Macroeconomics the study of the performance of national economies including the study of the policies used to improve that

t performance Macro policies government actions designed to affect the performance of the economy as a whole Macro Issues Economic growth, living standards, labor productivity, recessions, expansions, unemployment, inflation, international economic interdependence Economic growth improves standard of living of most people though not everyone shares equally Economic growth process of steady increase in quantity and quality of goods/services the economy can produce Output per person is a better indicator of the average living standard over time Standard of living depends on quality of goods/services produced, # of people that share them. The greater the value of production per person, the higher the standard of living Output per person = Output/population Average labor productivity = Output/employed

Recession slowdown in economic growth (two negative quarters) (Peak to trough) Depression severe recession Expansion periods of rapid economic growth (trough to peak) A recession ends at a trough An expansion ends at a peak

Unemployment the state of being available and willing to work but unable to find it Unemployment rate the fraction of labor force (unemployed + employed) who are searching but cant find work, or who are temporarily out of work and expect to return shortly Unemployment influences the national standard of living The harder it is to find a job, the longer the period of unemployment Cost of living # of dollars it tkes to buy the goods/services that achieve the given standard of living Inflation rising cost of living. The rate at which process in general are increasing over time.

Trade deficits imports > exports. Surplus exports > imports Monetary policy determination of the nations money supply. Changes in the money supply affect: national output, employment, interest rates, inflation, stock prices, international value of the dollar. Controlled by the Fed Reserve System Fiscal Policy decisions that determine the governments budget: expenditures & revenues of the government. Deficit government spending > tax revenue. Surplus government spending < tax revenue Structural Policy government policy aimed at changing the underlying structure or institutions of the nations economy. (ex: creating tradable air pollution rights for utilities; move away from government control to a market oriented approach) Positive analysis address the economic consequences of a particular event or policy. Involves a testable assertion. (What is) Normative analysis judges whether consequences are desirable. Address the question of whether a policy should be used. Does involve the values of the person doing the analysis. (What ought to be) Aggregation adding up of individual economic variables o obtain economy-wide totals. (ex: inflation rate, unemployment rate, GDP)

GDP the market value of final goods/services produced in a country GNP economic activity in other countries by home residents and excludes home production from foreign owned plants. Final goods/services consumed by the ultimate user. The end products of the production process. Counted as part of the GDP. Intermediate goods/services used in the production of the final. If the intermediate good is not currently produced then its value must be subtracted from the final product value to avoid doublecounting the intermediate good

Suppose, in 1999, steel output is $100,000 and auto companies buy $60,000 of steel, but produce no cars. In 2000, assume steel output is $0 and auto companies use $50,000 of steel to produce $300,000 of autos. How much is GDP for each year? For 1999, all of the steel is added to inventories and is a final good. GDP is $100,000. For 2000, GDP is $300,000 - $50,000. Note: steel inventories have dropped by $50,000 in 2000.

Rent is to wage as flow is to flow If a pizza maker pays $2, $4 for tomato/beef produced in 2005 and $3, $1 for pepperoni/cheese produced in 2006, and sells the pizza made will all these ingredients for $17, then the contribution of all these activites to 2006 GDP = $11. GDP (2006) = Output (2006) GDP (2005) National savings = private saving + public saving = national income consumptions gov purchases = investment + net exports I=Y-C-G Y=C+I+G+NX Using CPD to measure price changes: if CPI & household income increases, then real income increases. (overstating true inflation rate) REAL annual interest rate for a bank = purchasing power Deflation = nominal quantity/price index CPI(2)/CPI(1) = P(2)/P(1) If REAL GDP (current year) > NOMINAL GDP (base year), then current physical output > base year Disinflation inflation still occurs but at a slower rate. When inflation falls from one year to the next If an employer indexes salary to the inflation rate (if there is inflation), then nominal salary will increase, but real salary will remain constant If real inflations > nominal, then nominal income is as expected, but real income < expected Unemployment rate = unemployed/(unemployed + employed) Labor participation force = employed/(unemployed + employed) Nominal Income = income + inflation% I=(Y-T-C)+(T-G) T=taxes net exp = export import