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Macroeconomics:
The Bird’s-Eye View
of the Economy
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The Major Macroeconomic Issues
Economic growth and living standards
 Productivity
 Recessions and expansions
 Unemployment
 Inflation
 Macroeconomic Policies

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 2
The Major Macroeconomic Issues

Economic Growth

A process of steady increases in the
quantity and quality of the goods and
services the economy can produce
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 3
Output of the U.S.
Economy, 1900-2001
In 2001 output of the U.S. economy was:
•25 times the 1900 level
•5 times the 1950 level
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 4
Output per Person and per Worker in
the U.S. Economy, 1900-2001
In 2001:
•Output/person was 7 times the 1900 level
•Output/worker was 5 times the 1900 level
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 5
The Major Macroeconomic Issues

In the U.S.:
60 million households own two or more
automobiles.
 98% of household own a television (95% a
color TV).
 67% of households subscribe to cable.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 6
The Major Macroeconomic Issues

In the U.S.:
In 2002, 60 % of adults were regular
Internet users.
 80% of the adult population has a high
school diploma.
 25% of the adult population has a college
degree.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 7
The Major Macroeconomic Issues

Productivity
In 2001 the average U.S. worker could
produce five times more than in 1900.
 Average labor productivity:

Total output
 output per employed worker
Number of people employed
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 8
The Major Macroeconomic Issues

Productivity

U.S. trends in output per employed worker
 1950
- 1973: increased 2.1%/yr
 1973 - 1995: increased less than 1%/yr
 1995 - present: increased nearly 2%/yr
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 9
Recessions and Expansions
Recessions: slowdowns in economic growth
•1930s (depression); 1944-’45; 1973-’75; 1981-’82; 1990-’91;2001.
Expansions: periods of rapid economic growth
•1945-’48; 1961-’69; 1975-’80; 1982-’90; 1991-2001
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 10
The U.S. Unemployment
Rate, 1900-2001
The unemployment rate:
•% of the labor force that is out of work
Observations:
•Rises during recessions
•Always greater than zero
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 11
Increases In Unemployment
During Recessions
Unemployment
rate at beginning
of recession (%)
4.8 (Nov. 1973)
6.3 (Jan. 1980)
5.5 (July 1990)
Peak
unemployment
rate (%)
Increase in
unemployment
rate (%)
9.0 (May 1975)
10.8 (Nov./Dec. 1982)
7.8 (June 1992)
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
+ 4.2
+ 4.5
+ 2.3
Slide 12
The Major Macroeconomic Issues

Unemployment rates differ from country
to country:



For the past 20 years, more than 10% of the
European workforce has been unemployed.
European unemployment is double the rate in the
U.S.
During the 1950s & ‘60s, the European
unemployment rate was generally lower than in
the U.S.
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 13
The U.S. Inflation Rate, 1900-2001
Prices in general are increasing over time.
Inflation Rate measures the growth rate of the price level at a point in time.
•Varies over time -- high in the ‘70s and low in the ‘90’s and today
•Varies between countries -- in 2001 3% in U.S. & 400% in Ukraine
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 14
Macroeconomic Policy

Monetary Policy
Determination of the nation’s money supply
 Controlled by the central bank or, in the
U.S., the Federal Reserve System (Fed)

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 15
Macroeconomic Policy

Fiscal Policy

Decisions that determine the government’s
budget, including the amount and
composition of government expenditures
and government revenues
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 16
Macroeconomic Policy

Fiscal policy influences the balance
between government spending and
taxes:
A deficit occurs when government
spending is greater than tax revenue.
 A surplus occurs when government
spending is less than tax revenue.

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 17
Macroeconomic Policy

Positive versus Normative Analyses of
Macroeconomic Policy

Positive Analysis
 Addresses
the economic consequences of a
particular event or policy, not whether those
consequences are desirable
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 18
Macroeconomic Policy

Positive versus Normative Analyses of
Macroeconomic Policy

Normative Analysis
 Addresses
the question of whether a policy
should be used; normative analysis inevitably
involves the values of the person doing the
analysis
Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 19
Aggregation

Aggregation
The adding up of the individual economic
variables to obtain economywide totals
 Used to take a “bird’s-eye view” of the
economy

Chapter 4: Macroeconomics:The Bird's-Eye View of the Economy
Slide 20