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Froyen book slide - 1 1 . 1 The U.S. Economy: 1869-2005...

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Unformatted text preview: 1 1 . 1 The U.S. Economy: 1869-2005 What variables would you look at to gauge the performance of an economy? 1. Output or Production: Real Gross Domestic Product (RGDP) 2. Unemployment 3. Inflation Rate 2 . 2 Long Run Trend in U.S. Real GDP g = 3.5% 3 . 3 Long Run Trend in U.S. Real GDP Calculating growth rates: Growth rate = [(Y t Y t-1 )/Y t-1 ] x 100 g 1869-2005 RGDP = 3.5% Another measure for long run growth is per capita RGDP. g 1869-2005 per capita RGDP = 2.0% What do the two numbers tell you about the population growth rate? g population = 1.5% 4 . 4 Economic Fluctuations: Business Cycles Year to year the economys actual growth in RGDP vary around the long run trend. Recessions Expansions (booms) 2 5 . 5 Growth of U.S. Real GDP 6 . 6 Unemployment Unemployment rate The fraction of workers who have no job but are seeking work. 7 . 7 U.S. Unemployment Rate: 1890-2005 8 . 8 Growth of U.S. Real GDP 3 9 . 9 U.S. Price Level What do you notice about the price level before and after WWII? 10 . 10 The Price Level and Inflation Inflation Rate = [(P t P t-1 )/P t-1 ] x 100 11 . 11 Inflation 12 Chapter 1 Introduction (R. Froyen, 9ed) Macroeconomics is a study of the behavior of the economy as a whole. Key variables include level of total output in the economy Gross Domestic Product (GDP) and its growth rate the aggregate price level and its growth rate the levels of employment and unemployment, the levels of interest rates, wage rates, and rates of foreign exchange. 4 13 Gross Domestic Product (GDP): market value of total output produced domestically including output produced using factors of production foreign- owned; market value of total expenditure on domestically produced goods and services. Expansion: a sustained period of increasing income (at least 2 consecutive quarters). Recession: a sustained period of decreasing income. Depression: a very severe and long lasting recession. 14 We call the value of goods and services measured at current prices Nominal GDP (NGDP), and the value of goods and services measured at constant (base year) prices Real GDP (RGDP). Standard of living is defined as RGDP/Population or RGDP per capita. During the 1890-2000 period, U.S. RGDP per capita grew at an average annual rate of 1.9%. 15 Long-run trend (potential output or natural level of output) Y=RGDP; N=Employment; Y/N = labor productivity; gY = gN + gY/N Deviations around trend (Business cycles) Natural level of unemployment Policies have different effects in SR vs. LR. LR continuously clearing markets. > 2 years (emphasize supply) SR non-market clearing (emphasize demand) 16 5 17 MODELS: To explain the behavior of the macro economy economists use models. A model consists of a set of structural equations, or behavior equations that are assumed to mimic the behavior of economic agents....
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Froyen book slide - 1 1 . 1 The U.S. Economy: 1869-2005...

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