8 C H A P T E R ECONOMIC GROWTH An increase in real GDP over some time period An increase in real GDP per capita over some time period Growth as a Goal Arithmetic of Growth Rule of 70 ID: 782502
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Slide1
Introduction to Economic Growth and Instability
8
C H A P T E R
Slide2ECONOMIC GROWTH
An
increase in real GDP
over some time periodAn increase in real GDP per capita over some time period
Growth as a Goal
Arithmetic of GrowthRule of 70
Main Sources of GrowthIncreases in ResourcesIncreases in Productivity
Slide3ECONOMIC GROWTH
Growth in the United States
Improved Products and Services
Added Leisure
Other Impacts
Relative International Growth Rates
Slide4THE BUSINESS CYCLE
Phases of the Business Cycle
PEAK
Level of business activity
Time
RECESSION
TROUGH
RECOVERY
GROWTH
TREND
Slide5THE BUSINESS CYCLE
Causation: A First Glance
Many Causation Theories
Cyclical Impact
Capital Goods
Consumer Durables
Service Industries
Nondurable Consumer Goods
Slide6UNEMPLOYMENT
Measurement of Unemployment, 2000
Employed
Not in
labor
force
Under 16
and/or
institutionalized
Total
Population
275,400,000
Labor
force
140,800,000
65,800,000
68,800,000
Unemployed
5,600,000
135,200,000
Slide7UNEMPLOYMENT
Measurement of Unemployment, 2000
Unemployment
rate
unemployed
labor force
x
100
=
Part-Time Employment
Discouraged Workers
Slide8UNEMPLOYMENT
Types of Unemployment
Frictional Unemployment
Structural Unemployment
Cyclical Unemployment
Full-Employment Rate of Unemployment
Natural Rate of Unemployment (NRU)
Slide9UNEMPLOYMENT
Economic Costs of Unemployment
GDP Gap and Okun’s Law
Approximately a
2% GDP Gap occurs
For every 1% unemployment
exceeds the natural rate...
The amount by which actual GDP
falls short of potential GDP
Slide10UNEMPLOYMENT
Unequal Burdens of Unemployment
Occupation
Age
Race and Ethnicity
Gender
Education
Duration
Noneconomic Costs
International Comparisons
Slide111995
15
10
5
0
France
U.K.
Germany
U.S.
Japan
1990
2000
GLOBAL PERSPECTIVE
Unemployment Rates in Five Industrial Nations
1990 - 2000
Source: Economic Report of the President
Slide12INFLATION
Defined and Measurement
A rising general level of prices
Rate of inflation calculated using index numbers
Rule of 70
Shortcut to determine doubling time
Facts of Inflation
Slide132000
10
5
0
1995
France
U.K.
Germany
U.S.
Japan
1990
Source: Economic Report of the President
GLOBAL PERSPECTIVE
Inflation Rates in Five Industrial Nations
1990 - 2000
Slide14Increases in Total
Spending
Price level
Real domestic output & employment
Q
P
Q
f
Range 1
Range 2
Range 3
DEMAND-PULL INFLATION
Full-
employment
output
INFLATION
Types of Inflation
Slide15DEMAND-PULL INFLATION
INFLATION
Types of Inflation
COST-PUSH INFLATION
Rising Per-Unit Production Costs
Supply-Side Inflation
Supply Shocks
Complexities
Slide16REDISTRIBUTIVE EFFECTS
OF INFLATION
Nominal Income
Real Income
Anticipations
Anticipated Inflation
Unanticipated Inflation
Slide17REDISTRIBUTIVE EFFECTS
OF INFLATION
Who is Hurt by Inflation?
Fixed-Income Receivers
Savers
Creditors
Slide18REDISTRIBUTIVE EFFECTS
OF INFLATION
Who is Unaffected or Helped by Inflation?
Flexible-Income Receivers
Cost of Living Adjustments (COLAs)
Debtors
Slide19REDISTRIBUTIVE EFFECTS
OF INFLATION
Addenda
Deflation
Mixed Effects
Arbitrariness
Slide20Nominal
Interest
Rate
Real
Interest
Rate
Inflation
Premium
=
11%
5%
6%
+
ANTICIPATED INFLATION
Slide21EFFECTS OF INFLATION ON OUTPUT
Cost-Push Inflation and Real Output
Demand-Pull Inflation and Real Output
Hyperinflation & Breakdown
Chapter Conclusions
Slide22KEY TERMS
economic growth
rule of 70productivity
business cyclepeakrecessiontrough
recovery
labor forceunemployment ratediscouraged workers
frictional unemploymentstructural unemploymentcyclical unemploymentfull-employment rate of unemploymentnatural rate of unemployment (NRU)
potential output
GDP gap
Okun’s Law
inflation
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
Copyright McGraw-Hill/Irwin, 2002END
BACK
Slide23BUILDING THE
AGGREGATE EXPENDITURES
MODEL
Chapter 9