Macroeconomics: Chapter 6

Problems such as unemployment are resolved without the intervention of the government. The economic problems are solved through the working of the invosible hand

John Maynard Keynes (British Economist) developed Keynesian economics

Keynesian economics was developed in 1936

Keynesian economics is an ideology that explains that economic slumps are caused by the consumers’ inadequate spending. Keynesian economics also supports government intervention, and says that it is crucial for economic success
These economic slumps can be mitigated by government intervention

Monetary Policy
Fiscal Policy

Monetary Policy uses changes in the quantity of money to alter interest rates and affect overall spending

Uses changes in the government spending and taxes to affect overall spending

Contractions

Recoveries

Periods of economic downturn when output and employment rates are falling

Periods of economic upturn when output and employment rates are rising

The short-run alternation between recessions and expansions

The point at which the economy switches from an expansion to a recession

The point at which the economy switches from a recession into an expansion

The sustained upward trend of economic output over time
Yes, long-run economic growth is a relatively new phenomenon

A rising overall level of prices

A falling of the overall level of prices

The unemployment rate will never be at 0%, simply because of different factors. A person may quit the job because of difficulties, or an individual may be fired for doing poorly. But, there is indeed a type of unemployment rate that should be avoided.

Cyclical unemployment rate should be tried to always be kept at 0% – this unemployment rate is caused and increased due to recessions

The economy has price stability when the overall level of prices hardly changes, or does not change at all

An economy that trades goods and services with other countries

A country runs a trade deficit when the value of goods and services bought from other countries is more than the value of goods and services it sells to them (the country imports more than it exports)

A country runs a trade surplus when the value of goods and services bought is less than the value of goods and services being sold to the other countries (the country exports more than it imports)

The United States

Germany
China
Saudi Arabia

No, trade surpluses and trade deficits do not indicate the success of the country’s economy because of how one may think that being in a trade deficit is bad, but, the United States’ economy is certainly more sound than that of Saudi Arabia’s. The United States is running a trade deficit (importing more than exporting) because of how that fits with the economy at the moment. The nation’s GDP is doing just fine, and when looking around, it is clear that the nation’s economy is doing well. This does not mean that having a trade surplus (exporting more than importing) is bad by any means

The GDP – Gross Domestic Product

The gross domestic product is the total value of goods and services produced within the country over a certain period of time (this certain period of time is typically one year in length)

Microeconomics came first because of how it had already been developed and a well studied branch by the Great Depression in the 1930s. Macroeconomics came soon after the Great Depression as people wanted to know why economic slumps occurred, and how to fix them

Choices! Decisions!

Policy makers seek to diminish the severity of business cycles

The study of the economy as a whole rather than individual markets

Inflation
Deflation
Unemployment Rates
Government Policies
Trade Deficits and Surpluses
And so on

Macroeconomics is the study of large scale economic issues such as those which affect the entire economy

Yes, macroeconomics is a highly practical discipline

The economy has an impact on almost every part of people’s lives because of how the nation’s economic well-being affects its employment, healthcare, consumer confidence, and so forth

Macroeconomics does really just two things;
It measures the economy
Fixes it when it’s broken

What should the economy look like? How should the economy be fixed?

Microeconomics
Microeconomics
Macroeconomics
Microeconomics
Macroeconomics

Analyses the wealth a nation generates

Gross National Product

Gross Domestic Product

The sum of income taken from household incomes, business incomes, and government in ones

GDP – total value of goods and services produced by the country within a certain period of time

GNP – total value of goods and services produced by a country, plus, the value of the goods and services produced by the companies but are located in other countries.

How the cost of goods and services increases over time

Goods and services which a national economy produces

Trade that occurs between nations and involves the trading of goods, services, and raw materials

This paradox of thrift explains the people’s reactions toward deflation and inflation. When there is a deflation, consumers will resist themselves from purchasing goods and services because of how they believe that the prices will continue to go down. This lack of investment will negatively affect the economy’s success. When there is an inflation, many people will no longer be able to afford certain products, which will no longer allow them to invest into the economy’s well-being.

Basically, when families are worried about economic hard times, they cut back on spending, which hurts the economy even more!

Yes, production and trade may indeed be illustrated through the circular-flow diagram.

Draw it

Macroeconomics focuses o the economy as a whole

Hayek

Hayek supported a self regulating economy, one that fixes its economic slumps through the use of the invisible hand, NO government intervention

Keynesian economics – consumers play a large role in the economy’s success, and government intervention should be available to mitigate economic simple

Recessions
Expansions
Peaks
Troughs

The GDP, since 1950, has shown long run economic growth (a sustained upward trend in economic output over time)

GDP includes inflation rates while Real GDP excludes the inflation rates from its totals

Real GDP is used more often than GDP because of how it provides more accurate statistics on the nation’s success

A quarter signifies three months in one year

If the economic situation portrays economic recession or expansion factors/indications for three months in a row (a quarter)

The unemployment rate increased dramatically from 2007 to 2009 because of the Great Recession, but since then, it has been decreasing over a long period of time.

The current unemployment rate is hovering around 4.3 or 4.4 percent – which is amazing, considering how in 2009, it had been 10 percent

While the Great Recession and Great Depression were both horrible, the major difference between the two was that the recession lasted for far less time than the Great Depression. Not only was there more government involvement, but the study of Macroeconomics has developed drastically since the Great Depression, allowing us to deal with recessions much more efficiently

The worst form of a recession
Recession – my next door neighbor was fired from work yesterday
Depression – my next door neighbor and I were fired yesterday

Economists try to smooth out the business cycle, but sadly, they haven’t been too successful at doing so : multiple recessions and the Great recession

Americans have been able to afford many more material goods over time thanks to long-run economic growth

Yes, the 2001 recession was milder than the 2007-2009 recession

Definitely, especially the country of Greece, whose GDP has been decreasing continuously over the last several years

Argentina and Canada began the 20th Century looking like twins but ever since, Canadas standard of living is 3x higher than Argentina’s. Canada is on par with the US’s standard of living b/c of how Argentina dealt with high inflation and political instability

Business cycle
When the economy is depressed, inflation tends to decrease, but if the economy is booming, inflation tends to rise

In the long run, the overall level of prices is determined by the changes in money supply

These are problematic because deflation will cause people to save money, because of how money ultimately gains value over time. This can deepen a recession.

On the other hand, inflation causes people to spend all of their money, because of how the value of money decreases over time, and in the worst cases, people stop using cash all together.

1954 – hamburgers were sold for .15 cents each
2013 – hamburgers were sold for 1 dollar (6.5x higher) each
Overall consumer prices rose even faster than this increase (8.5x)

Trade Deficit

Trade surplus

This country is running a trade surplus

Spain gave up the Peseta for the Euro in 1999 and at first, the surplus caused a decrease in GDP, but over years, the GDP began to rise and stabilize itself one more (long-run economic growth)

Montgomery Ward during the Great Depression, had cut back on spending and saved money, which allowed them to survive. After WWII, the company did this yet again, which caused them to lose out on investments, and ultimately make them lose their success (Sears took over)