Download Lesson 4- Macroeconomics Macroeconomics—the study of Review

Lesson 4- Macroeconomics
Macroeconomics—the study of _____________________ _________________________
Review: Scarcity
Economics is complicated because people have ______________________ _________________, but
_____________________ ______________________
This is ________________________, the condition that results from limited resources and unlimited wants.
Economists study the production of goods and services using scarce resources. They are looking to see
efficiency, or whether we are best using our scarce resources.
Macroeconomics
Macroeconomics studies whole economies including ______________________, regional and global economics.
Macroeconomics is also often referred to as the study of economies at the ______________________ level.
Aggregate is the whole formed by combining several elements such as unemployment, national income, rate of
growth, _______________________ and price levels. In Macroeconomics we are looking at the interaction between
businesses, consumers, sellers, ______________________________ and nations.
Macroeconomics GDP
Macroeconomics studies whole economies. This means the United States, England or even the World Economy.
To measure these economies we use_______ (Gross Domestic Product). GDP
measures the dollar total of all final goods and services produced in a country
during one ___________________ year.
GDP is measured using only the ____________________ output. This helps avoid
counting products more than once.
THE US GDP is
made up of
approximately
____________
consumer spending
A higher GDP means a higher standard of living, while a low GDP indicates a
lower standard of living.
GDP: Final Output
GDP is calculated using ONLY the final product. The _________ _______________________ and other supplies are
not calculated towards GDP.
Example: A lumberjack cuts down a tree and sells it to a saw mill. The saw mill cuts the tree into lumber and sells it to
a furniture maker. The lumber is used to build a dining table. Only the table would be counted towards GDP.
The lumber would be seen as an intermediate good, or a good used to make other products.
Economic Growth
Macroeconomists spend a lot of time examining ways to ________________________ the economy. There are
several factors that can contribute to growth:
1) Natural resources
2) Human Resources
3) Capital Resources
4) _________________________
Natural Resources
The more natural resources a nation has the better. Without natural resources they must _____________________
resources, making them dependent on the international markets.
Economic growth is hindered because the nation is ________________________on another nation for the resources
needed to expand.
Lucky USA
The United States has access to most of our necessary _______________________ resources. Many
___________________________ nations like Japan must depend on foreign trade for many resources. In the US we
have natural resources, as well as several climatic regions that support _____________________, industry and even
tourism.
Human Resources
In order to grow the economy, a nation must have enough workers. To determine the labor input, economists
_____________________ the _____________________ workforce by the ___________________ number of worker
hours.
Example: The US has 245,552,000 workers who work an average of 34.5 hours:
245,552,000 x 34.5= 8,471,544,000. This is the labor input for the United States.
Capital Resources
In order to improve the economy, businesses must also be ______________________. This means the more
modernity, efficiency and quality a company uses, the more growth that can be achieved. Better facilities tend to
lead to more __________________________ growth
**Please note, this does not mean more employment, just more economic GDP growth**
Infrastructure
Infrastructure refers to the roads, bridges, ________________________ systems and other daily necessities that
allow business to be completed. Many times, businesses push governments to improve infrastructure, but with
declining economies many governments are unable to invest needed money to new ___________________________
systems.
For instance, the US still uses outdated and slow moving trains. Countries like ________________, on the other hand,
have increased funding for developments such as the Bullet Train.
Research indicates that investments in infrastructure return 3x the investment in economic growth. Many major
corporations and Americans are pushing for a high speed rail system in the US.
Entrepreneurship
For an economy to continue growing there must be entrepreneurs willing to take
on the risks of starting a new business. These entrepreneurs are essential
because they ________________________ new ideas which constantly
____________________ ________________ and demand.
Entrepreneur’s also
challenge the BIG
businesses to create new
products, technologies and
methods!
Challenges to the Economy
There are many challenges to macroeconomics that can stall or directly hurt the economy:
-Unemployment
-Inflation
-Poverty and _________________ Distribution
Expansion and Recession
When the economy is expanding and doing ____________ we call it _____________________.
When the economy is doing ______________ and shrinking we call it ______________________.
If the economy has crashed we refer to it as a depression. The last depression was in the 1930s.
Unemployment
Unemployment hurts the _____________________ in many ways. First, the national GDP decreases because the
unemployed are not making any goods or services.
Secondly, businesses lose _____________ because the unemployed cannot buy goods and services.
Finally, the government may decide to ____________________ and help the unemployed. This takes government
resources, costs money and can lead to unforeseen ______________________
Employment Defined
Many people are familiar with the word ______________________, especially with the current recession. However,
few people truly understand what unemployment means and who economists count for the unemployment rate.
To understand who is unemployed, first we must determine who counts as employed. When the Bureau of Labor
Statistics wants to know who is employed, they look at several criteria:
-_____ years old or older and:
-worked for pay ______ or more hours in the last week
-worked without pay for the family business for _________ or more hours
-have jobs but are not working due to illness, weather, vacation or labor disputes (__________________)
If a person is 16 years old or older and matches any of the criteria they are considered employed.
