Econ 202 1st Edition Lecture 11Outline of Last Lecture I. What makes macroeconomics different from microeconomicsII. What a business cycle is and why policy makers seek to diminish the severity of business cyclesIII. How long-run economic growth determines a country’s standard of livingIV. The meaning of inflation and deflation and why price stability is preferredV. The importance of open economy macroeconomics and how economies interact through trade deficits and trade surplusesOutline of Current Lecture I. RecessionII. Business CycleIII. Economic GrowthIV. Inflation and deflationV. imbalancesCurrent LectureI. The Pain of Recessiona. The most important effect of a recession is its effect on the ability of workers to find and hold jobs.II. Taming the Business Cyclea. The business cycle is a main concern of modern policy makers: they try to smooth out the business cycle. They haven’t been completely successful.III. Long-Run Economic Growtha. Long-run economic growth is the sustained upward trend in the economy’s output over time.b. Relatively modernThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.IV. Inflation and Deflationa. A rising overall level of prices is inflation.b. A falling overall level of prices is deflation.c. The economy has price stability when the overall level of prices changes slowly or not at all.V. Causes of inflation and deflationa. In the short run, movements in inflationare closely related to the business cycle.b. When the economy is depressed and jobs are hard to find, inflation tends to fall; when the economy is booming, inflation tends to rise.c. In the long run, the overall level of prices is mainly determined by changes in the money supply.VI. The Pain of Inflation and Deflationa. Both inflation anddeflation are problematic. b. Inflationdiscourages people from holding onto cash (because cash loses value if prices are rising). In extreme cases, people stop using cash altogether.c. Deflationcan cause the reverse problem. i. Since cash gains value if the price level is falling, holding on to it is more attractive than investing in new factories and other productive assetsthis can deepen a recession.VII. International Imbalancea. The United States is an open economy: it trades goods and services with other countries.i. In 2010, the United States ran a big trade deficit.Trade deficit: the value of goods and services bought from foreigners is more than the value of goods and services sold to them.Trade surplus:the value of goods and services bought from foreigners is less than the value of the goods and services sold to them.VIII. What Causes Trade Imbalances?a. The determinants of the overall balance between exports and imports lie in decisions about savings and investment spending.b. Countries with high investment spending relative to savings run trade deficits;c. countries with low investment spending relative to savings run trade