Ch 04 - Chapter 4 A First Look at Macroeconomics I Origins and Issues of Macroeconomics A Modern macroeconomics emerged during the Great

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I. Origins and Issues of Macroeconomics A. Modern macroeconomics emerged during the Great Depression (1929-1939) a decade of high unemployment and stagnant production throughout the world economy. B. Short-Term Problems Versus Long-Term Goals 1. With high unemployment during the Great Depression, the initial focus of macroeconomics was on the short term . 2. During the 1970s, inflation increased and economic growth slowed, shifting the focus of macroeconomics to the long term . C. The Road Ahead 1. During the 1990s, as information technologies further shrank the globe, the international dimension of macroeconomics became more prominent. 2. Modern macroeconomics is a broad subject that studies long-term economic growth, unemployment, inflation, the government budget deficit, and the U.S. international deficit. II. Economic Growth and Fluctuations A. Economic growth is the expansion of the economy’s production possibilities. 1. We measure economic growth by the increase in real gross domestic product. 2. Real gross domestic product (also called real GDP ) is the value of the total production of all the nation’s farms, factories, shops, and offices measured in the prices of a single year, currently 2000. B. Economic Growth in the United States 1. Figure 4.1 shows real GDP in the United States since 1960. 2. Potential GDP is the real GDP that the nation produces when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed. a) Figure 4.1 shows that there is persistent growth in potential GDP. The long-term rate of economic growth is measured by growth in potential GDP. b) Potential GDP grew more rapidly in the 1960s than in the 1970s and early 1980s. The slow growth during the 1970s reflected the productivity growth slowdown. The growth rate of potential GDP increased during the 1980s and 1990s. 3. Real GDP fluctuates around potential GDP in a business cycle. a) A business cycle is the periodic but irregular up-and-down movement in production. b) A business cycle has two turning points, a peak and a trough, and two phases, recession and expansion. i) A peak is the upper turning point, the end of an expansion and the beginning of a recession. ii) A trough is the lower turning point, the end of a recession and the start of an expansion. iii) A recession is commonly defined as a period during which real GDP decreases for at least two successive quarters. iv)An
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This note was uploaded on 04/03/2009 for the course ECON 2101 taught by Professor Bill during the Spring '09 term at Temple.

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Ch 04 - Chapter 4 A First Look at Macroeconomics I Origins and Issues of Macroeconomics A Modern macroeconomics emerged during the Great

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