MACROECONOMICS

The Business Cycle

HOW DOES MACRO DIFFER FROM MICRO?

Read the introductory material on

pages 211-212 and discuss the

following with seat-partners:• What hardships resulted from the

economic collapse in the Great Depression?• How did the Great Depression help

create modern macroeconomics?

KEY TERMS

Macroeconomics• Definition:

Business Cycle• Definition:

Relationship• The basic purpose of macro economics is

____________.• Macro policy tries to __________.

THREE FUN DAMEN TAL QUEST IONS OF THE BUSIN ESS CYCLE

What are business cycles?

What damage does unemployment cause?

Who is hurt by inflation?

ASSESSING MACRO PERFORMANCE

Three basic measures of macroeconomic

performance:• Output (GDP) Growth

• GDP definition:

• Unemployment

• Inflation

GDP GROWTH

Production Possibilities Curve• Are we producing at or near the production frontier?• Are we pushing the frontier outward?

Nominal GDP vs. real GDP• Nominal GDP:• Real GDP:

GROWTH IS ERRATIC

Real GDP increases inconsistently• Pattern of steps, stumbles, and

setbacks• See Figures 10.1, 10.2

Recession:• definition:• Figure 10.2

WORK WITH SEAT PARTNER

Page 231•Problem #1 (a-c)