Chapter 23 - An introduction to macroeconomics. In this chapter, students will be able to understand: Interpret how macroeconomics studies both long-run economic growth and short-run fluctuations in output and unemployment; explain why economists focus on GDP, inflation, and unemployment when assessing the health of an entire economy. | Chapter 23 An Introduction to Macroeconomics McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Long-run economic growth and short-run fluctuations GDP, inflation, and unemployment Sustained increase in living standards Savings and investment Shocks and sticky prices 23- Performance and Policy Real GDP Corrects for price changes Nominal GDP Uses current prices Unemployment Inflation Increase in overall level of prices 23- Performance and Policy Can governments: Promote economic growth? Reduce severity of recession? Is monetary or fiscal policy more effective at mitigating recession? Is there a tradeoff between inflation and unemployment? 23- Economic Performance Output growth per year 1995-2005 Unemployment rate in 2007 Inflation rate in 2007 23- Economic Growth Standard of living measured by output per person No growth in living standards prior to Industrial Revolution Modern economic growth Output per person rises Not experienced by all countries 23- GDP Per Person 2007 Zimbabwe $188 United States $45,845 Canada $38,345 Japan $33,576 United Kingdom $35,134 South Korea $24,782 France $33,187 Russia $14,692 Saudi Arabia $23,243 Burundi $371 Tanzania $1,256 North Korea $1,900 India $2,659 China $5,292 Mexico $12,774 . dollars based on purchasing power parity 23- Savings and Investment Saving Tradeoff current for future consumption Investment Financial investment Economic investment Banks and financial institutions 23- Shocks Demand shocks and flexible prices Price falls if demand low Sales unchanged Demand shocks and sticky prices Maintain inventory Sales change Business cycles 23- Expectations The future is uncertain Expectations affect investment Shocks What happens is not what you expected Demand shocks Supply shocks 23- Demand Shocks Cars per week Price DM DL DH 900 $40,000 $37,000 $35,000 Flexible Prices 23- Demand Shocks Cars per week DM DL DH . | Chapter 23 An Introduction to Macroeconomics McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Long-run economic growth and short-run fluctuations GDP, inflation, and unemployment Sustained increase in living standards Savings and investment Shocks and sticky prices 23- Performance and Policy Real GDP Corrects for price changes Nominal GDP Uses current prices Unemployment Inflation Increase in overall level of prices 23- Performance and Policy Can governments: Promote economic growth? Reduce severity of recession? Is monetary or fiscal policy more effective at mitigating recession? Is there a tradeoff between inflation and unemployment? 23- Economic Performance Output growth per year 1995-2005 Unemployment rate in 2007 Inflation rate in 2007 23- Economic Growth Standard of living measured by output per person No growth in living standards prior to Industrial Revolution Modern economic growth .
