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IntroductionIntroduction
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Micro and Macro Economics
http://www.youtube.com/watch?v=VVp8UGjECt4Important terms in Macroeconomics?
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MacroeconomicsMacroeconomics is the study of issues is the study of issues that affect the economy as a whole. that affect the economy as a whole. Examples are the effects of inflation, Examples are the effects of inflation, and unemployment on economic and unemployment on economic growth and economic well-being.growth and economic well-being.
What is What is Macroeconomics?Macroeconomics?
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Divisions of Divisions of MacroeconomicsMacroeconomicsDivisions of Divisions of MacroeconomicsMacroeconomics
The science of macroeconomics is positive economics: the study of economic facts and theories and how they work.Policy practice of macroeconomics is concerned with policies to achieve goals.
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Normative Normative Macroeconomic GoalsMacroeconomic Goals
High growthAvoiding large swings in economic outputLow unemploymentLow inflationLow income inequalityNo poverty
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Why These Goals?Why These Goals?
High growthAvoiding large swings in economic outputLow unemploymentLow inflationIncome distributionPoverty
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Normative Economic GoalsNormative Economic Goals
Economic policy is dependent on normative economic goals.Political processes determine which goals have the highest priority.Once priority has been established, macroeconomics deals with the ways to achieve those goals
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Goals: OutputU.S. Real Gross Domestic Product
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U.S. Recession?
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GDP
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Genuine Progress Indicator
It adds in the economic contributions of household and volunteer work, but subtracts factors such as crime, pollution, and family breakdown
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The World Values Survey
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Working Hours
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Goals: UnemploymentGoals: UnemploymentGoals: UnemploymentGoals: UnemploymentThe unemployment rate is the percentage of the labor force looking for work, but unable to find it.
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U.S. UnemploymentU.S. Unemployment
Each one-point increase in the unemployment rate is associated with:
920 more suicides
650 more homicides
4000 more people admitted to state mental institutions
3300 more people sent to state prisons
37,000 more deaths
Increases in domestic violence and homelessness
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Goals: InflationGoals: InflationGoals: InflationGoals: InflationInflation is the continual increase in the average price of goods and services.Inflation usually increases as actual output rises above potential output and usually decreases if output falls below potential output.Policymakers may face a trade-off between high inflation and low unemployment.
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U.S. InflationU.S. Inflation
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Inflation – The Great Moderation(median for developing- and GDP weighted mean for high-income)
0
5
10
15
20
25
Jan-91
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
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InflationinZimbabwe
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Poverty?
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U.S. Poverty
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Wage Inequality?
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Measuring Inequality I(ratio of 90th to 10th percentile)
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Measuring Inequality II(Gini Coefficient)
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U.S. Wage InequalitySince the early 1980s, the relative wages of workers with a low education level have fallen; the relative wages of workers with a high education level have risen.
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The Budget BalanceThe Budget BalanceThe budget balance is the difference between tax revenues collected by the government and expenditures made by the government.If taxes are greater than expenditures there is a budget surplus.If expenditures are greater than taxes, there is a budget deficit.The budget balance is affected by both changes in the economy and fiscal policy.
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U.S. Government BudgetU.S. Government Budget
What is the current U.S. government’s surplus/deficit?
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U.S. Government Deficit
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The U.S. Budget Deficit, Since 1945 (Ratio to Output, in percent).
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U.S. Trade BalanceU.S. Trade Balance
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Policies Used to Policies Used to Achieve GoalsAchieve Goals
Demand-side policiesSupply-side policies
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Demand-Side PoliciesDemand-Side Policies
Monetary Policy Changes in the money supply
implemented by the Federal Reserve
Fiscal Policy Changes in government spending
and/or taxes implemented by Congress and the president
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Supply-Side PoliciesSupply-Side PoliciesSupply-Side Policies are designed to increase potential output by encouraging: Productivity and innovation by the labor force
Investment in capital Advances in technology
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Models in EconomicsModels in Economics
Models are simplified representations of relationships within an economy.Models are used to predict economic outcomes in different situations.Models have three ingredients Assumptions Exogenous variables determined
outside the model Endogenous variables determined
inside the model
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Models II
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Using a Model to Using a Model to PredictPredict
OPEC decreases the supply of oil to the United States. What happens to the price of gasoline?
Q2 Q1
Pri
ce o
f G
asol
ine
Demand
Supply
P2
P1
Quantity of Gasoline
A decrease in supplyshifts the supply curveto the left and increasesprice and decreasesquantity.