MACROECONOMY AND ECONOMIC POLICY

MEASURES OF THE MACROECONOMY

CHANGES IN THE MACROECONOMY

POLICIES TO AFFECT THE MACROECONOMY

GROSS DOMESTIC PRODUCT

PROBLEM: HOW TO COMBINE ALL THE DIVERSE PRODUCTS AND SERVICES IN THE ECONOMY

SOLUTION: MEASURE THEIR ANNUAL MARKET (SALES) VALUE, AND COMBINE

RESULT IS CALLED (REAL) GROSS DOMESTIC PRODUCT, OR GDP

REAL: VALUES ARE ADJUSTED FOR INFLATION OVER TIME

PROBLEM – CAN OVER-COUNT

IF COUNT MARKET VALUE OF EVERY PRODUCT AND SERVICE, WILL “OVER-COUNT” FOR THOSE THAT ARE INPUTS INTO OTHER PRODUCTS AND SERVICES

EXAMPLE: IF COUNT LUMBER SALES, VALUE WILL ALSO BE COUNTED IN SALES VALUE OF HOMES

SOLUTION

EITHER COUNT ONLY “SALES TO FINAL USERS” – LIKE RETAIL SALES TO CONSUMERS AND SIMILAR SALES TO BUSINESSES

OR COUNT “VALUE-ADDED” AT EACH STAGE OF PRODUCTION

RESULT – US GDP IS LARGEST IN WORLD AS A SINGLE COUNTRY ($16 TRILLION)

GDP VERSUS GNP

GDP (GROSS DOMESTIC PRODUCT) – COUNTS VALUES MADE WITHIN LEGAL BORDERS OF U.S., IRREGARDLESS OF WHETHER COMPANIES ARE U.S. OR FOREIGN OWNED

GNP (GROSS NATIONAL PRODUCT) – COUNTS VALUES MADE ONLY BY U.S. COMPANIES, BUT ANYWHERE IN THE WORLD

PROBLEMS WITH GDP

ONLY INCLUDE IF MONEY CHANGES HANDS

BARTERING NOT COUNTED

LEISURE (ENJOYMENT OF DOING NOTHING) NOT COUNTED

DAMAGE DONE IN PRODUCTION (POLLUTION) NOT SUBTRACTED

USE GROWTH IN GDP TO TRACK TRENDS IN THE ECONOMY

2006,1

2006,4

2007,3

2008,2

2009,1

2009,4

2010,3

2011,2

2012,1

2012,4

-8

-6

-4

-2

0

2

4

6

%

TRACKING THE UPS AND DOWNS OF THE ECONOMIC “ROLLERCOASTER”CALLED THE “BUSINESS CYCLE”

TOP OF THE CYCLE: “PEAK”BOTTOM OF THE CYCLE: “TROUGH” GDP GROWING: EXPANSION, OR RECOVERY

GDP FALLING FOR AT LEAST 6 CONSECUTIVE MONTHS: RECESSION

GDP FALLING BY MORE THAN 10% OR LONGER THAN 3 YEARS: DEPRESSION

TRACKING UNEMPLOYMENT

COUNTING PEOPLE WHO ARE NOT WORKING FOR PAY

HOUSEHOLD SURVEY – SURVEYS AT THEIR HOMES

PAYROLL SURVEY – SURVEYS JOBS AT BUSINESSES

TO BE COUNTED AS UNEMPLOYED BY THE “HEADLINE” UNEMPLOYMENT RATE

MUST MEET THREE TESTS: 1. NOT WORKING FOR PAY 2. WANT TO WORK FOR PAY

3. “ACTIVELY” LOOKING FOR WORK

IF NOT #3, NOT COUNTED AS UNEMPLOYED – NOT COUNTED IN “HEADLINE” JOB STATISTIC! CALLED DISCOURAGED WORKERS

TRENDS IN NORTH CAROLINA’S ALTERNATIVE UNEMPLOYMENT RATES

4,09-3,10 2,10-1,11 3,10-2,11 4,10-3,11 2,11-1,12 3,11-2,12 4,11-3,12 2,12-1,13 3,12-2,13 4,12-3,138

9

10

11

12

13

14

15

16

17

18

headline U5 U6

%

TYPES OF UNEMPLOYMENT

FRICTIONAL – PEOPLE BETWEEN JOBS; NOT A WORRY

CYCLICAL - RELATED TO THE BUSINESS CYCLE – UP IN RECESSIONS; DOWN IN EXPANSIONS STRUCTURAL - OCCURS BECAUSE PEOPLE DON’T HAVE SKILLS NEEDED BY BUSINESSES – MOST DIFFICULT TYPE OF UNEMPLOYMENT

CURRENT ISSUES IN THE JOB MARKET

UNEMPLOYED WORKERS GIVING UP

JOBS BEING REPLACED BY MACHINES AND TECHNOLOGY

SKILLS MIS-MATCH

GAP BETWEEN THOSE WITH GOOD-PAYING JOBS AND JOBLESS OR LOW-PAYING JOBS