Growth and the Business Cycle at Boeing

2. Growth and the Business Cycle at Boeing Learning Objectives In this chapter, we will provide an overview of long-run growth and the business cycle and discuss their importance for individual firms, for consumers, and for the economy as a whole.

3. The Annual Unemployment Rate in the United States, 1950–2007 Recession 2 quarters negative growth

4. The Growth in Real GDP per Capita, 1900–2007

5. Learning Objective 21.1 MakingtheConnection • The Connection between Economic Prosperity and Health

6. Calculating Growth Rates and the Rule of 70 Growth equation

7. What Determines the Rate of Long-Run Growth? Productivity: y output per worker Increases in capital per unit of labor (hour worked) k Technological Change: A Savings less depreciation and population growth

8. 21-1 Solved Problem The Role of Technological Change in Growth 1960-1995, y-hat in Singapore 6.2% percent Double about every 11.5 years. Singapore’s growth depended more on increases in capital per hour worked increases in the labor force participation rate, transfer of workers from agricultural to nonagricultural jobs than on technological change.

9. Learning Objective 21.1 MakingtheConnection • What Explains Rapid Economic Growth in Botswana?

10. Learning Objective 21.1 Long-Run Economic Growth Potential Real GDP Potential GDP The level of GDP attained when all firms are producing at capacity. Determined by Q = KβL1-β Capacity utilization Y/Q = (C+I+G+E-M)/ KβL1-β

11. Potential Real GDP Actual and Potential Real GDP

12. Learning Objective 21.2 Saving, Investment, and the Financial System Financial system The system of financial markets and financial intermediaries through which firms acquire funds from households. An Overview of the Financial System Financial markets Markets where financial securities, such as stocks and bonds, are bought and sold. Financial intermediaries Firms, such as banks, mutual funds, pension funds, and insurance companies, that borrow funds from savers and lend them to borrowers.

13. Learning Objective 21.2 = Y + TR − C − T = T − G − TR Saving, Investment, and the Financial System The Macroeconomics of Saving and Investment Y = C + I + G + NX Y = C + I + G I = Y − C − G

14. Learning Objective 21.2 S = + Saving, Investment, and the Financial System The Macroeconomics of Saving and Investment or S = (Y + TR − C − T) + (T − G − TR) or S = Y − C − G So, we can conclude that total saving must equal total investment: S = I

15. Learning Objective 21.2 Saving, Investment, and the Financial System The Market for Loanable Funds Market for loanable funds The interaction of borrowers and lenders that determines the market interest rate and the quantity of loanable funds exchanged.

16. Learning Objective 21.2 Saving, Investment, and the Financial System The Market for Loanable Funds Demand and Supply in the Loanable Funds Market FIGURE 21.3 The Market for Loanable Funds

17. Learning Objective 21.2 MakingtheConnection • Ebenezer Scrooge: Accidental Promoter of Economic Growth? Who was better for economic growth: Scrooge the saver or Scrooge the spender?

18. Learning Objective 21.2 Saving, Investment, and the Financial System The Market for Loanable Funds Explaining Movements in Saving, Investment, and Interest Rates FIGURE 21.4 An Increase in the Demand for Loanable Funds

19. Learning Objective 21.2 Saving, Investment, and the Financial System The Market for Loanable Funds Explaining Movements in Saving, Investment, and Interest Rates Crowding out A decline in private expenditures as a result of an increase in government purchases.

20. Learning Objective 21.2 Saving, Investment, and the Financial System The Market for Loanable Funds Explaining Movements in Saving, Investment, and Interest Rates FIGURE 21.5 The Effect of a Budget Deficit on the Market for Loanable Funds

21. Learning Objective 21.2 21-2 Solved Problem How Would a Consumption Tax Affect Saving, Investment, the Interest Rate, and Economic Growth?

22. Learning Objective 21.3 The Business Cycle Some Basic Business Cycle Definitions FIGURE 21.6 The Business Cycle

23. Learning Objective 21.3 MakingtheConnection • The Business Cycle and the 2008 Election The National Bureau of Economic Research (NBER) has the following broader definition: “A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income, and wholesale-retail trade.” There is substantial evidence that in some elections, the state of the economy can be of decisive importance. As real GDP began to decline and unemployment began to rise, Barack Obama ultimately won the election by a margin in the popular vote of 52 percent to 46 percent. The state of the U.S. economy was one factor that helped Barack Obama win the presidency in 2008.

24. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? The Effect of the Business Cycle on Boeing Figure 21-7 The Effect of the Business Cycle on Boeing

25. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? The Effect of the Business Cycle on the Inflation Rate FIGURE 21.8 The Effect of the 2001 Recession on the Inflation Rate

26. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? The Effect of the Business Cycle on the Inflation Rate FIGURE 21.9 The Impact of Recessions on the Inflation Rate Don’t Let This Happen to YOU!Don’t Confuse the Price Level and the Inflation Rate

27. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? The Effect of the Business Cycle on the Unemployment Rate FIGURE 21.10 How the Recession of 2001 Affected the Unemployment Rate

28. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? The Effect of the Business Cycle on the Unemployment Rate FIGURE 21.11 The Impact of Recessions on the Unemployment Rate

29. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? Recessions Have Been Milder and the Economy Has Been More Stable Since 1950 FIGURE 21.12 Fluctuations in Real GDP, 1900–2007

30. Learning Objective 21.3 The Business Cycle What Happens during a Business Cycle? Recessions Have Been Milder and the Economy Has Been More Stable Since 1950 Table 21-1 The Business Cycle Has Become Milder

31. Learning Objective 21.3 The Business Cycle Why Is the Economy More Stable? • The increasing importance of services and the declining importance of goods. • The establishment of unemployment insurance and other government transfer programs that provide funds to the unemployed. • Active federal government policies to stabilize the economy.

32. China’s Airlines Are Failing to Translate Rapid Growth into Profits LOOK An Inside Chinese Aviation: On a Wing and a Prayer

33. China’s Airlines Are Failing to Translate Rapid Growth into Profits LOOK An Inside Chinese Aviation: On a Wing and a Prayer (continued)

34. K e y T e r m s Business cycle Capital Crowding out Financial intermediaries Financial markets Financial systemLabor productivity Long-run economic growth Market for loanable funds Potential GDP