CHAPTER
A First Look at Macroeconomics
20
About the Author: Michael Parkin
About your professor：Xiaoping Wang
After studying this chapter you will be able to
Describe the origins and issues of macroeconomics
Describe the trends and fluctuations in economic growth
and explain the benefits and costs of economic growth
Describe the trends and fluctuations in unemployment
and explain why unemployment is a problem
Describe the trends and fluctuations in inflation and the
value of the dollar and explain why inflation is a problem
Describe the trends and fluctuations in surpluses, deficits,
and debts and explain why they matter
Identify the macroeconomic policy challenges and list the
tools available for meeting them
What Will Your World Be Like?
Will tomorrow’s world be more prosperous than today?
Will jobs be plentiful?
Will the cost of living be stable?
Will the government’s and the nation’s deficit continue to
increase?
What macroeconomic policy tools does the government
have to steer the course of the economy?
Origins and Issues of Macroeconomics
Economists began to study economic growth, inflation,
and international payments during the 1750s.
Modern macroeconomics dates from the Great
Depression, a decade (1929-1939) of high unemployment
and stagnant production throughout the world economy.
John Maynard Keynes book, The General Theory of
Employment, Interest, and Money, began the subject.
Origins and Issues of Macroeconomics
Short-Term Versus Long-Term Goals
Keynes focused on the short-term—on unemployment and
lost production.
“In the long run,” said Keynes, “we’re all dead.”
During the 1970s and 1980s, macroeconomists became
more concerned about the long-term—inflation and
economic growth.
The U.S Economy Since 1970
John Maynard Keynes
Much of the framework of
modern macroeconomics comes
from the works of John Maynard
Keynes, whose General Theory
of Employment, Interest and
Money was published in 1936.
The Scope of Economics
Microeconomics and Macroeconomics
TABLE 1.1 Examples of Microeconomic and Macroeconomic Concerns
Divisions
of Economics
Microeconomics
Macroeconomics
Production
Prices
Income
Employment
Production/output in
individual industries and
businesses
Price of individual
goods and services
Distribution of
income and
wealth
Employment by
individual businesses
and industries
How much steel
How much office
space
How many cars
Price of medical care
Price of gasoline
Food prices
Apartment rents
Wages in the auto
industry
Minimum wage
Executive salaries
Poverty
Jobs in the steel
industry
Number of employees
in a firm
Number of
accountants
National
production/output
Aggregate price level
National income
Employment and
unemployment in
the economy
Total industrial output
Gross domestic
product
Growth of output
Consumer prices
Producer prices
Rate of inflation
Total wages and
salaries
Total corporate
profits
Total number of jobs
Unemployment rate
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The Diverse Fields of Economics
TABLE 1.2 The Fields of Economics
Comparative economic
systems
examines the ways alternative economic systems function. What are the
advantages and disadvantages of different systems?
Econometrics
applies statistical techniques and data to economic problems in an effort to test
hypotheses and theories. Most schools require economics majors to take at least
one course in statistics or econometrics.
Economic development
focuses on the problems of low-income countries. What can be done to promote
development in these nations? Important concerns of development economists
include population growth and control, provision for basic needs, and strategies for
international trade.
Economic history
traces the development of the modern economy. What economic and political events
and scientific advances caused the Industrial Revolution? What explains the
tremendous growth and progress of post—World War II Japan? What caused the
Great Depression of the 1930s?
Economics of race and
gender
examines the role of race and gender in economic theory, in economic life, and in
policymaking. How has discrimination by race or gender affected the well-being of
households and the distribution of income and wealth?
Environmental economics
studies the potential failure of the market system to account fully for the impacts of
production and consumption on the environment and on natural resource depletion.
Have alternative public policies and new economic institutions been effective in
correcting these potential failures?
Finance
examines the ways in which households and firms actually pay for, or finance, their
purchases. It involves the study of capital markets (including the stock and bond
markets), futures and options, capital budgeting, and asset valuation.
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The Diverse Fields of Economics
TABLE 1.2 The Fields of Economics (continued)
The history of economic
thought,
which is grounded in philosophy, studies the development of economic ideas and
theories over time, from Adam Smith in the eighteenth century to the works of
economists such as Thomas Malthus, Karl Marx, and John Maynard Keynes.
Because economic theory is constantly developing and changing, studying the
history of ideas helps give meaning to modern theory and puts it in perspective.
Industrial organization
looks carefully at the structure and performance of industries and firms within an
economy. How do businesses compete? Who gains and who loses?
International economics
studies trade flows among countries and international financial institutions. What
are the advantages and disadvantages for a country that allows its citizens to buy
and sell freely in world markets? Why is the dollar strong or weak?
Labor economics
deals with the factors that determine wage rates, employment, and
unemployment. How do people decide whether to work, how much to work, and
at what kind of job? How have the roles of unions and management changed in
recent years?
