L01 - Introduction to Macroeconomics

You've been told that the price of an orange has increased from $1.25 to $1.65. What was the percentage change increase in price?

32%

GDP per-capita

= GDP per-person. This adjustment is made to control for population differences across countries.

time series data

A sequence of data observations collected over time, usually plotted on a graph with time on the horizontal axis

_______ publishes GDP data

Bureau of Economic Analysis (BEA)

The government placing a tax on e-cigarettes is influencing the decision making of individuals (Macro issue or micro issue)

Microeconomics Issue

Being able to track the total employment helps economists understand the health of the economy. When more people are working, more economy activity is happening which signals

a healthy economy

Consumer Price Index - CPI

also known as the average price index is a measure of the average of the prices a typical urban family of four pays for the goods and services they purchase. Prices are collected monthly from about 4,000 housing units and approximately 26,000 retail establishments across 87 urban are

Economics is the study of

decision making

Price Level

is a measure of the average prices throughout an economy. The main way we will be looking at price level is by using the Consumer Price Index (CPI).

Establishment Survey

is a sample of 142,000 businesses and government agencies representing almost 700,000 worksites in the US. This survey gives us data on wages, hours worked, and total employment

Microeconomics

is all about making individual choices and the government influencing those individual choices. For example, when a consumer buys more ice cream because the price falls. Or when a CEO of a large company hires a new part-time worker. These decisions are made by individuals weighing the costs and the benefits.

Recession

is when the economy is contracting, meaning that the overall production of output and employment are both declining On a graph showing both the GDP and the unemployment rate on the same set of axes. During periods of recession, you can see the unemployment rate increase and the production (GDP) drop.

In order to be officially counted in the unemployment numbers

one must not only be without a job but must also be actively searching for a job

The inflation rate does not do a perfect job of measuring how

prices are changing and with the economy becoming ever more complicated it becomes harder and harder to do so.

Employment Situation Summary (also known as the Jobs Report)

published by the BLS is a key way we measure employment This report comes out monthly and is a snapshot of the labor market from the previous month. This report will contain the net gain or loss of jobs as well as the official unemployment rate and other labor market indicators.

Bureau of Labor Statistics (BLS)

publishes a great deal of data on the labor market

Scarcity

resources are limited but our wants as a society are unlimited. Scarcity exists because resources are limited. The amount of land is limited, the amount of oil is limited, the amount of labor is limited, and most importantly, the amount of time is limited.

People need to make decisions because of

scarcity

Inflation Rate

the percentage increase in the price level (or price index) from one year to the next Percentage change in the price level from the previous year - is measured by calculating the percentage change of the CPI

Macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth is looking at all of the individual decisions combined into big economic trends. These big ideas include overall employment, overall production of goods and services, as well as the average prices of everything in an economy.

The most referenced economic indicator (but can also be misleading)

unemployment rate

To report the official unemployment rate

we must find out the number of people who are currently working and the number of people who are currently not working. If they are not working, we also need to know why they are not working. This is what the household survey is trying to figure out.

Percentage change

((final value - original value) / original value) x 100 ((difference-original)/original) x 100

Federal Reserve Economic Data (FRED)

- the Federal Reserve Bank of St. Louis created and maintains a database that aggregates most of the world's economic data into one easy-to-use website. The website is called FRED, which is an acronym for Federal Reserve Economic Database. - began in the early 1990s. can - view economic data graphically - change economic data to represent percentage change over time - access the source of where the economic data originated - download economic data into a spreadsheet format

"The Canadian economy grew at an annual rate of 2.8%" you can be certain they are looking at changes to

GDP

The main way economists measure output and production is through

GDP (Gross Domestic Product)

Household survey

is a sample of 60,000 households, chosen to represent the US population. They are asked questions on the employment status of everyone 16 years of age and older (known as the working-age population) in the household. In the US, the working-age population has no upper bound. These data are used to calculate important economic indicators such as the unemployment rate, the labor force participation rate, and the employment to population ratio.

Measuring Prices

Prices can be measured through the CPI (Consumer Price Index). Also can use the Inflation Rate (= percentage change in prices) The Bureau of Labor Statistics (BLS) also publishes data on prices.

Prices

Remember our example of the T-shirt factory, where we had both inputs to production (labor, capital, etc.) and output (T-shirts)? One thing that occurs on both sides of the production process are prices. There is a price the business will charge for the T-shirt, but there is a price workers will charge for their labor (better known as a wage or salary). Therefore, changes to prices impact the entire production process for businesses and also impact the entire consumption process for individuals!

Individuals trade their labor for income which can then be used to purchase

the goods and services produced in an economy

GDP

the market value of all final goods and services produced in a country during a period of time, typically a year It is the main way economists measure if an economy is growing.

The Employment Situation Summary includes which two surveys

1. Household Survey 2. Establishment Survey These surveys help shed light on how well the labor market is performing

Rational choice

Approach that assumes that individuals weigh the costs and benefits and make choices to maximize their benefits

Employment rate never reaches 0%, why?

In a healthy economy, we see individuals always changing jobs and updating their skills.

Individual Prices vs. Price level

Individual product prices can change for many reasons. Perhaps it's become cheaper to produce because of a new technology so the producer lowers the price. Perhaps it becomes more expensive to produce because of a trade war so the producer raises the price. Either way, individual price changes are not what we are focusing on here. We're looking at changes to prices as a whole using what is called a price level.

Input

Labor, