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Chapter 1: A Tour of the World 1-1 The United States Figure 1 - 1 The United States, 2007 $GDP ~ $13.8 Trillion Chapter 1: A Tour of the World The United States Table 1-1 Growth, Unemployment, and Inflation in the United States, 1960-2004 1960-2000 (average) 1994-2000 (average) 2001 2002 2003 2007 Output growth rate 3.2 3.9 0.5 1.9 3.0 2.8 Unemployment rate 6.1 4.9 4.8 5.8 6.0 4.7 Inflation rate 3.9 1.8 2.4 1.7 1.8 4.2 Output growth rate: annual rate of growth of output. Unemployment rate: average over the year. Inflation rate: annual rate of change of the price level (GDP deflator). 1994-2000: one of the best periods in recent memory The average rate of growth was 3.9% per year. The average unemployment rate was 4.9%. The average inflation rate was 1.8%. High productivity growth: New economy? dot.com bubble … prelude to housing bubble Chapter 1: A Tour of the World Has the United States Entered a New Economy? Figure 1 - 2 Rate of Growth of Output per Worker in the United States Since 1960. The average rate of growth of output per worker decreased in the mid 1970’s. It appears to have increased again since the mid 1990’s. Chapter 1: A Tour of the World Should you worry about the U.S. Budget Deficit? Figure 1 - 3 The U.S. Budget Deficit, Since 1990 (Ratio to Output, in percent). The U.S. budget has gone from large deficits in the early 1990’s to surpluses in the late 1990’s, and back to increasing deficits since 2001. The European Union Chapter 1: A Tour of the World The European Union, 2003 Chapter 1: A Tour of the World How Can European Unemployment Be Reduced? Figure 1 - 5 Unemployment Rates: Europe versus the United States since 1960 The European unemployment rate has gone from being much lower than that of the United States to being much higher EUROSCLEROSIS Rigid labor markets? Tight money? Japan Chapter 1: A Tour of the World 1-3 Figure 1 - 6 Japan 2003 Chapter 1: A Tour of the World Japan Table 1-2 Growth, Unemployment, and Inflation in Japan, 1960-2004 1960-2000 (average) 1994-2000 (average) 2001 2002 2003 2004 Output growth rate 4.7 1.4 0.4 0.3 2.5 3.0 Unemployment rate 2.0 3.7 5.0 5.4 5.3 4.8 Inflation rate 5.1 0.1 1.5 1.2 2.5 -2.0 Output growth rate: annual rate of growth of output. Unemployment rate: average over the year. Inflation rate: annual rate of change of the price level (GDP deflator. •Since 1960, Japan’s output has grown at an average annual growth rate of ~4.4%, 1+% higher than the growth rate of the U.S. •1980s: Japan as Number One? •1990s – present: The bubble economy Chapter 1: A Tour of the World What Triggered the Slump? Figure 1 - 7 The Japanese Stock Market Index since 1980 The large increase in the index in the second half of the 1980s was followed by an equally sharp decline in the early 1990s. Japanese real estate prices paralleled stock prices. A housing bubble and a stock price bubble