Economics 101Chapter01

Economics 101Chapter01 - 1 1Chapter 1 Introduction (latest...

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1 Chapter 1 Introduction (latest revision June 2006) As we begin our study of Macroeconomics, the 20 th century has recently come to an end. And what a century it was! So many of the most wonderful and horrible events that occurred in the 20 th century were economic events. And so many of the wonderful and horrible non- economics events were influenced by the economic ones. Therefore, we need to understand these economic events. This course is called Principles of Macroeconomics . Macro refers to “large”. In this course, we will discuss large groups of people and things . So we will not ask the question “what determines your standard of living or my standard of living?”. But we will ask the question “what determines the standard of living of the entire nation?”. We will not ask the question “do you have a job?”. But we will ask the question “how many Americans have jobs and how many are unemployed?”. We will not ask the question “what affects the price of a product such as gasoline?”. But we will ask the question “what affects the prices of all products sold in the United States?”. Our focus will be on these large groups, which we call “aggregates” . By focusing on these aggregates --- the overall standard of living, overall employment and unemployment, overall prices, and others --, we will be examining the principles by which economies operate. And by doing this, we will also be focusing on those events that we need to consider to understand much of the history of the 20 th and early 21 st centuries. Let us examine some of these events briefly. 1. Growth in the Standard of Living Perhaps the most significant story of the 20 th century was the enormous growth in the ability to produce goods and services and therefore in our standard of living . Let us first look at some numbers. The bar graph on Page 2 shows that the ability to produce goods and services around the world grew very little between the year 1000 and the year 1800. Then, it grew about 250% in the 19 th century, a remarkable performance. But in the 20 th century, production of goods and services increased 900%. This means that every person on the planet had nine times more goods and services in the year 2000 than in the year 1900. This economic performance is absolutely astonishing. If we focus just on the United States, the result is even more striking. The total production of goods and services rose from approximately $350 billion in 1900 to over $9,000 billion at the end of 1999 (measured in the constant prices). We produce more than twenty-five times the amount we produced a century ago. And the average work year to produce these goods has fallen from over 3,100 hours to about 1,730 hours, allowing people much more time for leisure pursuits. It takes less than 1/5 the amount of work time to feed a family as it did 100 years ago. Let us examine the meaning of these numbers.
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Economics 101Chapter01 - 1 1Chapter 1 Introduction (latest...

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