Unemployment Defined
A person is considered unemployed if they are 16 years or older and do ______ meet any of the employed criteria.
However, to meet the standard of unemployment, the individual must be _______________ ____________________
for employment.
If a person is neither employed nor unemployed then they are “not in the labor force”.
The unemployment rate refers to the percentage of people in the civilian labor force who are unemployed. To find
this number economists divide the number of unemployed by the total work force:
Unemployed ÷ labor force = ______________________ rate.
Currently the U.S. unemployment rate is approximately 5.5%. During the Great Depression it was nearly 22%
Problems with employment
Remember, employment refers to people who have worked for pay at least ________ ____________ in the last
week. However, most of us would agree that one hour of work a week is not enough to support oneself or a family.
This leads to the idea of _______________________.
A person is underemployed when they are working jobs beneath their skill level, or who work part time but want full
time work. Example: An engineer with a master’s
degree is working at ________________. He would
be ___________________________ because his
skills are much higher than crafting delicious
sandwiches.
Another problem with the employment numbers are
the marginally attached workers. These are people
who once held jobs but have given up looking for
work. For example, a TV repair man would no longer
be useful in today’s ______________________
business.
Types of Unemployment
We already know that unemployment can negatively impact the economy, but there is ALWAYS some
_______________________ expected. To help understand why some unemployment is a good thing you must
understand the four types of unemployment:
The goal is around
_________
1) Frictional
2) Structural
3) ________________
4) Cyclical
Frictional
Structural
Seasonal
Cyclical
Inflation
The second major challenge to economic growth is ______________________. Inflation is an increase in the average
price level of all products in the economy. We measure inflation using the Consumer Price Index, which shows the
change in ________________ for items a typical family buys
Inflation reduces the purchasing power of the dollar. In other words, you _________________ purchase as much
with a single _________________.
Often inflation is caused by a greater increase in ____________________ than the increase in supply because the
consumers compete for goods by paying more.
Want a soda with that?
Inflation occurs nearly every year, and is sometimes referred to as cost of living increases, because the cost of
everyday products increases. For example, in 2005 a soda at Stewarts cost $______________. Today, that same
product costs $________ or more. The product is the same, but the cost has inflated.
Hyperinflation
Hyperinflation is the worst degree of ________________________, causing money to be nearly
_______________________. Think back to Germany after WWI when they kept printing money. The money had
nearly no value, with the cost of bread in the billions of dollars.
Inflation Categories
There are two categories of inflation, and are determined by cause:
___________________________- this is the more common form of inflation and is caused by the demand increasing
faster than the supply. Because there is less supply than demanded, the prices increase. (Scarcity Supply and
Demand)
____________________________- this occurs when the cost of resources increase. As a result the producers set
their prices to cover their costs and to earn a profit, resulting in producers pushing prices higher. (Gas prices went up
so food prices increased as well)
Effects of Inflation
There are five main effects of inflation:
Decreased Purchasing Power- as costs rise those on ____________________ incomes can’t buy as much.
Real Wages- Wages will rise but typically at the same rate as inflation (called Cost of Living adjustments) so people
are not getting ahead
Interest Rates- Price of
_____________________ money increases,
sometimes doubling or tripling
Decreased savings/ investing- the interest rate
on savings accounts _____________________ so
people are not interested in saving.
Production costs- The cost to produce increases
so businesses raise prices. However, if the
consumers ____________________ to pay the
higher cost then the business may collapse.
Poverty and Income Distribution
Another challenge to growing the economy is poverty and
______________________ income distribution.
Economists pay close attention to
______________________ rates, because higher rates
indicate a troubled economy.
You will notice that in 2007 over 85% of all American
wealth was in the hands of a mere 20% of the population.
Poverty
The Poverty rate refers to the percentage of families in the total population living below the poverty threshold. The
threshold is the lowest income that a family household needs to maintain a basic standard of living. For a family of
_______ that means an annual combined income of ___________________
High poverty rates are often combated with government programs such as welfare and HEAP (utility assistance)
Income Distribution
The income distribution was first examined by Jakob Reis. He noticed a ___________________ gap between the
____________ and the _______________. Later, the Lorenz curve was developed to illustrate the income gap and
how it differs from a normal distribution of income
The problem with an _____________________ distribution of wealth is that the majority of wealth is held by a small
percentage of the people.
Government Assistance
To combat the issues with of poverty, the American Government offers several ways to help:
Subsidies
Trickle Down
Tax Rebates
Welfare and Assistance
Trickle Down Effect
Many Americans don’t believe in the Trickle Down Effect. The goal of Trickle Down effect is that providing tax cuts
and ______________________ to the businesses may allow the business to increase employment.
More employees will stimulate the economy by purchasing goods and creating more demand, resulting in more
supply. Thus the ______________________ continues.