makroekonomija - lekcija 1 I

The Power Of Macroeconomics : 

The Power Of Macroeconomics

An Overview Of Modern Macroeconomics : 

An Overview Of Modern Macroeconomics

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Lesson 1 Colander McConnell Samuelson & Schiller & Brue Nordhaus 3rd Edition 14th Edition 16th Edition 8th Edition Complete Textbook (includes both Micro-and Macroeconomics) Macroeconomics Text Only 7, 8 7, 8 20, 21 5, 6, 7 7, 8 7, 8 4, 5 5, 6, 7 Page Down to advance the presentation

Macroeconomics in Our Personal Lives : 

Lesson One Part 1 5 Macroeconomics in Our Personal Lives

Macroeconomics in Our Professional Lives : 

Lesson One Part 1 6 Macroeconomics in Our Professional Lives

The Real Power of Macroeconomics : 

Lesson One Part 1 7 The Real Power of Macroeconomics Macroeconomics can help answer these questions because it arms us with a new way of thinking about the world we live and work in. Indeed, this is the real power of macroeconomics, it helps us filter and sort and process all of the information we are bombarded with every day in the media.

Seeing Patterns and Trends : 

Lesson One Part 1 8 Seeing Patterns and Trends Value of Yen falls relative to dollar Federal Reserve Bank raises interest rates Coffee bean shortage in Brazil A fall in consumer confidence Page Down to advance the presentation

Jim Wells’ Decision : 

Jim Wells used to own a manufacturing business that made high precision components for computer games. Every July, Jim had to decide how many components to produce for the upcoming holiday season, and every year, he had simply doubled his production. Since he never had any trouble moving the inventory, Jim decided to do the same thing again -- even though it meant taking out a big short term loan to finance the expansion. Jim Wells’ Decision

What Jim Wells Ignored : 

Lesson One Part 1 10 What Jim Wells Ignored Unfortunately, Jim’s college studies never included a course in macroeconomics so he missed some rather significant danger signs.

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Lesson One Part 1 11 FEDERAL RESERVE Individuals Give Dollars to Fed Sell Bonds to Public Individuals have less money to spend Possible Recession Some Danger Signs Page Down to advance the presentation

More Warning Signs : 

Lesson One Part 1 12 More Warning Signs Recessionary Implications + Page Down to advance the presentation

More Warning Signs : 

Lesson One Part 1 13 More Warning Signs Japanese Imports Into US Become Less Expensive Page Down to advance the presentation

Disaster Strikes : 

Disaster Strikes So Jim got caught with his proverbial pants down. By October, the Japanese had taken over half of a market that was already shrinking fast from the onset of a recession.

Disaster Strikes : 

Disaster Strikes By Thanksgiving, Jim found himself sitting on a huge inventory that he couldn’t give away, and by December he was unable to pay a huge loan that wouldn’t go away. By June, he was bankrupt.

Jim Meets Teresa : 

Lesson One Part 1 16 Jim Meets Teresa Today, Jim works as a consultant for one of his old Japanese competitors during the day and studies macroeconomics at night in an executive MBA program. He sits in the front row of class right next to Teresa.

Teresa’s Dream : 

Teresa’s Dream

Teresa’s Gamble : 

Teresa’s Gamble

Some Warning Signs : 

Some Warning Signs Sure, Teresa felt a little nervous about choosing the variable rate, but the mortgage banker told her not to worry. Rates had been stable for over three years now, and it shouldn’t be any problem. What Teresa failed to see, however, were numerous warning signs of growing inflationary pressures.

Inflationary Pressures : 

Lesson One Part 1 20 Inflationary Pressures Demand-Pull Side Page Down to advance the presentation

Inflationary Pressures : 

Lesson One Part 1 21 Inflationary Pressures Supply of Goods (Cost Push) Page Down to advance the presentation

Disaster Strikes : 

Lesson One Part 1 22 Disaster Strikes Within two years, interest rates had climbed into the double digits, and Teresa could no longer afford her skyrocketing mortgage payments. With the climb in interest rates, the economy plunged into a recession -- taking the real estate market down with it. Teresa tried to sell her house at the original price, but finally, facing the humiliation of foreclosure, she unloaded it for $25,000 less than she bought it for – losing every cent of her equity.

The Tragedy : 

Lesson One Part 1 23 The Tragedy Both Jim and Teresa could have avoided their hardships. Jim could have halved his production. Teresa could have either bought that less expensive condo or waited until the real estate market went soft. Page Down to advance the presentation

The Dismal Science : 

Lesson One Part 1 24 The Dismal Science Despite the enormous impact macroeconomics has on our personal and professional lives, most of us view it as a remote, complicated, and indeed “dismal science.”

