Chapter 24 Notes - [ChapterTwentyFour]

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[Chapter Twenty Four] Economic Growth, Business Cycles, Unemployment,  and Inflation Learning Objectives After reading the material in this chapter, you will be able to do the following: 1. Explain the difference between the long-run framework and the short-run framework. 2. Summarize some relevant statistics about growth, business cycles, unemployment, and inflation. 3. List four phases of the business cycle. 4. Explain how unemployment is measured and state some microeconomic categories of unemployment. 5. Relate the target rate of unemployment to potential income. 6. Define inflation and distinguish a real concept from a nominal concept. 7. State two important costs of inflation. Chapter Outline Economic Growth, Business Cycles, Unemployment, and Inflation Like people, the economy has moods. Macroeconomics is the study of the aggregate moods of the economy. Two Frameworks: The Long Run and the Short Run Issues of growth are considered in a long-run framework; the business cycle is considered in a short-run framework; inflation and unemployment fall within both frameworks. The long-run growth framework (sometimes called supply-side economics ) focuses on the incentives for supply; the short run framework (sometimes called demand-side economics ) focuses on demand.
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Growth Real Gross Domestic Product: “The market value of final goods and services produced in an economy, stated in the prices of a given year.” When people produce and sell goods, they earn income. When the economy is growing, both output and income are increasing. Since 1890, output of goods and services grew at an average rate of 3.5 percent per year; it was lower in the 1970s and 1980s (about 2.5 percent). This is sometimes called the secular growth trend . Per Capita Real Output: “Real GDP divided by the total population.” Global Experiences with Growth Table 7-1 shows per capita growth for various areas of the world from 1820 to 2009. Growth rates today are high by historical standards. From 1820 to 1950, world output grew by 0.9 percent per year; from 1950 until today, it grew by 2.1 per year. The range in growth rates among countries is wide. From 1820 to 1950, North America led. From 1950 to 1990, Japan and Western Europe were among the fastest growing. Income in China was actually lower in 1950 than in 1820; its income is now one of the fastest growing in the world. African countries have consistently grown below the average for the world. Before 1800, world income per capita grew about 0.03 percent per year. Growth seems to be associated with the development of markets and democracy. The Prospect for Future U.S. Growth As China and India (with a combined population of 2.6 billion people) develop into highly industrialized countries, the world economic landscape will change tremendously, placing pressure on U.S. firms to become more competitive or move their production facilities abroad.
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Some economists believe that China’s and India’s rise may be
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This note was uploaded on 12/03/2011 for the course ECON 101 taught by Professor Smith during the Fall '11 term at North Shore Community College.

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Chapter 24 Notes - [ChapterTwentyFour]

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