Download The World Economy Today

1-1
The United States, 2000
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The United States
Table 1-1 Growth, Unemployment, and Inflation in the United
States, 1960-2002 (in percent)
1960-2000
(average)
1992-2000
(average)
2000
2001
2002
(forecast)
Output growth rate
3.5
3.7
4.1
1.1
0.7
Unemployment rate
6.1
5.4
4.0
4.8
6.2
Inflation rate
5.1
1.7
2.3
2.1
1.2
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.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The United States
 1992-2000 was one of the best in recent memory.
 Output growth was positive for nine years in a row.
 Sustained growth  steady increase in employment &
steady decrease in the unemployment rate.
 Inflation remained low throughout the period.
 The U.S. economy did poorly in 2001:
 Output growth was only 1.1%, a full 3% below the growth
rate for 2000.
 Lower growth  higher unemployment rate
 Can we replicate the high rates of output growth of the late
1990s?
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
Pumping Up: Low interest rates & tax cuts
The Federal Funds
Rate, June 2000 to
December 2001 Weekly
Average
In an attempt to
counteract the economic
slowdown, the Fed
aggressively decreased
the federal funds rate
throughout 2001.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
Has the United States
Entered a New Economy?
Rate of Growth of
Output per Worker in the
United States Since
1950
The average rate of
growth of output per
worker decreased in the
mid-1970s. It appears
to have increased again
since the mid-1990s.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The European
Union, 2000
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The European Union
Table 1-2 Growth, Unemployment, and Inflation in the
European Union, 1960-2002 (in percent)
1960-2000
(average)
1992-2000
(average)
2000
2001
2002
(forecast)
Output growth rate
3.1
2.1
3.3
1.7
1.5
Unemployment rate
6.5
9.9
8.1
7.8
8.1
Inflation rate
5.6
1.7
1.5
2.5
2.2
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.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
1-2
The European Union
 15 European countries comprise the EU
 10 additional countries are candidates for membership
 Combined output of the EU 15 is close to the output of
the United States.
 EU performance less impressive than the US
 Average output growth, 1992 – 2000: only 2.1%.
 Persistent high unemployment: 9.9% average rate
 Low output growth and high unemployment are expected to
remain in the near term.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The European Union

Reforms and macroeconomic policies needed to reduce
unemployment
•
•
•

1970s wage explosion increased labor costs and
decreased employment
Large market rigidities: generous unemployment benefits,
too high a minimum wage, and too high a level of worker
protection.
A decrease in unemployment will require some labor
market reforms, wage moderation, and appropriate macro
policies.
A common currency.
•
•
What macroeconomic changes will the Euro bring?
How should policy be conducted in this new environment?
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
How Can European
Unemployment Be Reduced?
Unemployment Rates:
Europe Versus the
United States, 19602000
The European
unemployment rate has
gone from being much
lower than that of the
United States to being
much higher.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
What Will the Euro Do for Europe?
 A common currency can:
 Reduce uncertainties associated with the relative
price of currencies.
 Contribute to economic growth, especially when
accompanied by the removal of other obstacles to
trade between European countries.
 Create difficulties for some countries associated
with the move to a common monetary policy.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
1-2
Japan, 2000
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
The Bubble Economy
The Japanese Stock
Market Index, 19802000
The large increase in
the index in the second
half of the 1980s was
followed by an equally
sharp decline in the
early 1990s.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
Japan
Table 1-2 Growth, Unemployment, and Inflation in Japan,
1960-2002 (in percent)
1960-2000
(average)
1992-2000
(average)
2000
2001
2002
(forecast)
Output growth rate
5.5
1.2
1.5
0.7
1.0
Unemployment rate
2.0
3.0
4.7
5.0
5.5
Inflation rate
4.5
0.1
1.6
1.6
1.4
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.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard
How Can Japan Recover?
 The Japanese central bank has decreased
interest rates to very low levels.
 The government has also used fiscal policy to
increase demand.
 Problems with the Japanese economy

inefficient retail distribution system
 political corruption
 problems with the banking system.
© 2003 Prentice Hall Business Publishing
Macroeconomics, 3/e
Olivier Blanchard