Some Personal History : 

Lesson One Part 1 25 Some Personal History When I first studied and taught macroeconomics I got quickly buried in a jumble of graphs and equations. I saw that the only way to truly understand the importance of macroeconomics is to teach it within the context of its historical evolution. This is important for at least two reasons. Page Down to advance the presentation

A REAL WORLD CONTEXT : 

A REAL WORLD CONTEXT

Why History is Important : 

Why History is Important Page Down to advance the presentation

Why History is Important -- II : 

Lesson One Part 1 28 Why History is Important -- II The second reason to put macroeconomics in an historical context is to emphasize that it is very much an evolving policy science. Put simply, the Keynesian solutions which were used to lift us out of the Great Depression in the 1930s or to wake us up from the Economic doldrums of the 1960s would be inappropriate in today's more sophisticated global economy.

The Remainder of this First Lesson : 

Lesson One Part 1 29 The Remainder of this First Lesson We’ll briefly define macroeconomics and identify key policy issues. We’ll move into a short review of macroeconomic history.

What We’ll Discover : 

Lesson One Part 1 30 What We’ll Discover We’ll see that the problems facing macroeconomists have become progressively more complex over time: unemployment and inflation stagflation stagnating income chronic budget and trade deficits. Page Down to advance the presentation

What We’ll Discover : 

Lesson One Part 1 31 What We’ll Discover We’ll also see that new macroeconomic theories have emerged in response to this increasing complexity at key turning points in the world’s economic history: Keynesianism in the 1930s Monetarism in the 1970s Supply Side economics in the 1980s and New Classical economics in the 1990s. Page Down to advance the presentation

Macroeconomics Defined : 

Lesson One Part 1 32 Macroeconomics Defined The word macro means big or large, and macroeconomics focuses on the big economic picture -- specifically, how the overall national economy performs. Macroeconomics is distinguished from microeconomics which deals with the behavior of individual markets and the businesses, consumers, investors, and workers that make up the economy. Page Down to advance the presentation

The “Big Four” Policy Issues : 

Lesson One Part 1 33 The “Big Four” Policy Issues Inflation Unemployment The Rate of Economic Growth Movements in the Business Cycle Page Down to advance the presentation

Macro Problem #1: Inflation : 

Lesson One Part 1 34 Macro Problem #1: Inflation Defined as an upward movement of prices from one year to the next. Measured by the percentage change in price indices such as the Consumer Price Index, the Producer Price Index, or the so-called GDP deflator. Page Down to advance the presentation

Some Inflation Indices : 

Lesson One Part 1 35 Some Inflation Indices The Producer Price Index is based on a number of important raw materials. The Consumer Price Index or “CPI” is calculated by pricing a basket of goods and services purchased by a typical household. Page Down to advance the presentation

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Consumer Price Index : 

Consumer Price Index Inflation Averaged 3.4 percent a year. Source:U.S. Department of Labor Page Down to advance the presentation

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Lesson One Part 1 38 The Cruelest Tax is greater than Page Down to advance the presentation

Not Everyone Loses : 

Lesson One Part 1 39 Not Everyone Loses Inflation that is unanticipated can benefit borrowers at the expense of lenders. How might this happen? Page Down to advance the presentation

How This Works : 

Lesson One Part 1 40 How This Works Suppose you borrow $1,000 from a bank and promise to repay it in two years. If, during that time, the price level doubles because of inflation, the $1,000 which you repay will have only half of the purchasing power of the $1,000 originally borrowed. Page Down to advance the presentation

Macro Problem #2: Unemployment : 

Lesson One Part 1 41 Macro Problem #2: Unemployment The unemployment rate is measured as the number of unemployed persons divided by the number of people in the labor force. Page Down to advance the presentation

Slide 42: 

Unemployment Rate Since 1900 Percentage of labor force unemployed 1930 1990 Year 1940 1950 1960 1970 1980 Page Down to advance the presentation 1920 1900 1910 Average unemployment Actual unemployment

Kinds of Unemployment : 

Lesson One Part 1 43 Kinds of Unemployment In talking about unemployment, economists distinguish between three kinds: frictional, cyclical, and structural. Page Down to advance the presentation

Frictional Unemployment : 

Lesson One Part 1 44 Frictional Unemployment Frictional unemployment is the least of the macroeconomist’s worries. It occurs as a natural part of the job-seeking process as people quit their jobs just long enough to look for and find another one. Page Down to advance the presentation

Cyclical Unemployment : 

Lesson One Part 1 45 Cyclical Unemployment Cyclical unemployment is a much more serious problem. It occurs when the economy dips into a recession. It is this type of unemployment that macroeconomists have historically spent most of their time trying to solve. Page Down to advance the presentation

Structural Unemployment : 

