Case_Fair_Macro13e_accessible_ppt_05

Page 1: Principles of Macroeconomics (1 of 2)

• Title: Principles of Macroeconomics (1 of 2) Global Edition Part II Concepts and Problems in Macroeconomics

• Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Page 2: Overview of Macroeconomy

• Title: Part IV Concepts and Problems in Macroeconomics

• Key Points:

  • When the macroeconomy is thriving:

    • Jobs are easy to find

    • Incomes are generally rising

    • Corporate profits are high

  • In a macroeconomic slump:

    • New jobs are scarce

    • Incomes are stagnant

    • Corporate profits are low

• Importance of understanding macroeconomics for personal and societal impact.

Page 3: Principles of Macroeconomics (2 of 2)

• Title: Principles of Macroeconomics (2 of 2) Global Edition

• Note: Slides contain hyperlinks for additional resources.

• Chapter 5 Introduction to Macroeconomics.

Page 4: Chapter Outline and Learning Objectives

• Title: Chapter Outline and Learning Objectives

• 5.1 Macroeconomic Concerns

  • Describe primary concerns of macroeconomics.

• 5.2 Components of the Macroeconomy

  • Discuss interactions between the four components of the macroeconomy.

• 5.3 A Brief History of Macroeconomics

  • Summarize U.S. macroeconomic history from 1929 to 1970.

• 5.4 The U.S. Economy since 1970

  • Describe U.S. economy developments since 1970.

Page 5: Introduction to Macroeconomics

• Title: Chapter 5 Introduction to Macroeconomics (1 of 2)

• Microeconomics:

  • Examines individual industries and decision-making units (firms and households).

• Macroeconomics:

  • Focuses on the economy as a whole including total national income, aggregates, and general prices.

Page 6: Principles of Macroeconomics (2 of 2)

• Title: Chapter 5 Introduction to Macroeconomics (2 of 2)

• Aggregate Behavior:

  • Refers to the collective behavior of households and firms.

• Sticky Prices:

  • Prices that do not adjust quickly to changes in supply and demand.

Page 7: Macroeconomic Concerns

• Title: Macroeconomic Concerns

• Three major concerns of macroeconomics:

  1. Output growth

  2. Unemployment

  3. Inflation and Deflation

Page 8: Output Growth (1 of 2)

• Title: Output Growth (1 of 2)

• Business Cycle:

  • Represents short-term fluctuations in the economy.

• Aggregate Output:

  • Total quantity of goods and services produced over a specific timeframe.

Page 9: Output Growth (2 of 2)

• Title: Output Growth (2 of 2)

• Expansion or Boom:

  • Economic period from trough to peak with rising output and employment.

• Contraction, Recession, or Slump:

  • From peak to trough indicating falling output and employment.

• Depression:

  • An extended period of significant contraction.

Page 10: Figure 5.1 A Typical Business Cycle

• Title: Figure 5.1 A Typical Business Cycle

• Economic expansion from trough (point A) to peak.

• Economic contraction leading to recession from peak (point B) to trough.

Page 11: Figure 5.2 U.S. Aggregate Output (Real GDP), 1900–2017

• Title: Figure 5.2 U.S. Aggregate Output (Real GDP), 1900–2017

• Historical fluctuations illustrated during the Great Depression and World Wars I & II.

Page 12: Unemployment

• Title: Unemployment

• Unemployment Rate:

  • Percentage of unemployed individuals within the labor force.

• Labor Market Equilibrium:

  • Unemployment suggests a lack of equilibrium in the aggregate labor market.

Page 13: Inflation and Deflation

• Title: Inflation and Deflation

• Inflation:

  • Overall rise in price levels.

• Hyperinflation:

  • Extremely rapid price level increases.

• Deflation:

  • Overall decrease in price levels.

Page 14: The Components of the Macroeconomy

• Title: The Components of the Macroeconomy

• Four primary participants in the economy:

  1. Households

  2. Firms

  3. Government

  4. Rest of the World

• Distinct sectors: Private (households and firms), Public (government), Foreign.