Law and economics
analyzes the economic function of legal rules and institutions. How does the law
change the behavior of individuals and businesses? Do different liability rules
make accidents and injuries more or less likely? What are the economic costs of
crime?
Public economics
examines the role of government in the economy. What are the economic
functions of government, and what should they be? How should the government
finance the services that it provides? What kinds of government programs should
confront the problems of poverty, unemployment, and pollution? What problems
does government involvement create?
Urban and regional
economics
studies the spatial arrangement of economic activity. Why do we have cities? Why
are manufacturing firms locating farther and farther from the center of urban
areas?
Macroeconomic Concerns
Three of the major concerns of
macroeconomics are
Output growth
Unemployment
Inflation and deflation
Economic Growth and Fluctuations
Economic growth is the expansion of the economy’s
production possibilities—an outward shifting PPF.
We measure economic growth by the increase in real
GDP.
Real GDP (real gross domestic product) is the value of the
total production of all the nation’s farms, factories, shops,
and offices, measured in the prices of a single year.
Economic Growth and Fluctuations
Economic Growth in the
United States
Figure 20.1 shows real
GDP in the United States
from 1960 to 2005.
The figure highlights:
 Growth of potential GDP
 Fluctuations of real GDP
around potential GDP
Economic Growth and Fluctuations
Growth of Potential GDP
Potential GDP is the value
of production when all the
economy’s labor, capital,
land, and entrepreneurial
ability are fully employed.
During the 1970s, the
growth of output per person
slowed—a phenomenon
called the productivity
growth slowdown.
Economic Growth and Fluctuations
Fluctuations of Real GDP
Around Trend
Real GDP fluctuates
around potential GDP in a
business cycle—a
periodic but irregular upand-down movement in
production.
Economic Growth and Fluctuations
Every business cycle has two phases:
1. A recession
2. An expansion
and two turning points:
1. A peak
2. A trough
Figure 20.2 on the next slide illustrates these features of
the business cycle.
Economic Growth and Fluctuations
Most recent business cycle in the United States
Economic Growth and Fluctuations
A recession is a period during which real GDP
decreases for at least two successive quarters.
An expansion is a period during which real GDP
increases.
Economic Growth and Fluctuations
Figure 20.3 shows the long-term growth trend and cycles.
“后金融危机时期”
“后金融危机时期”(post financial crisis)是指目前世界经
济所处的一段特殊历史时期，从表面上看，这段时期有三
个特点：
其一，2008年的全球金融危机或经济危机使得全球经济遭受
重创；
其二，世界各国政府出于共同的利益成功地合作，联手重拳
打击金融危机，使得世界经济度过了最为困难的时刻、呈
现出恢复性复苏的良好迹象；
其三，但这种复苏是脆弱的。
让我们先看中国经济
2007年中国经济增长率为11.4%，而2008年增长率
降为9%(其中1-4季度的增长率分别为10.6%、
10.1%、9.7%和6.8%，呈逐季下降态势)，2009
年年初经济继续恶化，第1季度的增长率仅为
6.1%，在积极的宏观经济政策的作用下，从第2
季度起，经济从低谷中缓慢拔起，经济增长率为
7.1%，第3季度的增幅仅仅为7.7%,全年8.7%
再看美国
受金融危机影响，美国从2008年第3季度开始，国
民生产总值增长率为负的0.5%，跌幅创7年最高
，第4季度经济增长为负6.2%，今年第1季度经济
下降5.5%，第2季度增长负1%，但好于负1.5%的
预期。
美国第三季度GDP增长为3.5%，为一年来的首次正
增长。
美国第四季度GDP增长为5.7%；
美国经济止跌反弹将是世界经济最终走出衰退的关
键。
再看美国
经济增长的原因归于美国国内消费支出，住房投资和政府开
支的增加。美政府经济刺激措施对经济的振兴效应开始显
现，如“首次购房退税”和“汽车以旧换新”计划等等促
进了住房、投资和汽车销售。
后金融危机时代的来临
欧盟经济体、英国和日本也出现了类似的企稳。世界经济已
经企稳，已经度过了最恐慌的阶段，已经止住了下滑的趋
势。
应该说，这次危机是比1929年的危机更大的一次危机，但由
于各国都在进行宏观经济学的研究，各国的经济政策都很
及时有力，我们成功防止了大萧条的出现。
全球经济从崩溃边缘走了出来，金融危机肆意破坏经济的恶
劣态势得到了有效控制，金融危机全球经济开始出现复苏
性增长的时代已经来临，即全球正在进入“后金融危机时
代”。
Economic Growth and Fluctuations
Economic Growth
Around the World
Figure 20.4(a) compares
the growth rate of real
GDP per person in the
United States with that for
the rest of the world as a
whole.
