Economic Growth

The Business Cycl

e
Unemployment
Inflation
Redistributive Eff
ects of Inflation
Anticipated Inflati
on
8 CHAPTER

Effects of Inflatio
n on Output
Key Terms

Introduction to Economic
Previous Next
Growth and Instability
Slide Slide
End
Show
8-1
Copyright McGraw-Hill/Irwin, 2002
 ECONOMIC GROWTH
Economic Growth An increase in real GDP over some time period
The Business Cycl
e
Unemployment
An increase in real GDP per capita over some
Inflation time period
Redistributive Eff
ects of Inflation
•Growth as a Goal
•Arithmetic of Growth
Anticipated Inflati
on
Effects of Inflatio
n on Output
Key Terms •Rule of 70
•Main Sources of Growth
Previous
Slide
Next
Slide
•Increases in Resources
End
Show
8-2
•Increases in Productivity
Copyright McGraw-Hill/Irwin, 2002
 ECONOMIC GROWTH
Economic Growth
The Business Cycl
e
Growth in the United States
•Improved Products and
Unemployment
Inflation
Redistributive Eff
ects of Inflation Services
Anticipated Inflati
on
Effects of Inflatio
n on Output
•Added Leisure
Key Terms

•Other Impacts
Previous Next
•Relative International
Slide
End
Slide
Growth Rates
Show
8-3
Copyright McGraw-Hill/Irwin, 2002
 THE BUSINESS CYCLE
Economic Growth
The Business Cycl
Phases of the Business Cycle
e PEAK
Unemployment RECESSION
TROUGH
Inflation RECOVERY
Redistributive Eff
TH
ects of Inflation Level of business activity
W
Anticipated Inflati
GRO ND
TRE
on
Effects of Inflatio
n on Output
Key Terms

Previous Next
Slide Slide
End
Show
Time
8-4
Copyright McGraw-Hill/Irwin, 2002
 THE BUSINESS CYCLE
Economic Growth
The Business Cycl
Causation: A First Glance
e
Unemployment
•Many Causation Theories
Inflation
Redistributive Eff
ects of Inflation
•Cyclical Impact
Anticipated Inflati
on
Effects of Inflatio
• Capital Goods
n on Output
Key Terms
• Consumer Durables
• Service Industries
Previous Next
Slide Slide
• Nondurable Consumer
Goods
End
Show
8-5
Copyright McGraw-Hill/Irwin, 2002
 UNEMPLOYMENT
Economic Growth Measurement of Unemployment, 2000
The Business Cycl
e Under 16
Unemployment and/or 65,800,000
Inflation institutionalized
Redistributive Eff
ects of Inflation
Not in
Anticipated Inflati
on labor 68,800,000
Effects of Inflatio Total force
n on Output
Key Terms
Population
275,400,000 135,200,000

Employed Labor
force
Previous
Slide
Next
Slide
140,800,000
End
Show
Unemployed
8-6
Copyright McGraw-Hill/Irwin, 2002
5,600,000
 UNEMPLOYMENT
Economic Growth Measurement of Unemployment, 2000
The Business Cycl
e
Unemployment unemployed
Unemployment
Inflation
Redistributive Eff rate = x 100
ects of Inflation
labor force
Anticipated Inflati
on
Effects of Inflatio
n on Output
Key Terms
Part-Time Employment

Previous Next
Discouraged Workers
Slide Slide
End
Show
8-7
Copyright McGraw-Hill/Irwin, 2002
 UNEMPLOYMENT
Types of Unemployment
Economic Growth
The Business Cycl
e
Unemployment
Inflation Frictional Unemployment
Structural Unemployment
Redistributive Eff
ects of Inflation
Anticipated Inflati

