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Transcript
23 An Introduction to Macroeconomics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. . Performance and Policy • Real GDP • Corrects for price changes • Nominal GDP • Uses current prices • Unemployment • Inflation • Increase in overall level of prices LO1 23-2 Performance and Policy • Can governments: • Promote economic growth? • Reduce severity of recession? • Is monetary or fiscal policy more • • LO2 effective at mitigating recession? Is there a tradeoff between inflation and unemployment? Is anticipated or unanticipated government policy more effective? 23-3 Performance and Policy • Output growth • 2.7% per year 1995-2007 • Unemployment rate • 4.6% in 2007 • Inflation rate • 2.7% in 2007 LO2 23-4 Modern Economic Growth • Standard of living measured by output • • LO3 per person No growth in living standards prior to Industrial Revolution Modern economic growth • Output per person rises • Not experienced by all countries 23-5 Global Perspective LO3 23-6 Savings and Investment • Saving • Trade-off current for future • • LO4 consumption Investment • Financial investment • Economic investment Banks and financial institutions 23-7 Uncertainty, Expectations, and Shocks • The future is uncertain • Expectations affect investment • Shocks • What happens is not what you • • LO5 expected Demand shocks Supply shocks 23-8 Uncertainty, Expectations, and Shocks • Demand shocks and flexible prices • Price falls if demand is low • Sales unchanged • Demand shocks and sticky prices • Maintain inventory • Sales change • Business cycles LO5 23-9 Demand Shocks Flexible Prices Price $40,000 $37,000 $35,000 DM DH DL 900 Cars Per Week LO5 23-10 Demand Shocks Price Fixed Prices $37,000 DH DL 700 900 DM 1150 Cars Per Week LO5 23-11 Sticky Prices • Many prices are sticky in the short run • Consumers prefer stable prices • Firms want to avoid price wars • All prices are flexible in the long run • Firms adjust to unexpected, but permanent changes in demand LO5 23-12
