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MACROECONOMICS
The Business Cycle
KEY TERMS
Macroeconomics• Definition:
Business Cycle• Definition:
Relationship• The basic purpose of macro economics is
____________.• Macro policy tries to __________.
THREE FUN DAMEN TAL QUEST IONS OF THE BUSIN ESS CYCLE
What are business cycles?
What damage does unemployment cause?
Who is hurt by inflation?
ASSESSING MACRO PERFORMANCE
Three basic measures of macroeconomic
performance:• Output (GDP) Growth
• GDP definition:
• Unemployment
• Inflation
GDP GROWTH
Production Possibilities Curve• Are we producing at or near the production frontier?• Are we pushing the frontier outward?
Nominal GDP vs. real GDP• Nominal GDP:• Real GDP:
GROWTH IS ERRATIC
Real GDP increases inconsistently• Pattern of steps, stumbles, and
setbacks• See Figures 10.1, 10.2
Recession:• definition:• Figure 10.2
UNEMPLOYMENT
Labor force:
Unemployment Rate
• Goal: Full Employment, not 0% unemployment
TYPES OF UNEMPLOYMENT
Seasonal
Frictional
Structural
Cyclical
The first three (seasonal, frictional, structural) are acceptable
to economists; cyclical unemployment is the enemy.
Full employment – lowest possible unemployment rate
compatible with price stability (generally 4%-6%)
WORK WITH SEAT PARTNER
Page 231•Problem #1 (a-c)