Economic Growth and Fluctuations
Figure 20.4(b) compares
economic growth in the
United States with that in
other countries and
regions from 1996 to
2006.
Among the advanced
economies, Japan has
grown slowest and the
newly industrialized Asian
economies have grown
fastest.
Economic Growth and Fluctuations
Among the developing
economies, Central and
South America have
grown slowest and Asia
has grown fastest.
The world has grown a bit
faster than the United
States.
Economic Growth and Fluctuations
The Lucas Wedge and Okun Gap
How costly are the growth slowdown and the lost
output over the business cycle?
To answer that question we measure:
 The Lucas wedge
 The Okun gap
Economic Growth and Fluctuations
The Lucas Wedge
The Lucas wedge is the
accumulated loss of
output from the
productivity growth
slowdown of the 1970s .
Figure 20.5(a) shows
that the Lucas wedge is
$72 trillion or 6.5 times
the real GDP in 2005.
Economic Growth and Fluctuations
The Okun Gap
Real GDP minus
potential GDP is the
output gap.
A negative output gap
is called an Okun gap.
Figure 20.5(b) shows
the Okun gap from
recessions since 1973
is $3.3 trillion or about
30 percent of real GDP
in 2005.
Economic Growth and Fluctuations
Benefits and Costs of Economic Growth
The Lucas wedge is a measure of the dollar value of lost
real GDP if the growth rate slows. This cost translates into
real goods and services.
It is a cost in terms of less health care for the poor and
elderly, less cancer and AIDS research, worse roads, and
less to spend on clean air, more trees, and cleaner lakes.
But fast growth is also costly. Its main costs is forgone
current consumption. To sustain growth, resources must
be allocated to advancing technology and accumulating
capital rather than to current consumption.
Jobs and Unemployment
Jobs
In 2006, 143 million people in the United States had jobs.
This number is 16 million more than in 1996 and 33 million
more than in 1986.
But the pace of job creation fluctuates.
During the recession, the number of jobs shrinks.
During the 19901991 recession, more than 1 million jobs
were lost and during the 2001 recession, 2 million jobs
disappeared.
Jobs and Unemployment
Unemployment
Not everyone who wants a job can find one.
On an average day in a normal year, 7 million people in
the United States are unemployed.
In a recession, the number is larger. For example, in 19901991 recession, 9 million people were looking for jobs.
The unemployment rate is the number of unemployed
people expressed as a percentage of all the people who
have jobs or are looking for one.
中国的农民工问题
Jobs and Unemployment
The unemployment rate is not a perfect measure of the
underutilization of labor. For two reasons:
The unemployment rate
1. Excludes people who are so discouraged that they
have given up looking for jobs.
2. Measures unemployed people rather than unemployed
labor hours. So it does not tells us about the number of
part-time workers who want full-time jobs.
3.More on non-economic issues? (suicide?)
Jobs and Unemployment
Unemployment in in United States
Figure 20.6 shows the unemployment rate from 1926 to
2006.
Jobs and Unemployment
During the 1930s, the unemployment rate hit 25 percent.
Jobs and Unemployment
The lowest rate occurred during World War II at 1.2 percent.
Jobs and Unemployment
During recent recessions, the unemployment rate increased
but was not as high as in the Great Depression.
Jobs and Unemployment
The unemployment rate is never zero. Since World War II, it
has averaged 5 percent.
Jobs and Unemployment
Unemployment Around
the World
Figure 20.7 compares the
unemployment rate in the
United States with those
in Japan, Western Europe,
and Canada.
The U.S. unemployment
rate has been lower than
that in Western Europe
and Canada but higher
than that in Japan.
Jobs and Unemployment
The cycle in unemployment
in Canada is similar to that
in the United States.
The cycle in unemployment
in Western European is out
of phase with that in the
United States.
Unemployment in Japan
has drifted upwards since
the mid-1990s.
Jobs and Unemployment
Why Unemployment Is a Problem
Unemployment is a serious economic, social, and
personal problem for two main reasons:
 Lost production and incomes
 Lost human capital
The loss of a job brings an immediate loss of income and
production—a temporary problem.
A prolonged spell of unemployment can bring permanent
damage through the loss of human capital.
Inflation and the Dollar
We measure the level of prices—the price level— as the
average of the prices that people pay for all the goods and
services that they buy.
The Consumer Price Index—the CPI—is a common
measure of the price level.
We measure the inflation rate as the percentage change
in the price level.
Inflation arises when the price level is rising persistently.
If the price level is falling, inflation is negative and we have
deflation.
Inflation and the Dollar
Inflation in the United States
Was low in
the 1960s.
Increased in
the 1970s
and early
1980s.
Fell during
the 1980s
and 1990s.
Increased
after 2002.
Inflation and the Dollar
Inflation Around the
World
Figure 20.9(a) shows the
inflation rate in the United
States compared with that
in other industrial
countries.
