Download MACROECONOMICS

MACROECONOMICS
A.
JOHN MAYNARD KEYNES
1. The “FATHER” of Macroeconomics
2. How the GOVERNMENT can affect
the phenomenon of :
a. INFLATION
b. UNEMPLOYMENT
c. ECONOMIC GROWTH
3. TOOLS/POLICIES
a. FISCAL POLICY- government
taxation and spending.
b. MONETARY POLICY- working
with the nation’s supply of money.
MACROECONOMICS
B. NATIONAL INCOME
ACCOUNTING
1. measurement of the economy’s
performance, income levels and
output.
2. Checks for and makes changes
in:
a) inflation
b) unemployment
c) economic growth
GROSS DOMESTIC PRODUCT
GDP = the total dollar value of all
final goods and services
produced in a nation in a given
year.
GDP = (C) + (I) + (G) + (X-M)
(C)- consumption by individuals
(I)- Investment in capital by
businesses
(G)- government spending
(X-M)- net exports
INFLATION
- A prolonged rise in the general price
level of goods and services.
- makes your dollar worth less.
- causes the purchasing power of
your dollar to be less.
- determines the value of your money
over time.
- use tools like the CPI to check for
inflation over time.
CHECKING FOR INFLATION




PURCHASING POWER: how much can your money
buy? Inflation makes the answer LESS!
CONSUMER PRICE INDEX: Specific group of goods
and services used by average households to check for
inflation.
PRODUCER PRICE INDEX: Changes in the prices of
the Factors of Production.
Over time, PRICES WILL GO UP….Hopefully your
WAGES will ALSO!!!!
Market Basket

Representative group of
goods and services used to
calculate CPI

Includes about 80,000
specific goods and services
under general categories
such as




Food
Housing
Transportation
Medical Care
Updated every 10 years
AGGREGATE SUPPLY AND DEMAND



AGGREGATE DEMAND: TOTAL quantity of all goods
and services in the entire economy demanded by all
people.
AGGREGATE SUPPLY: TOTAL quantity of all goods and
services produced by all producers.
THE CURVES (DRAW THEM).
AGGREGATE CURVES
BUSINESS FLUCTUATIONS
Peak/Boom

Period of prosperity in a
business cycle

Economic activity is at
its highest point

New businesses open;
low unemployment
Contraction

Part of the business
cycle during which
economic activity is
slowing down.

Can lead to a recession
Recession

Part of the business
cycle in which the
nation’s output (real
GDP) does not grow for
at least 6 months

Factories cut back
production and lay off
workers
Depression

Major slowdown of
economic activity

Millions out of work,
businesses fail,
economy operates far
below capactiy
Trough

Lowest part of the
business cycle

The downward spiral of
the economy levels off
Expansion/Recovery

Part of the business
cycle in which
economic activity slowly
increases

Consumer spending
picks up; factories hire
more workers, new
businesses open
Causes of Business Fluctuations





4 Main Forces:
1. Business Investment: Capital Investment =
New Jobs = More Consumer Spending
Innovations: The Better Mouse Trap
2. Government Activity: Policies on Taxing
and Spending and control of the Money
Supply
3. External: War, Immigration, Oil, etc…
4. Psychological: Sep.11, 2001