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Introduction to Macroeconomics (macroeconomics (Components (Firms…
Introduction to
Macroeconomics
macroeconomics
Deals with the economy as a whole.
Macroeconomics focuses on the determinants of totalnational income, deals with aggregates such as aggregate consumption and investment, and looks at the overall level of prices instead of individual prices.
major concerns
Unemployment
The existence of unemployment seems to imply that the
aggregate labor market is not in equilibrium.
Measuring Unemployment
employed
Any person 16 years old or older
who works
without pay for 15or more hours per week in a family
enterprise
who has a job but has been temporarily
absent with or without pay
who
works for pay, either for someone else or in his or her own
business for 1 or more hours per week
unemployed
A person 16 years old or older who is not
working, is available for work, and has made specific
efforts to find work during the previous 4 weeks
not in the labor force
A person who is not looking for
work because he or she does not want a job or has given
up looking
labor force
The number of people employed plus the
number of unemployed.
labor force = employed + unemployed
population = labor force + not in labor force
unemployment rate
The ratio of the number of people
unemployed to the total number of people in the labor
force
unemployment rate =unemployed /
employed + unemployed
Components
Discouraged-Worker Effects
respondent cites inability to find
employment as the sole reasonfor not searching for work
number of
discouraged workers as unemployed gives a better picture
of the unemployment situation
Discouraged-Worker Effects
decline in the measured
unemployment rate that results when people who want to
work but cannot find jobs
labor force participation rate
The ratio of the labor force
to the total population 16 years old or older.
labor force participation rate = labor force /
population
Costs
Frictional unemployment
portion of unemployment
that is as a result of the normal turnover in the labor
market; used to denote short-run job/skill-matching
problems
Cyclical unemployment
Unemployment that is above
frictional plus structural unemployment
Structural unemployment
The portion of unemployment
that is as a result of changes in the structure of the
economy that result in a significant loss of jobs in certain
industries
natural rate of unemployment
Social Consequences
Even those who kept their jobs found themselves
working part time
Many people lost all or part of their savings as the stock
market crashed and thousands of banks failed.
At the bottom were the poor and the fully unemployed,
about 25% of the labor force.
Inflation and deflation
definition
Inflation and deflation
hyperinflation : A period of very rapid increases in the
overall price level
deflation : A decrease in the overall price level.
In 2015 most of the developed world experienced very little
inflation,so some governments began to worry about
deflation.
If falling prices are unanticipated, borrowers will gain at the
expense of lenders,
inflation : An increase in the overall price level.
Costs
3 more items...
The Consumer Price Index
price index computed
each month by the Bureau of Labor Statistics using a
bundle that is meant to represent the “market basket”
purchased monthly by the typical urban consumer
producer price indexes
Measures of prices that
producers receive for products at all stages in the
production process
Output growth
aggregate output
The total quantity of goods and
services produced in an economy in a given period.
recession
A period during which aggregate output
declines.
period in which aggregate
output declines for two consecutive quarters.
business cycle
The cycle of short-term ups and downs in
the economy.
depression
A prolonged and deep recession.
expansion or boom
The period in the business cyclefrom a trough up to a peak during which output andemployment grow
contraction, recession, or slump
The period in the business cycle from a peak down to a trough during which output and employment fall.
Components
Firms
private sector
The government
public sector
fiscal policy
Government policies concerning taxes and
spending.
monetary policy
The tools used by the Federal Reserve
to control short-term interest rates.
Households
private sector
The rest of the world
foreign sector
Circular Flow Diagram
circular flow
A diagram showing the flows in and out of
the sectors in the economy.
transfer payments
Cash payments made by the government to people who do not supply goods, services, or labor in exchange for these payments.
They include Social Security benefits, veterans’ benefits, and welfare payments
Circular Flow of Payments
The government receives taxes from firms
and households, pays firms and
households for goods and services— including wages to government workers—and pays interest and transfers to
households.
people in other countries purchase
goods andservices produced
domestically (exports).
Firms receive payments from households
and the government for goods and
services; they pay wages, dividends, interest, and rents to households and
taxes to the government.
Households receive income from firms
and the government,purchase goods and
services from firms,and pay taxes to the
government. They also purchase foreignmade goods and services (imports).
Three Market Arenas
The labor market
In the labor market, households supply labor, and firms
and the government demand labor
Labor is also supplied to and demanded from the rest of
the world.
The goods-and-services market
Households, the government, and firms demand from this
market.
The rest of the world buys from and sells to the goods-andservices market.
Firms purchase goods and services from each other and
also supply to the goods-and-services market.
Households and the government purchase goods and
services from firms in the goods-and-services market.
The money (financial) market
Households also demand (borrow) funds from this market
to finance various purchases.
Firms borrow to build new facilities in the hope of earning
more in the future.
The government borrows by issuing bonds.
The rest of the world borrows from and lends to the money
market.
• Households supply funds to the money market (or financial
market)in the expectation of earning income in the form of
dividends on stocks and interest on bonds
Much of this borrowing and lending is coordinated by
financial institutions, which take deposits from one group
and lend them to others.
Treasury bonds, notes, or bills : Promissory notes issued
by the federal government when it borrows money
corporate bonds : Promissory notes issued by
corporations when they borrow money.
shares of stock : Financial instruments that give to the
holder a share in the firms ownership and therefore the
right to share in the firm’s profits.’
dividends :The portion of a firm’s profits that the firm pays
out each period to its shareholders.
microeconomics
Examines the functioning of individual industries and the behavior of individual decision-making units—firms and households