barnett uhs ap econ macroeconomic goals. full employment that does not mean that everybody has a...
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BarnettUHSAP Econ
MACROECONOMIC GOALS
Full EmploymentThat does NOT mean that everybody has a job
There is always going to be some people unemployed
Civilian Labor Force: People 16 or older who have looked for a job in the past 4 weeks
Goal: 5-6% unemployment rate considered the “natural rate” or “target rate”Every tenth of a point = 150,000 workers
UNO
In order for unemployment to decrease 1 one percent, the economy must grow an extra 2 percent. (Okun’s rule of thumb).
Current Rate: 7.7% FED goal: 6.6%Would require 1.9 million jobs createdJob growth averaging around 150,000 each month
Should take around _____ to reach goal
But…
UNO
Unemployment in Other Countries
Three types of unemployment Frictional Unemployment – TemporaryWorkers moving from one job to anotherStudents heading off into the “real world”
UNO
Three types of unemployment Structural Unemployment - Permanent
When there is a mismatch between the skills of unemployed workers and the needs of the economy
Can retrain themselves Be entrepreneurial and use their skills in novel ways
Can move to where their skills are in demandAssembly line workers replaced by robots
UNO
Three types of unemployment Cyclical UnemploymentDue to contractions (downs) from normal business cycles
Businesses lay off workers when the economy goes down
UNO
Second Goal: Stable Prices – Reasonable inflation rate Inflation – Increase in the average level of prices over a given time period
Goal: 3% inflation rate (considered stable prices)
Mo’ Money, Mo’ Tomatoes
DOS
Second Goal: Stable Prices – Reasonable inflation rate Disinflation: When the price level increases from year to year but at decreasing rateYear 1 to Year 2 = 3% increase in pricesYear 2 to Year 3= 2% increase in prices
DOS
Second Goal: Stable Prices – Reasonable inflation rate Deflation: Price level increase is actually negativePrice level drops to -1% in a year
Buy 2 cars now?
DOS
How is inflation rate measured?
CPI (Consumer Price Index) PPI (Producer Price Index) GDP deflator = (Nominal GDP/Real GDP) x 100
CPI Current CPI inflation rate is: 1.8 percent later year - earlier year x 100 earlier year
DOS
GDP Deflator Uses 2005 as base year. Set to 100 with other years reported
relative to the 2005 dollar.
The GDP Deflator for 2010 was 110.99. On average the 2005 dollar could buy (10.99/100) 10.99% more than the 2009 dollar.
The GDP Deflator for 1950 was 14.65. On average the 1950 dollar could buy (100/14.65) 6.82 times as many goods as the 2005 dollar.
DOS
Current Consumer Price Index
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg
2010 216.687 216.741 217.631 218.009218.178 217.965218.011 218.312218.439 NA NA NA NA
2009 211.143 212.193 212.709 213.240213.856 215.693215.351 215.834215.969216.177 216.330 215.949 214.537
2008 211.080 211.693 213.528 214.823216.632 218.815219.964 219.086218.783216.573 212.425 210.228 215.303
2007 202.416 203.499 205.352 206.686207.949 208.352208.299 207.917208.490208.936 210.177 210.036 207.342
2006 198.3 198.7 199.8 201.5 202.5 202.9 203.5 203.9 202.9 201.8 201.5 201.8 201.6
2005 190.7 191.8 193.3 194.6 194.4 194.5 195.4 196.4 198.8 199.2 197.6 196.8 195.3
2004 185.2 186.2 187.4 188.0 189.1 189.7 189.4 189.5 189.9 190.9 191.0 190.3 188.9
2003 181.7 183.1 184.2 183.8 183.5 183.7 183.9 184.6 185.2 185.0 184.5 184.3 183.96
2002 177.1 177.8 178.8 179.8 179.8 179.9 180.1 180.7 181.0 181.3 181.3 180.9 179.88
2001 175.1 175.8 176.2 176.9 177.7 178.0 177.5 177.5 178.3 177.7 177.4 176.7 177.07
2000 168.8 169.8 171.2 171.3 171.5 172.4 172.8 172.8 173.7 174.0 174.1 174.0 172.2
Get more Historical Data from InflationData.com
CPI
Inflation Rate 2000 - 2010
Third Goal: Economic Growth Determined by growth in Real GDPGDP = Gross Domestic Product GDP = Market value of all final goods and services produced in an economy in a year
Goal: 3% annual growth
TRES
Third Goal: Economic GrowthDifference between nominal and real GDPNominal – does not include inflation Real GDP - includes inflationReal –
TRES
GDP Components
Components: C = consumption 70 I = investment 17 G = government expenditures 17 Nx = net exports -4______________________________________________________ 100
percent
The allocation will vary from year to year but must add up to 100 percent.
TRES
Fourth Goal: Favorable Balance of Trade
X = exportsM = importsX>M = trade surplusX<M = The USA! (trade
deficit)
2008 trade deficit = $673 billion
Better to have strong or weak currency?
CUATRO
Fifth Goal: Limiting Government Growth/Spending
Measured by looking at the rate of government spending relative to the real GDP growth
CINCO
1. Full Employment2. Stable Prices3. Economic Growth4. Favorable Balance of Trade5. Limiting Government Growth
HIGH FIVES FOR MACRO!