Cyclical Unemployment
on
Effects of Inflatio
n on Output
Key Terms
Full-Employment Rate of
Unemployment
Previous
Slide
Next
Slide
Natural Rate of
End
Show Unemployment (NRU)
8-8
Copyright McGraw-Hill/Irwin, 2002
 UNEMPLOYMENT
Economic Growth
The Business Cycl
Economic Costs of Unemployment
e
Unemployment
Inflation GDP Gap and Okun’s Law
Redistributive Eff
ects of Inflation
Anticipated Inflati The amount by which actual GDP
on
Effects of Inflatio falls short of potential GDP
n on Output
Key Terms
For every 1% unemployment
exceeds the natural rate...
Previous
Slide
Next
Slide
Approximately a
End
Show
2% GDP Gap occurs
8-9
Copyright McGraw-Hill/Irwin, 2002
 UNEMPLOYMENT
Economic Growth Unequal Burdens of Unemployment
The Business Cycl
e
Unemployment
• Occupation
Inflation
Redistributive Eff
ects of Inflation
• Age
Anticipated Inflati
on
• Race and Ethnicity
Effects of Inflatio
n on Output
Key Terms
• Gender
• Education
• Duration
Previous
Slide
Next
Slide Noneconomic Costs
End
Show
8 - 10
International Comparisons
Copyright McGraw-Hill/Irwin, 2002
 GLOBAL PERSPECTIVE
Economic Growth
Unemployment Rates in Five Industrial Nations
The Business Cycl
1990 - 2000
e
Unemployment 15
France
Inflation
Redistributive Eff
ects of Inflation
U.K.
Anticipated Inflati
on
10 Germany

Effects of Inflatio
n on Output U.S.
Key Terms
Japan
5

Previous Next
Slide Slide 0
End 1990 1995 2000
Show
Source: Economic Report of the President
8 - 11
Copyright McGraw-Hill/Irwin, 2002
 INFLATION
Economic Growth
The Business Cycl
Defined and Measurement
e
Unemployment
Inflation
• A rising general level of
Redistributive Eff
ects of Inflation prices
Anticipated Inflati
on • Rate of inflation calculated
Effects of Inflatio
n on Output
Key Terms
using index numbers
• Rule of 70
• Shortcut to determine doubling
Previous Next time
Slide Slide
End
Show
• Facts of Inflation
8 - 12
Copyright McGraw-Hill/Irwin, 2002
 GLOBAL PERSPECTIVE
Economic Growth
Inflation Rates in Five Industrial Nations
The Business Cycl
1990 - 2000
e U.K.
Unemployment 10
Inflation
Redistributive Eff
ects of Inflation
Anticipated Inflati U.S.
on
Effects of Inflatio
n on Output
Key Terms
5 France

Japan
Germany

Previous Next
Slide Slide
0
End 1990 1995 2000
Show
Source: Economic Report of the President
8 - 13
Copyright McGraw-Hill/Irwin, 2002
 INFLATION
Economic Growth
The Business Cycl
Types of Inflation
e
Unemployment DEMAND-PULL INFLATION
Inflation
Redistributive Eff
ects of Inflation
P
Price level

Range 3
Anticipated Inflati
on
Effects of Inflatio
n on Output Increases in Total
Key Terms

2
Spending
eg
an
Range 1
R

Full-
employment
output
Previous Next
Slide
End
Slide
Qf Q
Show
Real domestic output & employment
8 - 14
Copyright McGraw-Hill/Irwin, 2002
 INFLATION
Economic Growth
The Business Cycl
Types of Inflation
e
Unemployment DEMAND-PULL INFLATION
Inflation
Redistributive Eff
ects of Inflation
COST-PUSH INFLATION
•Rising Per-Unit
Anticipated Inflati
on