Lesson One Part 1 46 Structural Unemployment Structural unemployment occurs when a change in technology makes someone’s job or job skills obsolete. E.g., the auto worker replaced by a robot or the telephone information operator replaced by a computerized voice synthesizer. Page Down to advance the presentation

Macro Problem #3:The Rate of Economic Growth : 

Lesson One Part 1 47 Macro Problem #3:The Rate of Economic Growth Measured by growth in the Gross Domestic Product or “GDP.” GDP is defined as the market value of all the final goods and services produced in a country in a given year. Economists have two ways of measuring GDP, the “flow-of-cost” or “income” approach and the “flow of product” or “expenditures” approach. Page Down to advance the presentation

Slide 48: 

Lesson One Part 1 48 Consumption expenditures by households plus Investment expenditures by businesses plus Government purchases of goods and services plus Net exports=total exports-total imports =GDP Flow of product, or expenditures, approach

Slide 49: 

Lesson One Part 1 49 Consumption expenditures by households plus Investment expenditures by businesses plus Government purchases of goods and services plus Net exports Wages plus Rents plus Interest plus Profits Flow of cost, or income, approach =GDP= Flow of product, or expenditures, approach Page Down to advance the presentation

Actual vs. Potential GDP : 

Lesson One Part 1 50 Actual vs. Potential GDP Actual GDP represents what we are producing. Potential GDP represents the maximum amount the economy can produce without causing inflation. When actual GDP is less than potential GDP, we are in the recessionary range of the economy. When actual GDP is above potential GDP, we run the strong risk of inflation. Page Down to advance the presentation

Slide 51: 

Lesson One Part 1 51 Page Down to advance the presentation

Nominal vs. Real GDP : 

Lesson One Part 1 52 Nominal vs. Real GDP Nominal GDP is measured in actual market prices. Real GDP is nominal GDP adjusted for inflation. Moreover, when we divide nominal GDP by real GDP, we obtain the GDP deflator-another valuable inflation index. Click here for a numerical example of the GDP deflator Page Down to advance the presentation

Output Growth : 

Output Growth GDP is the best widely available measure of the level and growth of output in the economy.

U.S. Real GDP, 1929-1994 : 

U.S. Real GDP, 1929-1994 The Great Depression Page Down to advance the presentation

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Slide 56: 

Page Down to advance the presentation During those periods, real and nominal GDP were moving in opposite directions. This point underscores why it is so important to focus on real GDP as the best measure of growth.

Business Cycles : 

Lesson One Part 1 57 Business Cycles Closely related to the issue of economic growth and real GDP as a measure of such growth is the problem of “business cycles.” The term business cycle refers to the recurrent ups and downs in real GDP over several years. Page Down to advance the presentation

Slide 58: 

Lesson One Part 1 58 Time Level of business activity Page Down to advance the presentation

Do Business Cycles Exist : 

Lesson One Part 1 59 Do Business Cycles Exist A central concern of macroeconomists is to determine whether a business cycle exists and, if so, what are the forces behind it. More importantly, both macroeconomists and the political leaders they may serve want to know what macroeconomic policies may be used to control or harness the business cycle. Page Down to advance the presentation

At The Same Time : 

Lesson One Part 1 60 At The Same Time A central concern of business is to determine whether the economy is going into a contraction or expansion--with a correct guess being the difference between a big profit or a big loss. Page Down to advance the presentation

Slide 61: 

Lesson One Part 1 61 Click here to continue with the presentation

End of Part 1 : 

End of Part 1 Lecturer: Peter Navarro Multimedia Designer: Ron Kahr Female Voice: Ashley West Leonard

The GDP Deflator : 

The GDP Deflator

An Example : 

Lesson One Part 1 64 An Example Say a country produces 1000 bushels of corn in year 1 and 1010 bushels in year 2. This means that corn production grew by one percent between the two years. The price of a bushel is $1 in year 1 and $2 in year 2. Prices grew by 100 percent. What is the rate of growth in nominal GDP? Page Down to Advance Presentation

An Example : 

Lesson One Part 1 65 An Example Nominal GDP is simply P times Q. Year 1 GDP=$1*$1000=$1000 Year 2 GDP=$2*$1010=$2020 Thus, nominal GDP grew by 102%. Now, what is the rate of growth in real GDP? Page Down to Advance Presentation

An Example : 

Lesson One Part 1 66 An Example The inflation-adjusted real GDP is simply the second year’s output valued in the first or base year of $1. 1010 bushels*$1=$1010 This means that GDP grew by only 1 percent. What’s the GDP deflator for year 2? Page Down to Advance Presentation

An Example : 

Lesson One Part 1 67 An Example The inflation-adjusted real GDP is simply the second year’s output valued in the first or base year of $1. 1010 bushels*$1=$1010 This means that GDP grew by only 1 percent. What’s the GDP deflator for year 2? $2020/$1010= 2 Click here to go back to the lecture