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Unformatted text preview: CHAPTER 1 Macroeconomic Problems and Course Overview A. Real GDP Growth Rate (% Δ in real output) 1. Short-run business cycle (recession or expansion) a. Variation in the actual amount of goods & services produced in a year (Actual GDP) from natural GDP or trend line GDP b. Variability in production → variability in income & unemployment c. Recession → ↓ real GDP ⇒ ↑ cyclical unemployment & ↓ income (2 consecutive qrts. of negative GDP growth) d. Expansion → ↑ real GDP ⇒ ↑ cyclical unemployment & ↑ income (recovery: 2 consecutive qrts. of positive GDP growth) e. Natural (or trend) level of real GDP ( Y n ) → level of output consistent with the long-run production possibilities of the economy (i.e., full employment and stable inflation) f. Natural level of real GDP corresponds to a natural level of unemployment (frictional and structural component of total unemployment) g. Role of economic stabilization policy (Monetary & Fiscal Policy) to attain the natural level of GDP h. Global Economy: business cycle in the rest of the world tends to follow the U.S. business cycle 2. Long-run economic growth (change in the standard of living in a country): Trend line GDP growth rate (slope of the trend-line) averages about 3% per year (post WWII) a. Growth in labor force i. Quantity of labor (U.S. population growth and labor force participation rate, immigration) ii Quality of labor (labor productivity growth rate) b. Growth in capital base (investment in plants and equipment) c. Technological change (advancement of scientific knowledge and innovation...
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This note was uploaded on 04/10/2008 for the course ECON 302 taught by Professor Adamson during the Spring '08 term at SD State.
- Spring '08