Chapter23 - mcc75691_ch23_465-478.indd Page 465 8/25/08...

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PART SIX GDP, Growth, and Instability 23 AN INTRODUCTION TO MACROECONOMICS 24 MEASURING DOMESTIC OUTPUT AND NATIONAL INCOME 25 ECONOMIC GROWTH 26 BUSINESS CYCLES, UNEMPLOYMENT, AND INFLATION
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As you know from Chapter 1, macroeconomics studies the behavior of the economy as a whole. It is primarily concerned with two topics: long-run economic growth and the short-run fluctuations in out- put and employment that are often referred to as the business±cycle±. These phenomena are closely related because they happen simultaneously. Economies show a distinct growth trend that leads to higher output and higher standards of living in the long run, but in the short run there is a great deal of variability. Sometimes growth proceeds more rapidly and sometimes it proceeds more slowly. It may even turn negative for a while so that output and living standards actually decline, a situation referred to as a ±recession±. This chapter provides an overview of the data that macroeconomists use to mea- sure the status and growth of an entire economy as well as a preview of the models that they use to help explain both long-run growth and short-run fluctuations. An Introduction to Macroeconomics 23 IN THIS CHAPTER YOU WILL LEARN: ± 1 How macroeconomics studies both long- run economic growth and short-run uctuations in output and unemployment. ± 2 Why economists focus on GDP, infl ation, and unemployment when assessing the health of an entire economy. ± 3 That sustained increases in living standards are a historically recent phenomenon. ± 4 Why savings and investment are key factors in promoting rising living standards. ± 5 Why economists believe that “shocks” and “sticky prices” are responsible for short-run uctuations in output and employment. 466
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CHAPTER 23 An Introduction to Macroeconomics 467 Performance±an d±P olicy± In order to understand how economies operate and how their performance might be improved, economists collect and analyze economic data. An almost infinite number of data items can be looked at, including the amount of new construction taking place each month, how many ships laden with cargo are arriving at our ports each year, and how many new inventions have been patented in the last few weeks. That being said, macroeconomists tend to fo- cus on just a few statistics when trying to assess the health and development of an economy. Chief among these are real GDP, unemployment, and inflation. ± ± Real GDP, or real gross domestic product , measures the value of final goods and services produced within the borders of a given country during a given period of time, typically a year. This statistic is very useful because it can tell us whether an economy’s output is growing. For instance, if the United States’ real GDP in 2007 is larger than the United States’ real GDP in 2006, then we know that U.S. output increased from 2006 to 2007. To get real GDP, government statisticians first calculate ±nominal±G DP±, which totals the dollar value of all
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Chapter23 - mcc75691_ch23_465-478.indd Page 465 8/25/08...

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