Transcript Chapter 8
Economic Growth The Business Cycle Unemployment Inflation CPI 8 C HAPTE R Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide Next Slide Introduction to Economic Growth and Instability End Show 8-1 Copyright McGraw-Hill/Irwin, 2005 ECONOMIC GROWTH Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8-2 Next Slide An increase in real GDP over time An increase in real GDP per capita over time •Growth as a Goal •Arithmetic of Growth •Rule of 70 •Main Sources of Growth •Increases in Resources •Increases in Productivity Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output ECONOMIC GROWTH Growth in the United States •Improved Products and Services •Added Leisure •Other Impacts Key Terms Previous Slide End Show 8-3 Next Slide •Relative International Growth Rates Copyright McGraw-Hill/Irwin, 2005 THE BUSINESS CYCLE Economic Growth The Business Cycle Phases of the Business Cycle PEAK Unemployment RECESSION CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide Next Slide TROUGH Level of business activity Inflation Time End Show 8-4 Copyright McGraw-Hill/Irwin, 2005 RECOVERY THE BUSINESS CYCLE Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8-5 Next Slide Causation: A First Glance •Many Causation Theories •Cyclical Impact •Capital Goods •Consumer Durables •Service Industries •Nondurable Consumer Goods Copyright McGraw-Hill/Irwin, 2005 UNEMPLOYMENT Economic Growth Measurement of Unemployment, 2002 The Business Cycle Unemployment Inflation Under 16 and/or institutionalized 74,700,000 Not in labor force 71,400,000 CPI Redistributive Effects of Inflation Total Population 288,600,000 Anticipated Inflation Effects of Inflation on Output 134,200,000 Key Terms Employed Previous Slide Next Slide End Show 8-6 Unemployed Copyright McGraw-Hill/Irwin, 2005 Labor force 142,500,000 8,300,000 UNEMPLOYMENT Economic Growth Measurement of Unemployment, 2002 The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Unemployment rate unemployed = labor force x 100 Anticipated Inflation Part-Time Employment Effects of Inflation on Output Key Terms Previous Slide Next Slide Discouraged Workers End Show 8-7 Copyright McGraw-Hill/Irwin, 2005 UNEMPLOYMENT Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8-8 Next Slide Types of Unemployment Frictional Unemployment Structural Unemployment Cyclical Unemployment Full-Employment Rate of Unemployment Natural Rate of Unemployment (NRU) Copyright McGraw-Hill/Irwin, 2005 UNEMPLOYMENT Economic Growth The Business Cycle Unemployment Inflation Economic Costs of Unemployment GDP Gap and Okun’s Law CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output For every 1% unemployment exceeds the natural rate... Key Terms Previous Slide End Show 8-9 The amount by which actual GDP falls short of potential GDP Next Slide Approximately a 2% GDP Gap occurs Copyright McGraw-Hill/Irwin, 2005 UNEMPLOYMENT Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8 - 10 Next Slide Unequal Burdens of Unemployment • Occupation • Age • Race and Ethnicity • Gender • Education • Duration Noneconomic Costs International Comparisons Copyright McGraw-Hill/Irwin, 2005 GLOBAL PERSPECTIVE Economic Growth The Business Cycle Unemployment Unemployment Rates 5 Industrial Nations 1992 - 2002 15 Inflation France CPI Redistributive Effects of Inflation U.K. 10 Germany Anticipated Inflation U.S. Effects of Inflation on Output Japan 5 Key Terms Previous Slide End Show 8 - 11 Next Slide 0 1992 1997 2002 Source: Economic Report of the President, 2003 Copyright McGraw-Hill/Irwin, 2005 INFLATION Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output End Show 8 - 12 • A rising general level of prices • Rate of inflation calculated using index numbers Consumer Price Index CPI = Key Terms Previous Slide Defined and Measurement Next Slide Copyright McGraw-Hill/Irwin, 2005 Price of most recent market basket in the particular year Price of the same market basket in 1982-1984 x 100 INFLATION Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8 - 13 Next Slide • Rule of 70 - Applied • Facts of Inflation • U.S. Double-Digit Inflation in Late 70s and Early 80s • Currently Relatively Mild • Other Nations in 2002 •Romania – 23% •Belarus – 43% •Turkey – 45% •Myanmar – 57% Copyright McGraw-Hill/Irwin, 2005 GLOBAL PERSPECTIVE Inflation Rates in Five Industrial Nations 1992 - 2002 Economic Growth The Business Cycle Unemployment 10 Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Italy Germany 5 Effects of Inflation on Output U.S. France Japan Key Terms Previous Slide End Show 8 - 14 Next Slide 0 1992 1997 2002 Source: Bureau of Labor Statistics Copyright McGraw-Hill/Irwin, 2005 INFLATION Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8 - 15 Next Slide Types of Inflation DEMAND-PULL INFLATION COST-PUSH INFLATION •Rising Per-Unit Production Costs •Supply-Side Inflation •Supply Shocks •Complexities Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment REDISTRIBUTIVE EFFECTS OF INFLATION Nominal Income Inflation CPI Redistributive Effects of Inflation Anticipations Anticipated Inflation Effects of Inflation on Output • Anticipated Inflation Key Terms Previous Slide End Show 8 - 16 Real Income Next Slide • Unanticipated Inflation Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment REDISTRIBUTIVE EFFECTS OF INFLATION Who is Hurt by Inflation? Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output • Fixed-Income Receivers • Savers • Creditors Key Terms Previous Slide End Show 8 - 17 Next Slide Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Effects of Inflation on Output Key Terms End Show 8 - 18 Who is Unaffected or Helped by Inflation? • Flexible-Income Receivers • Cost of Living Adjustments (COLAs) • Debtors Anticipated Inflation Previous Slide REDISTRIBUTIVE EFFECTS OF INFLATION Next Slide Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8 - 19 Next Slide REDISTRIBUTIVE EFFECTS OF INFLATION Addenda •Deflation •Mixed Effects •Arbitrariness Copyright McGraw-Hill/Irwin, 2005 ANTICIPATED INFLATION Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation 11% = + Anticipated Inflation Effects of Inflation on Output 5% Key Terms Previous Slide End Show 8 - 20 Next Slide Nominal Interest Rate Copyright McGraw-Hill/Irwin, 2005 Real Interest Rate 6% Inflation Premium Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output Key Terms Previous Slide End Show 8 - 21 Next Slide EFFECTS OF INFLATION ON OUTPUT •Cost-Push Inflation and Real Output •Demand-Pull Inflation and Real Output •Hyperinflation & Breakdown Copyright McGraw-Hill/Irwin, 2005 economic growth real GDP per capita rule of 70 productivity business cycle peak recession trough recovery labor force unemployment rate discouraged workers frictional unemployment structural unemployment cyclical unemployment full-employment rate of unemployment natural rate of unemployment (NRU) Copyright McGraw-Hill/Irwin, 2005 potential output GDP gap Okun’s Law inflation Consumer Price Index (CPI) demand-pull inflation cost-push inflation per-unit production costs nominal income real income anticipated inflation unanticipated inflation cost of living adjustments (COLAs) real interest rate nominal interest rate deflation hyperinflation BACK END Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated Inflation Effects of Inflation on Output BASIC MACROECONOMIC RELATIONSHIPS Key Terms Previous Slide End Show 8 - 23 Next Slide Chapter 9 Copyright McGraw-Hill/Irwin, 2005