Ch04-8e_macro

Ch04-8e_macro - CHAPTER 4 A First Look at Macroeconomics...

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A First Look at Macroeconomics CHAPTER 4
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After studying this chapter you will be able to Describe the origins and issues of macroeconomics Describe the trends and fluctuations in economic growth and explain the benefits and costs of economic growth Describe the trends and fluctuations in unemployment and explain why unemployment is a problem Describe the trends and fluctuations in inflation and the value of the dollar and explain why inflation is a problem Describe the trends and fluctuations in surpluses, deficits, and debts and explain why they matter Identify the macroeconomic policy challenges and list the tools available for meeting them
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What Will Your World Be Like? Will tomorrow’s world be more prosperous than today? Will jobs be plentiful? Will the cost of living be stable? Will the government’s and the nation’s deficit continue to increase? What macroeconomic policy tools does the government have to steer the course of the economy?
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Origins and Issues of Macroeconomics Economists began to study economic growth, inflation, and international payments during the 1750s. Modern macroeconomics dates from the Great Depression , a decade (1929-1939) of high unemployment and stagnant production throughout the world economy. John Maynard Keynes book, The General Theory of Employment, Interest, and Money , began the subject.
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Origins and Issues of Macroeconomics Short-Term Versus Long-Term Goals Keynes focused on the short-term— on unemployment and lost production . “In the long run,” said Keynes, “we’re all dead.” During the 1970s and 1980s, macroeconomists became more concerned about the long-term inflation and economic growth.
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Economic Growth and Fluctuations Economic growth is the expansion of the economy’s production possibilities—an outward shifting PPF . We measure economic growth by the increase in real GDP. Real GDP ( real gross domestic product ) 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.
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A typical family with all their possessions in the U.K., an advanced economy Real GDP per capita: $30,800 Life expectancy: 78 years Adult literacy: 99%
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A typical family with all their possessions in Mexico, a middle income country Real GDP per capita: $9,800 Life expectancy: 74 years Adult literacy: 92%
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A typical family with all their possessions in Mali, a poor country Real GDP per capita: $1,000 Life expectancy: 41 years Adult literacy: 46%
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Economic Growth and Fluctuations Economic Growth in the United States Figure 4.1 shows real GDP in the United States from 1960 to 2005. The figure highlights: Growth of potential GDP Fluctuations of real GDP around potential GDP
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Growth of Potential GDP Potential GDP is the value of production when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed. During the 1970s, the
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Ch04-8e_macro - CHAPTER 4 A First Look at Macroeconomics...

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