U.S. inflation is similar to
that in other industrial
countries.
Inflation and the Dollar
Figure 20.9(b) shows the
inflation rate in industrial
countries has been much
lower than that in
developing countries.
Inflation and the Dollar
Hyperinflation
The most serious type of inflation is hyperinflation—an
inflation rate that exceeds 50 percent a month.
Why Inflation is a Problem
Inflation is a problem for many reasons, but the main one
is that once it takes hold, it is unpredictable.
Unpredictable inflation is a problem because it
 Redistributes income and wealth
 Diverts resources from production
Inflation and the Dollar
Unpredictable changes in the inflation rate redistribute
income in arbitrary ways between employers and workers
and between borrowers and lenders.
A high inflation rate is a problem because it diverts
resources from productive activities to inflation forecasting.
From a social perspective, this waste of resources is a
cost of inflation.
Eradicating inflation is costly because it brings a period of
greater than average unemployment.
Inflation and the Dollar
The Value of the Dollar
The value of the U.S. dollar in terms of other currencies is
called the exchange rate—a measure of how much your
dollar will buy in other parts of the world.
An example is the number of pesos that 1 U.S. dollar will
buy.
Surpluses, Deficits, and Debts
Figure 20.10 shows the
U.S. dollar exchange rate.
When value of the dollar
decreases, the U.S. dollar
depreciates against other
currencies.
When value of the dollar
increases, the U.S. dollar
appreciates against other
currencies.
Inflation and the Dollar
Why the Exchange Rate Matters
When the U.S. dollar appreciates, U.S. consumers pay
less for imported goods.
But the higher dollar makes it harder for U.S. producers to
complete in foreign markets. A higher dollar hurts U.S
producers.
When the U.S. dollar depreciates, U.S. consumers pay
more for imported goods. So a lower dollar hurts
consumers.
But the lower dollar makers it easier for U.S. producers to
complete in foreign markets.
Surpluses, Deficits, and Debts
Government Budget Balance
If a government collects more in taxes than it spends, it
has a government budget surplus.
If a government spends more than it collects in taxes, it
has a government budget deficit.
Surpluses, Deficits, and Debts
Figure 20.11(a) shows the
U.S. federal government
budget balance from 1960
to 2005.
The budget deficit as a
percentage of GDP
increases in recessions
and shrinks in expansions
In 1998, a budget surplus
emerged, but the budget
deficit reappeared in 2001.
Surpluses, Deficits, and Debts
International Surplus and Deficit
If a nation imports more than it exports, it has an
international deficit.
If a nation exports more than it imports, it has an
international surplus.
The balance on the current account equals U.S. exports
minus U.S. imports but also takes into account interest
payments paid to and received from the rest of the world.
Surpluses, Deficits, and Debts
Figure 20.11(b) shows
the U.S. current account
balance from 1960 to
2005.
During the 1980s
expansion, a large deficit
appeared but it almost
disappeared during the
1990–1991 recession.
The current account
deficit in 2005 was 6.3
percent of GDP.
Surpluses, Deficits, and Debts
Deficits Bring Debts
A debt is the amount that is owed.
When a government or a nation has a deficit, its debt
grows.
A government’s or a nation’s debt equals the sum of all
past deficits minus past surpluses.
A government’s debt is called national debt.
Surpluses, Deficits, and Debts
Figure 20.12(a) shows
the U.S. government
debt from 1945 to 2005.
Budget surpluses and
rapid economic growth
shrink the debt.
Budget deficits and
slower economic growth
swelled the debt.
Surpluses, Deficits, and Debts
Figure 20.12(b) shows
the U.S. international
debt from 1975 to 2005.
Until 1986, the United
States was a net lender
to the world.
But with increased
deficits, the United
States is now a net
borrower from the world.
Macroeconomic Policy Challenges
and Tools
Classical and Keynesian Views
Economists’ views fall into two broad schools:
Classical view: The economy behaves best if the
government leaves people free to pursue their own selfinterest. Attempts by the government to improve
macroeconomic performance will not succeed.
Keynesian view: The economy behaves badly if left alone
and that government action is needed to achieve and
maintain full employment.
Macroeconomic Policy Challenges
and Tools
Five widely agreed policy challenges for macroeconomics
are to:
1. Boost economic growth
2. Keep inflation low
3. Stabilize the business cycle
4. Reduce unemployment
5. Reduce government and international deficits
Macroeconomic Policy Challenges
and Tools
Two broad groups of macroeconomic policy tools are
Fiscal policy—making changes in tax rates and
government spending
Monetary policy—changing interest rates and changing
the amount of money supply in the economy
The government conducts fiscal policy.
The Federal Reserve (the Fed) conducts monetary policy.
Withdrawal of expansionary policies？
THE END