01 The Concerns of Macroeconomics

01 The Concerns of Macroeconomics - Economics 104B -...

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Economics 104B - Lecture Notes - Professor Fazzari Topic I: The Concerns of Macroeconomics (Updated January 21, 2007) This material surveys the main topics covered this semester. Important topics such as unemployment, inflation, and economic growth are briefly discussed here, but they will be explained in much more detail over the course of the semester. At this point, you need only concern yourself with what these phenomena are, not exactly why they occur. A. Micro vs. Macro: Looking at the Whole Picture 1. Macro issues a) Fluctuations in aggregate output: the business cycle One often hears terms like "recession" and "recovery" in reference to the state of the economy. What do they mean? For now, we will define output as the measure of total production of a country for a fixed period of time (but be ready to go into some detail about the definition of output). The most common measure of output is “gross domestic product,” usually abbreviated as GDP. The business cycle refers to systematic patterns in the economy's total output over time. Output rises for a while, then falls. If you graph this pattern it looks like a wave. Negative slopes indicate a recession; positive slopes indicate expansion Business Cycle time GDP Expansions typically last much longer than recessions, which creates a positive trend of economic growth over time. b) Unemployment: birth of macro in the Great Depression The “unemployment rate” is a statistic reported monthly by the Bureau of Labor Statistics that measures the percentage of people without a job that are looking for work.
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The most recent unemployment statistic will be mentioned in class. In recent years the unemployment rate was as low as 3.8% (April, 2000) and as high as 6.3% (June, 2003). The unemployment rate reached nearly 8% in the early 1990s recession, it exceeded 10% in the early 1980s recessions, and it reached 25% during the Great Depression of the 1930s. Unemployment tends to rise during a recession because it takes less labor to make less output. When firms produce less, they lay off workers and slow their hiring of new entrants into the labor force. Symmetrically, unemployment falls when the economy expands quickly. c) Economic Growth Historically, output (GDP) has risen over long periods of time. While there are periods of recession (declining GDP), output usually rises. Economic growth is the key factor that determines standards of living over generations. When the long-run trend of output has a high positive slope, this indicates improvement in living standards over the years. Look at long-term economic growth statistics to answer the question of whether one generation will be better off than the next one. Small changes in economic growth from year to year can have large effects on
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This note was uploaded on 02/21/2012 for the course ECONOMICS 104 taught by Professor Crocker during the Spring '08 term at UMass (Amherst).

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01 The Concerns of Macroeconomics - Economics 104B -...

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