Production Costs
Effects of Inflatio
n on Output
Key Terms

•Supply-Side Inflation
Previous Next •Supply Shocks
Slide Slide
End
Show •Complexities
8 - 15
Copyright McGraw-Hill/Irwin, 2002
 REDISTRIBUTIVE EFFECTS
Economic Growth OF INFLATION
The Business Cycl
e
Unemployment
Inflation
Nominal Income
Redistributive Eff
ects of Inflation
Anticipated Inflati
on
Real Income
Effects of Inflatio
n on Output
Key Terms
Anticipations
• Anticipated Inflation
Previous
Slide
Next
Slide • Unanticipated Inflation
End
Show
8 - 16
Copyright McGraw-Hill/Irwin, 2002
 REDISTRIBUTIVE EFFECTS
Economic Growth OF INFLATION
The Business Cycl
e
Unemployment
Inflation
Who is Hurt by Inflation?
• Fixed-Income
Redistributive Eff
ects of Inflation
Anticipated Inflati
on
Effects of Inflatio
n on Output
Key Terms
Receivers
• Savers
Previous
Slide
Next
Slide
• Creditors
End
Show
8 - 17
Copyright McGraw-Hill/Irwin, 2002
 REDISTRIBUTIVE EFFECTS
Economic Growth OF INFLATION
The Business Cycl
e
Unemployment Who is Unaffected or
Helped by Inflation?
Inflation
Redistributive Eff
ects of Inflation
Anticipated Inflati
on • Flexible-Income
Receivers
Effects of Inflatio
n on Output
Key Terms

•Cost of Living
Adjustments (COLAs)
Previous Next
Slide
End
Slide
• Debtors
Show
8 - 18
Copyright McGraw-Hill/Irwin, 2002
 REDISTRIBUTIVE EFFECTS
Economic Growth OF INFLATION
The Business Cycl
e
Unemployment
Inflation Addenda
Redistributive Eff

•Deflation
ects of Inflation
Anticipated Inflati
on
Effects of Inflatio
n on Output
Key Terms
•Mixed Effects
Previous
Slide
Next
Slide
•Arbitrariness
End
Show
8 - 19
Copyright McGraw-Hill/Irwin, 2002
 ANTICIPATED INFLATION
Economic Growth
The Business Cycl
e
Unemployment
Inflation
6%
= +
Redistributive Eff
ects of Inflation
Anticipated Inflati
on 11%
Effects of Inflatio
n on Output Inflation
5% Premium
Key Terms

Previous Next
Nominal Real
Slide Slide Interest Interest
End
Show
Rate Rate
8 - 20
Copyright McGraw-Hill/Irwin, 2002
 EFFECTS OF INFLATION
Economic Growth
The Business Cycl
ON OUTPUT
e
Unemployment
•Cost-Push Inflation
and Real Output
Inflation
Redistributive Eff
ects of Inflation
Anticipated Inflati
on •Demand-Pull Inflation
Effects of Inflatio
n on Output
Key Terms and Real Output
•Hyperinflation &
Previous Next
Breakdown
Slide Slide
End
Show
Chapter Conclusions
8 - 21
Copyright McGraw-Hill/Irwin, 2002
 GDP gap
economic growth Okun’s Law
rule of 70 inflation
productivity demand-pull inflation
business cycle
cost-push inflation
peak
per-unit production costs
recession
trough nominal income
recovery real income
labor force anticipated inflation
unemployment rate unanticipated inflation
discouraged workers cost of living adjustments
frictional unemployment COLAs
structural unemployment real interest rate
cyclical unemployment nominal interest rate
full-employment rate of unemploymen deflation
t
hyperinflation
natural rate of unemployment (NRU)
potential output
Copyright McGraw-Hill/Irwin, 2002
BACK END
Economic Growth
The Business Cycl
e
Unemployment
Inflation
Redistributive Eff
ects of Inflation
Anticipated Inflati
on BUILDING THE
AGGREGATE EXPENDITURES
Effects of Inflatio
n on Output
Key Terms
MODEL

Previous Next
Slide Slide Chapter 9
End
Show
8 - 23
Copyright McGraw-Hill/Irwin, 2002