Chapter 5 02 03 2014 19 40 00 Macro History Great Depression 1929 1933 o World economic crisis o Goods and services dropped by over 25 o Unemployment reached 25 John Maynard Keynes 1963 o Book The General Theory of Employment Interest and Money o Replaced classical theory with his own theory Classical theory laissez faire His theory was based on aggregate wage and price rigidities Economy does not work well on its own and needs help from the government Was a capitalist not a socialist Fiscal stimulus increase in federal government spending by borrowing funds to spend on a variety of programs and products Positive what actually is Normative what should be ECONOMISTS AGREE ON THREE MACROECONOMIC GOALS Economic growth Full employment Stable prices Economic Growth increase in production of goods and services over long periods of time Real gross domestic product real GDP total quantity of goods and services produced in a country over a year Real GDP per capita real GDP population High employment low unemployment Bad for overall economy high unemployment rate means not achieving full economic potential those who want to work cannot less goods and services being produced decrease in standard of living Unemployment rate the percentage of the work force who is searching for a job but hasn t found one o Target rate of unemployment 4 Full Employment and Balanced Growth Act Employment and the business cycle o When firms produce more goods and services they hire more o When production drops they lay off workers o Business cycle periodic fluctuations in GDP the bumps of workers the graph Expansion output rises Recession output falls Depression recession is severe and long lasting Stable Prices Inflation is costly to society o Purchasing power of the currency declines so people don t want to hold it take it from others o In order to fix high inflation corrective action by the government is required can cause output to decrease and unemployment to increase o Some inflation is good o Deflation negative rate of inflation The macroeconomic approach Studies the economy as a whole Aggregation combining different things into a single category and treating them as a whole o Ex I applied for 5 jobs last month 5 different work places o Microeconomists market for automobiles lumping together into the category jobs Toyota Ford BMWs etc o Macroeconomists Consumption goods pizza couches medical care Investment goods forklifts factory buildings office computers Labor doctors teachers construction workers 02 03 2014 19 40 00 02 03 2014 19 40 00
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