Macroeconomy
CHAPTER
A First Look at Macroeconomics
20
What Will Your World Be Like?
Will tomorrow’s world be more prosperous than today?
Will jobs be plentiful?
Will the cost of living be stable?
Will the government’s and the nation’s deficit continue to increase? What macroeconomic policy tools does the government have to steer the course of the economy?
Origins and Issues of Macroeconomics
Economists began to study economic growth, inflation, and international payments during the 1750s.
Modern macroeconomics dates from the Great
Depression, a decade (1929-1939) of high unemployment and stagnant production throughout the world economy.
John Maynard Keynes book, The General Theory of
Employment, Interest, and Money, began the subject.
Origins and Issues of Macroeconomics
Short-Term Versus Long-Term Goals
Keynes focused on the short-term—on unemployment and lost production.
“In the long run,” said Keynes, “we’re all dead.”
During the 1970s and 1980s, macroeconomists became more concerned about the long-term—inflation and economic growth.
Economic Growth and Fluctuations
Economic growth is the expansion of the economy’s production possibilities—an outward shifting PPF.
We measure economic growth by the increase in real
GDP.
Real GDP (real gross domestic product) is the value of the total production of all the nation’s farms, factories, shops, and offices, measured in the prices of a single year.
Economic Growth and Fluctuations
Economic Growth in the
United States
Figure 20.1 shows real
GDP in the United States from 1960 to 2005.
The figure highlights:
Growth of potential GDP
Fluctuations of real GDP around potential GDP
Economic Growth and Fluctuations
Growth of Potential GDP
Potential GDP is the value of production when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed.
During the 1970s, the growth of output per person slowed—a phenomenon called the
A First Look at Macroeconomics
20
What Will Your World Be Like?
Will tomorrow’s world be more prosperous than today?
Will jobs be plentiful?
Will the cost of living be stable?
Will the government’s and the nation’s deficit continue to increase? What macroeconomic policy tools does the government have to steer the course of the economy?
Origins and Issues of Macroeconomics
Economists began to study economic growth, inflation, and international payments during the 1750s.
Modern macroeconomics dates from the Great
Depression, a decade (1929-1939) of high unemployment and stagnant production throughout the world economy.
John Maynard Keynes book, The General Theory of
Employment, Interest, and Money, began the subject.
Origins and Issues of Macroeconomics
Short-Term Versus Long-Term Goals
Keynes focused on the short-term—on unemployment and lost production.
“In the long run,” said Keynes, “we’re all dead.”
During the 1970s and 1980s, macroeconomists became more concerned about the long-term—inflation and economic growth.
Economic Growth and Fluctuations
Economic growth is the expansion of the economy’s production possibilities—an outward shifting PPF.
We measure economic growth by the increase in real
GDP.
Real GDP (real gross domestic product) is the value of the total production of all the nation’s farms, factories, shops, and offices, measured in the prices of a single year.
Economic Growth and Fluctuations
Economic Growth in the
United States
Figure 20.1 shows real
GDP in the United States from 1960 to 2005.
The figure highlights:
Growth of potential GDP
Fluctuations of real GDP around potential GDP
Economic Growth and Fluctuations
Growth of Potential GDP
Potential GDP is the value of production when all the economy’s labor, capital, land, and entrepreneurial ability are fully employed.
During the 1970s, the growth of output per person slowed—a phenomenon called the