Warm-up: Get a yellow text

What does GDP stand for?How do we calculate GDP?What do we use to measure inflation?How do we measure unemployment?

Begin Unit 3 MacroeconomicsSSEMA1 b. Define Gross Domestic Product (GDP), economic growth, unemployment, Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and aggregate demand. c. Explain how economic growth, inflation, and unemployment are calculated.

N.B. #2- Business Cycle and Economic IndicatorsWhat is GDP, inflation, and unemployment? How is each calculated?What are the characteristics of the four types of unemployment?

The Business CycleThe ups and downs of the economic activityThe good times and bad timesP. 310

The Business Cycle4 phasesExpansion- increasing GDP and growthPeak- the top of the expansionary period- lowest unemploymentContraction- decreasing GDP-increasing unemploymentTrough- the bottom of the contraction

The Business CyclePeakExpansionTroughcontraction

Economic IndicatorsGDPInflationUnemployment

MEASURES OF ECONOMIC PERFORMANCEGROSS DOMESTIC PRODUCT (GDP): total value of a countrys annual output of goods and services sold for final use. Only end use goods are counted.GDP = sum of Consumption, Investment, Government Spending and Net Exports (exports imports)

GDPConsumption

Investment

National Government SpendingNational DefenseSocial Security: payments to aged, disabled, and retired personsNational DebtIncome SecurityMedicare: health care program available to all senior citizens regardless of incomeHealth: medicaid medical insurance program for low income persons

National Government Spending

Net ExportExports Imports

Gross Domestic ProductPer Capita GDPGDP of a Country / Population

InflationHow is it calculated: Consumer Price Index (CPI)

Unemployment

Question 1What type of unemployment?Construction workers are laid off for the winter, but plan to return to work when the weather is better.

Question 2What type of unemployment?Workers are laid off at a Pog factory. A downturn in the economy has lowered demand for luxury items.

Question 3What type of unemployment?The United States has lost manufacturing jobs as a result of a change to a service-oriented economy.

Question 4What type of unemployment?A fast-food worker graduates from college and quits his job to look for a better career.

Question 5True or False?Unemployment in the U. S. has recently been higher than 8 percent.

Quiz!!In your own words, describe what GDP attempts to measure.Explain the formula for calculating GDP.

The Business CyclePeakExpansionTroughcontraction

The Business CycleRecession

Decline in real GDP for 6+ months

The Business CycleRecessionWorst in 1929-1933 (33% decline in GDP)10 in US since 1945

The story of PeorgiaWork with a partner who has the same numbered handout as you do.Calculate all the economic indicators for PeorgiaWe will work with this more soon!

The story of PeorgiaWork with your group to determine which phase of the business cycle Peorgia is inCreate a skit involving all group members that shows what life might be like during this phase of the bussiness cycle.

MACROECONOMIC GOALS

LOW UNEMPLOYMENTLOW INFLATIONSTABILITY GROWTH

ECONOMIC GROWTHDefined by sustained increases in GDP adjusted for inflation

OverviewAggregate Supply and DemandSupply and Demand at the MACRO level

Aggregate Supply The amount of GDP an economy will produce at each and every price level

Aggregate Supply AS

Price levelOutput

Aggregate Demand Amount of GDP that will be demanded at different price levels

Aggregate Demand

P AD

O Price levelOutput

Aggregate Supply and Demand AS

P AD

O Price levelOutputEquilibrium!

Key learning: When aggregate demand is equal to aggregate supply at a level that just employs all available productive resources with no change in price level, the economy is at full-employment, non-inflationary equilibrium

Aggregate Supply DeterminantsCost of inputs (ex.the cost of oil falls!)Productivity (ex. we get better computers!)Government regulations (ex. We have to spend money to clean up pollution!)

Aggregate Supply Shifters:

Change in cost of inputs (domestic or imported)Change in productivityGovernment regulations

AS1 AS2

Price levelOutput

Aggregate Demand DeterminantsConsumer SpendingInvestment SpendingGovernment Spending

Aggregate Demand Shifters:

Change in Consumer SpendingChange in Investment SpendingChange in Government Spending

P AD1 AD2

O Price levelOutput

Aggregate Supply and Demand and the Business CycleComplete the chart on your paperFor AD and AS, predict if there will be an increase, a decrease, or no change.Also, state if the curve will shift to the right or to the left.

Aggregate Supply and Demand and the Business Cycle

We can try to stimulate the economy by manipulating the AD and AS curves.

When AD is below full-employment production falls and unemployment results AS

P AD O Price levelOutput

Aggregate Supply and Demand AS

P AD O Price levelOutputUnemployment!!

Aggregate Supply and Demand AS

P AD O Price levelOutputEquilibrium!

Aggregate Supply and Demand and the Business Cycle

We want to move the curves back to the full-employment non-inflationary equilibrium!

How Can We Shift the Curves and Help (Hopefully) the Economy?Two Tools:Fiscal PolicyMonetary Policy

Expansionary Policy Increases Demand AS

P AD

O O2 Price levelOutput

Warning!!!

Demand-Pull Inflation: Rise in the price level when agg. Demand exceeds agg. Supply.

Demand-Pull Inflation AS

P2P AD2 AD

O O2 Price levelOutput

Warning!!!

Cost-Push Inflation: Rise in the price level due to increase in costs of production (shifts agg.supply curve left).

Cost-Push Inflation AS2 ASP2P AD O2 O Price levelOutputEquilibrium!

Aggregate Supply and Demand AS

P AD

O Price levelOutputEquilibrium!

The Business CycleBe sure to label all points on the B. C. graphDuring which phase is production increasing?During which period is unemployment likely to be lowest? Why?

The Business CycleAs an economy moves from recession to expansion, what is likely to happen to Wages?Investments?Employment?Profits?PeakTrough

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