1. Macroeconomics The study of behavior and decision-making of entire economies

2. Macroeconomic Questions Why does output fluctuate? What determines economic growth? Why do we have unemployment? Why do we have inflation? Which governmental policy affects output, growth, unemployment, and inflation? How do changes in the amount of money in the economy affect output, growth, unemployment and inflation? How do domestic economic activities affect other countries and our trade? And vice-versa, no?

3. GDP value of all final goods produced consumption + investment + Gov’t. purchases + exports – import spending = GDP better measure of production than GNP (NET exports)

4. Macroeconomic Questions Why does output fluctuate? What determines economic growth? Why do we have unemployment? Why do we have inflation? Which governmental policy affects output, growth, unemployment, and inflation? How do changes in the amount of money in the economy affect output, growth, unemployment and inflation? How do domestic economic activities affect other countries and our trade? And vice-versa, no?

5. How to measure if the econ. growing? Durable goods

6. How to measure if the econ. growing? Durable goods CPI

7. How to measure if the econ. growing? Durable goods CPI - market basket

8. How to measure if the econ. growing? Durable goods CPI (market basket) Consumer Price Index All Goods +1 O% -1 -2 CPI LESSFood and Energy Oct ‘09 Jan ‘99 +.50 +.25 O% -.25

9. How to measure if the econ. growing? Durable goods CPI inflation  diff. in CPI divided by base CPI (we’ll calculate it shortly)

10. How to measure if the econ. growing? Durable goods CPI inflation  diff. in CPI divided by base CPI (we’ll calculate it shortly) unemployment

11. Macroeconomic Questions Why does output fluctuate? What determines economic growth? Why do we have unemployment? Why do we have inflation? Which governmental policy affects output, growth, unemployment, and inflation? How do changes in the amount of money in the economy affect output, growth, unemployment and inflation? How do domestic economic activities affect other countries and our trade? And vice-versa, no?

13. Price Stability

15. Why do we have inflation?Two Theories on Inflation cost-push - increase wages, raise prices, pay high prices, demand higher wage, etc. (PRODUCERS) demand-pull - too much demand (CONSUMERS)

16. Inflation Purchasing power Real income effect

17. Calculating Inflation CPI recent yr.– CPI earlier yr. X 100 = Inflation CPI earlier yr. (% change in price) EX = 2004 Honda Accord $20,000 2005 Honda Accord $21,500 7.5% increase in price

18. Another Macroeconomic Measure: Unemployment 10% 88 66 4 Jan ‘99 Oct. ‘09 Jan ‘06 Jan ‘03 U.S. Unemployment Rate 1999-2009

21. Unemployment Rate = unemployed labor force

22. Why do we have unemployment?Types of Unemployment seasonal cyclical structural frictional

23. Fini!