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MacroEconomic Goals

MacroEconomic Goals. Barnett UHS AP Econ. Uno. Full Employment That does NOT mean that everybody has a job There is always going to be some people unemployed Civilian Labor Force: People 16 or older who have looked for a job in the past 4 weeks

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MacroEconomic Goals

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  1. MacroEconomic Goals Barnett UHS AP Econ

  2. Uno • Full Employment • That does NOT mean that everybodyhas a job • There is always going to be some people unemployed • Civilian Labor Force: People 16 or older who have looked for a job in the past 4 weeks • Goal: 5-6% unemployment rate considered the “natural rate” or “target rate” • Every tenth of a point = 150,000 workers

  3. Uno • In order for unemployment to decrease 1 one percent, the economy must grow an extra 2 percent. (Okun’s rule of thumb). • Current Rate: 7.7% FED goal: 6.6% • Would require 1.9 million jobs created • Job growth averaging around 150,000 each month • Should take around _____ to reach goal • But…

  4. Unemployment in Other Countries

  5. Uno • Three types of unemployment • Frictional Unemployment – Temporary • Workers moving from one job to another • Students heading off into the “real world”

  6. Uno • Three types of unemployment • Structural Unemployment - Permanent • When there is a mismatch between the skills of unemployed workers and the needs of the economy • Can retrain themselves • Be entrepreneurial and use their skills in novel ways • Can move to where their skills are in demand • Assembly line workers replaced by robots

  7. Uno • Three types of unemployment • Cyclical Unemployment • Due to contractions (downs) from normal business cycles • Businesses lay off workers when the economy goes down

  8. Dos • Second Goal: Stable Prices – Reasonable inflation rate • Inflation – Increase in the average level of prices over a given time period • Goal: 3% inflation rate (considered stable prices) • Mo’ Money, Mo’ Tomatoes

  9. Dos • Second Goal: Stable Prices – Reasonable inflation rate • Disinflation: When the price level increases from year to year but at decreasing rate • Year 1 to Year 2 = 3% increase in prices • Year 2 to Year 3= 2% increase in prices

  10. Dos • Second Goal: Stable Prices – Reasonable inflation rate • Deflation: Price level increase is actually negative • Price level drops to -1% in a year • Buy 2 cars now?

  11. Dos • How is inflation rate measured? • CPI (Consumer Price Index) • PPI (Producer Price Index) • GDP deflator = (Nominal GDP/Real GDP) x 100 • CPI • Current CPI inflation rate is: 1.8 percent • later year - earlier year x 100 • earlier year

  12. Dos • GDP Deflator • Uses 2005 as base year. Set to 100 with other years reported relative to the 2005 dollar. • The GDP Deflator for 2010 was 110.99. On average the 2005 dollar could buy (10.99/100) 10.99% more than the 2009 dollar. • The GDP Deflator for 1950 was 14.65. On average the 1950 dollar could buy (100/14.65) 6.82 times as many goods as the 2005 dollar.

  13. CPI

  14. Inflation Rate 2000 - 2010

  15. Tres • Third Goal: Economic Growth • Determined by growth in Real GDP • GDP = Gross Domestic Product • GDP = Market value of all final goods and services produced in an economy in a year • Goal: 3% annual growth

  16. Tres • Third Goal: Economic Growth • Difference between nominal and real GDP • Nominal – does not include inflation • Real GDP - includes inflation • Real –

  17. Tres • GDP Components • Components: C = consumption 70 • I = investment 17 • G = government expenditures 17 • Nx = net exports -4 • ______________________________________________________ • 100 percent • The allocation will vary from year to year but must add up to 100 percent.

  18. Cuatro • Fourth Goal: Favorable Balance of Trade • X = exports • M = imports • X>M = trade surplus • X<M = The USA! (trade deficit) • 2008 trade deficit = $673 billion • Better to have strong or weak currency?

  19. Cinco • Fifth Goal: Limiting Government Growth/Spending • Measured by looking at the rate of government spending relative to the real GDP growth

  20. High Fives for Macro! • 1. Full Employment • 2. Stable Prices • 3. Economic Growth • 4. Favorable Balance of Trade • 5. Limiting Government Growth

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