Macroeconomic Issues

1
Macroeconomic Issues

• These are the primary issues
• Economic Growth
• Business Cycles
• Unemployment
• Inflation

2
Which would you choose to be paid?
a. 1 million dollars
b. One penny on the first brown square and
doubled on the next brown square, and so on to
the end of the board?
3
Growth and Compounding

• One penny doubled 31 times equals 21,474,836.48
• Compounding influences the size the economy in
  the same way

4
Economic Growth

• Since 1890, the U.S. economic output/income has
  grown at an annual rate of 2.5 to 3.5 per annum.
• The secular growth trend.

5
Economic Growth
6
Economic Growth

• How is it Reported?
• Gross Domestic Product replaces Gross National
  Product

7
Economic Growth

• How is it Reported?
• Every 1 of output of tangible goods or
  intangible services is equal to 1 of income.

Output Income
8
Economic Growth

• Gross Domestic Product (GDP)
• The dollar value of all final goods and services
  produced in the economy in a given period of
  time.
• The income that results from the production of
  these same goods and services.

9
Economic Growth

• How is it Reported?
• Nominal GDP (current dollar value of goods and
  services)
• Real GDP (value of goods and services discounted
  for inflation)

10
Economic Growth

• Real Gross Domestic Product is a more accurate
  report of actual output because the change in
  prices is discounted.
• 11 trillion (2005)

Find GDP for the United States
11
Economic Growth

• Bureau of Economic Analysis

12
Economic Growth

• Real GDP provides the value of goods and
  services produced during the year minus changes
  in prices of the goods and services

13
Economic Growth

• How much is 10 trillion?
• spend 100 m per day for 274 years

Find GDP for the United States
14
Economic Growth

• The Effects of Growth
• Per capita economic growth allows everyone in
  society, on average to have more.
• Real GDP/Population

15
Economic Growth

• The Effects of Growth
• Per capita economic growth allows everyone in
  society, on average to have more.
• But everyone does not share proportionately in
  benefits.
• Side effect may include pollution, resource
  exhaustion, and destruction to natural habitat.

16
Per Capita GDP

• CIA World Factbook

17
Economic Issues

• Economic Growth
• Business Cycles
• Unemployment
• Inflation

18
Business Cycles
19
Business Cycles
20
Civil War
WW I
WW II

Korean Conflict
10
Vietnam War
0
Percentage Fluctuations in Real GDP

10

Financial panic
Great Depression

20


1860 65 70 75 80 85 90 95 1900 05
10 15 20 25 30 35 40 45 50 55
60 65 70 75 80 85 90 95 2000
Y
ears
20
Business Cycles

• Leading indicators are those that tell us what's
  likely to happen in the economy 12 to 15 months
  from now.

21
Business Cycles

• Leading Indicators move in advance of the overall
  economy
• Stock prices
• Real money supply
• Building permits
• Etc.

22
Business Cycles

• Coincident Indicators move at the same time the
  overall economy is moving
• Employees on non agricultural payroll
• Industrial production
• Personal income less transfer pmts
• Manufacturing and trade sales

23
Business Cycles

• Lagging Indicators move after the economy has
  moved
• Commercial industrial loans
• Change in labor costs
• Average duration of unemployment
• Etc.

24
Business Cycles

• The Conference Board publishes these indicators
  monthly