Warm-up: Get a yellow text

1. Warm-up: Get a yellow text • What does GDP stand for? • How do we calculate GDP? • What do we use to measure inflation? • How do we measure unemployment?

2. Begin Unit 3 Macroeconomics SSEMA1 b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand. c. Explain how economic growth, inflation, and unemployment are calculated.

3. N.B. #2- Business Cycle and Economic Indicators • What is GDP, inflation, and unemployment? How is each calculated? • What are the characteristics of the four types of unemployment?

4. The Business Cycle The ups and downs of the economic activity The good times and bad times P. 310

5. The Business Cycle 4 phases Expansion- increasing GDP and growth Peak- the top of the expansionary period- lowest unemployment Contraction- decreasing GDP-increasing unemployment Trough- “the bottom” of the contraction

6. The Business Cycle Peak contraction Expansion Trough

7. Economic Indicators GDP Inflation Unemployment

8. MEASURES OF ECONOMIC PERFORMANCE • GROSS DOMESTIC PRODUCT (GDP):total value of a country’s annual output of goods and services sold for final use. Only end use goods are counted. • GDP = sum of Consumption, Investment, Government Spending and Net Exports (exports – imports)

9. GDP • Consumption – • Investment –

10. National Government Spending • National Defense • Social Security: payments to aged, disabled, and retired persons • National Debt • Income Security • Medicare: health care program available to all senior citizens regardless of income • Health: medicaid – medical insurance program for low income persons

11. National Government Spending

12. Net Export • Exports – Imports

13. Gross Domestic Product • Per Capita GDP • GDP of a Country / Population

14. Inflation • How is it calculated: Consumer Price Index (CPI)

15. Unemployment

16. Question 1What type of unemployment? • Construction workers are laid off for the winter, but plan to return to work when the weather is better.

17. Question 2What type of unemployment? • Workers are laid off at a Pog factory. A downturn in the economy has lowered demand for luxury items.

18. Question 3What type of unemployment? • The United States has lost manufacturing jobs as a result of a change to a service-oriented economy.

19. Question 4What type of unemployment? • A fast-food worker graduates from college and quits his job to look for a better career.

20. Question 5 True or False? Unemployment in the U. S. has recently been higher than 8 percent.

21. Quiz!! • In your own words, describe what GDP attempts to measure. • Explain the formula for calculating GDP.

22. The Business Cycle Peak contraction Expansion Trough

23. The Business Cycle Recession Decline in real GDP for 6+ months

24. The Business Cycle Recession • Worst in 1929-1933 (33% decline in GDP) • 10 in US since 1945

25. The story of Peorgia • Work with a partner who has the same numbered handout as you do. • Calculate all the economic indicators for Peorgia • We will work with this more soon!

26. The story of Peorgia • Work with your group to determine which phase of the business cycle Peorgia is in • Create a skit involving all group members that shows what life might be like during this phase of the bussiness cycle.

27. MACROECONOMIC GOALS LOW UNEMPLOYMENT LOW INFLATION STABILITY GROWTH

28. ECONOMIC GROWTH Defined by sustained increases in GDP adjusted for inflation

29. Overview • Aggregate Supply and Demand • Supply and Demand at the MACRO level

30. Aggregate Supply The amount of GDP an economy will produce at each and every price level

31. Aggregate Supply AS Price level Output

32. Aggregate Demand Amount of GDP that will be demanded at different price levels

33. Aggregate Demand P AD O Price level Output

34. Aggregate Supply and Demand AS P AD O Price level Equilibrium! Output

35. Key learning: When aggregate demand is equal to aggregate supply at a level that just employs all available productive resources with no change in price level, the economy is at full-employment, non-inflationary equilibrium

36. Aggregate Supply Determinants • Cost of inputs (ex.the cost of oil falls!) • Productivity (ex. we get better computers!) • Government regulations (ex. We have to spend money to clean up pollution!)

37. Aggregate Supply Shifters:Change in cost of inputs (domestic or imported)Change in productivityGovernment regulations AS1 AS2 Price level Output

38. Aggregate Demand Determinants • Consumer Spending • Investment Spending • Government Spending

39. Aggregate Demand Shifters:Change in Consumer SpendingChange in Investment SpendingChange in Government Spending P AD1 AD2 O Price level Output

40. Aggregate Supply and Demand and the Business Cycle • Complete the chart on your paper • For AD and AS, predict if there will be an increase, a decrease, or no change. • Also, state if the curve will shift to the right or to the left.

41. Aggregate Supply and Demand and the Business Cycle We can try to stimulate the economy by manipulating the AD and AS curves.

42. When AD is below full-employment production falls and unemployment results AS P AD O Price level Output

43. Aggregate Supply and Demand AS P AD O Price level Output Unemployment!!

44. Aggregate Supply and Demand AS P AD O Price level Equilibrium! Output

45. Aggregate Supply and Demand and the Business Cycle We want to move the curves back to the full-employment non-inflationary equilibrium!

46. How Can We Shift the Curves and Help (Hopefully) the Economy? Two Tools: • Fiscal Policy • Monetary Policy

47. Expansionary Policy Increases Demand AS P AD O O2 Price level Output

48. Warning!!! • Demand-Pull Inflation: Rise in the price level when agg. Demand exceeds agg. Supply.

49. Demand-Pull Inflation AS P2 P AD2 AD O O2 Price level Output

50. Warning!!! • Cost-Push Inflation: Rise in the price level due to increase in costs of production (shifts agg.supply curve left).