Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economics of fascism wikipedia , lookup
Nouriel Roubini wikipedia , lookup
Steady-state economy wikipedia , lookup
Economy of Italy under fascism wikipedia , lookup
Post–World War II economic expansion wikipedia , lookup
Fiscal multiplier wikipedia , lookup
Early 1980s recession wikipedia , lookup
Monetary policy wikipedia , lookup
Unit 5 Chapter 13 Measuring and Managing the Economy Chapter 14 Fiscal and Monetary Policy Measuring and Managing the Economy Chapter 13 Economic indicators are statistics that help economists assess the health of an economy. Gross domestic product—the market value of all goods and services produced within a country during a given period of time—measures a country’s total output. A steadily growing GDP is generally a sign of a healthy economy. 13.2 How Do Economists Measure the Size of an Economy? Economists calculate GDP by adding the spending from the four sectors of the economy: household consumption, business investment, government purchases, and net of exports minus imports. ◦ Nominal GDP is calculated in current dollars. ◦ Real GDP is calculated in constant dollars to compensate for the effects of inflation. There are limitations to using GDP to measure an economy’s health. ◦ For example, it does not include unpaid or volunteer work and ignores negative externalities. 13.2 How Do Economists Measure the Size of an Economy? The unemployment rate is an economic indicator that measures the percentage of the population that is jobless and seeking work. A low unemployment rate is generally a sign of a healthy economy. Economists calculate the unemployment rate using a survey conducted by the Bureau of Labor Statistics. Eligible workers are classified as employed, unemployed, or not in the labor force. Full employment does not mean 100 percent of workers are employed, but that all available labor resources are being used effectively. An economy with full employment is said to have a natural rate of unemployment. 13.3 What Does the Unemployment Rate Tell Us About an Economy’s Health? There are limitations when using the unemployment rate to measure an economy’s health. It does not account for discouraged workers who have given up looking for jobs, involuntary part-time workers who would prefer to work full-time, or underground workers. 13.3 What Does the Unemployment Rate Tell Us About an Economy’s Health? Inflation is the increase in the average price level of goods and services in an economy. The inflation rate is an economic indicator that measures the percentage increase in inflation from one time period to another. Economists track inflation using the consumer price index. The CPI is a price index for a market basket of goods and services. Changes in the average prices of these items approximate the change in overall prices paid by consumers. Like GDP, prices can be measured in nominal and real dollars. 13.4 What Does the Inflation Rate Reveal About an Economy’s Health? Inflation is caused by an increase in the money supply, overall demand, or the cost of the factors of production. Though Americans are accustomed to an annual inflation rate of about 3.4 percent, any inflation has economic costs. 13.4 What Does the Inflation Rate Reveal About an Economy’s Health? All economies experience periods of growth and decline in economic activity known as the business cycle. Economists use the key economic indicators to determine an economy’s position in the business cycle at any given time. 13.5 How Does the Business Cycle Relate to Economic Health? The business cycle has four phases: expansion, peak, decline or contraction, and trough. When economic activity reaches a trough, a new expansion begins. A recession is a decline across an economy lasting at least six months. A depression is a prolonged economic downturn with plunging real GDP and high unemployment. 13.5 How Does the Business Cycle Relate to Economic Health? Chapter 14 Fiscal and Monetary Policy Policymakers use fiscal and monetary policy to keep the economy running smoothly. ◦ Fiscal policy uses the government’s power to tax and spend. ◦ Monetary policy uses the Federal Reserve’s power to regulate the money supply and interest rates. Before the Great Depression, the government rarely intervened in the economy. Classical economists believed government’s role in the economy should be minimal. 14.2 What Are the Origins of Modern Fiscal and Monetary Policy? British economist John Maynard Keynes believed that government spending could stimulate overall demand during recessions. He championed the use of fiscal policy to fight recession, including deficit spending. American economist Milton Friedman believed controlling the money supply was key to stabilizing the economy. Called monetarism, this idea promotes the use of monetary policy to expand and contract the money supply. ◦ Monetarism was tested during the stagflation of the 1970s, when monetary policy was used to combat inflation. 14.2 What Are the Origins of Modern Fiscal and Monetary Policy The federal government and policymakers use fiscal policy to stimulate or slow down the economy. ◦ • Expansionary fiscal policy tools: increased government spending, tax cuts ◦ • Contractionary fiscal policy tools: decreased government spending, tax increases Automatic stabilizers can also serve to expand or contract the economy, because they increase or decrease overall demand. 14.3 What Tools Does Fiscal Policy Use to Stabilize the Economy? The Federal Reserve uses monetary policy to stabilize the economy by managing the growth of the money supply and interest rates. ◦ • An easy-money policy is an expansionary monetary policy that speeds the growth of the money supply to prevent recession. ◦ • A tight-money policy is a contractionary monetary policy that slows the growth of the money supply to prevent inflation. The Federal Reserve’s most common policy tool is openmarket operations, or the buying and selling of government securities. Through open-market operations, the Fed can target the federal funds rate. Other policy tools include the power to establish bank reserve requirements and the discount rate. 14.4 What Tools Does Monetary Policy Use to Stabilize the Economy? Fiscal and monetary policy are both useful in stabilizing the economy. However, several factors limit their effectiveness, including time lags, inaccurate forecasts, and concerns about the national debt. The national debt has continued to rise as the federal government has continued to spend more than it receives in revenue. The size of the debt causes concern in several areas: ◦ ◦ ◦ ◦ • • • • government bankruptcy burden on future generations foreign-owned debt the crowding-out effect 14.5 What Factors Limit the Effectiveness of Fiscal and Monetary Policy?