurchases

A

0

B Feasible but Inefficient

CD

ProductionPossibilitiesFrontier

EfficientPoints

When economy is at less than full employment (B) , an increase in government purchases increases incomes and spurs additionalprivate sector activity as well (multiplier effect)

Supply

Demand

Price of Ice-Cream Cone

Quantity of Ice-Cream Cones

Micro Foundations: A Brief ReviewSupply and Demand

21 3 4 5 6 7 8 9 10 12110

$3.002.502.001.501.000.50

Equilibrium

AS

AD

Price Index

Real GDP

Macroeconomics: Aggregate Demand and Aggregate Supply

21 3 4 5 6 7 8 9 10 12110

3.002.502.001.501.000.50

PotentialRealGDP