Page 15: The Circular Flow Diagram

• Title: The Circular Flow Diagram

• Circular Flow:

  • Visual representation of economic flows between sectors.

• Transfer Payments:

  • Cash payments from government without exchange for goods/services, e.g. Social Security.

Page 16: Figure 5.3 The Circular Flow of Payments

• Title: Figure 5.3 The Circular Flow of Payments

• Flow of income and expenditure:

  • Households receive income from firms and the government, purchase goods and services from firms, and pay taxes to the government. They also purchase foreign-made goods and services (imports).

  • Firms receive payments from households and the government for goods and services; they pay wages, dividends, interest, and rents to households and taxes to the government. •

  • The government receives taxes from firms and households, pays firms and households for goods and services—including wages to government workers—and pays interest and transfers to households. •

  • Finally, people in other countries purchase goods and services produced domestically (exports).

Page 17: The Three Market Arenas (1 of 6)

• Title: The Three Market Arenas (1 of 6)

• Economic interaction via three market arenas:

  1. Goods-and-Services Market

  2. Labor Market

  3. Money Market

Page 18: The Three Market Arenas (2 of 6)

• Title: Goods-and-Services Market

• Interactions:

  • Households and government purchase from firms.

  • Firms supply and purchase from one another.

  • Global involvement in buying and selling.

Page 19: The Three Market Arenas (3 of 6)

• Title: Labor Market

• Households supply labor while firms and government demand labor, including international interactions.

Page 20: The Three Market Arenas (4 of 6)

• Title: Money Market

• Households supply funds expecting income from dividends and interest.

• Demand for funds for various purchases; firms borrow for expansion.

Page 21: The Three Market Arenas (5 of 6)

• Title: Money Market

• Government issues bonds to borrow funds.

• Global borrowing and lending, facilitated by financial institutions.

Page 22: The Three Market Arenas (6 of 6)

• Title: Money Market

• Types of financial instruments:

  • Treasury bonds, corporate bonds, shares of stock, and dividends.

Page 23: The Role of the Government in the Macroeconomy

• Title: The Role of the Government in the Macroeconomy

• Fiscal Policy:

  • Government’s taxes and spending decisions impact the economy.

• Monetary Policy:

  • Tools used by the Federal Reserve to influence interest rates.

Page 24: A Brief History of Macroeconomics

• Title: A Brief History of Macroeconomics

• Great Depression:

  • Severe economic downturn starting in 1929.

• Fine-tuning:

  • Government's role in managing inflation and unemployment.

• Stagflation:

  • Simultaneous high inflation and unemployment.

Page 25: Economics in Practice

• Title: Economics In Practice

• Macroeconomics reflected in literature:

  • The Great Gatsby (1920s)

  • The Grapes of Wrath (early 1930s)

• Critical Thinking Questions based on literature and macroeconomic themes.

Page 26: Figure 5.4 Aggregate Output (Real GDP), 1970 I–2017 IV

• Title: Aggregate Output (Real GDP), 1970 I–2017 IV

• Overview of U.S. aggregate output trends since 1970 with recessionary periods outlined.

Page 27: Figure 5.5 Unemployment Rate, 1970 I–2017 IV

• Title: Unemployment Rate, 1970 I–2017 IV

• Variations in U.S. unemployment rate with increases during recessionary periods.

Page 28: Figure 5.6 Inflation Rate

• Title: Inflation Rate (Percentage Change in GDP Deflator, Four-Quarter Average), 1970 I–2017 IV

• Overview of inflation trends highlighting periods of high and moderate inflation.

Page 29: Review Terms and Concepts

• Title: Review Terms and Concepts

• Key terms to review for macroeconomic understanding:

  • Aggregate behavior, aggregate output, business cycle, circular flow, corporate bonds, deflation, depression, dividends, expansion, fine-tuning, fiscal policy, Great Depression, hyperinflation, inflation, macroeconomics, microeconomics, monetary policy, shares of stock, stagflation, sticky prices, transfer payments, Treasury bonds.

Page 30: Copyright Notice

• Title: Copyright Notice

• Description of the copyright protection for the work and restrictions on its dissemination.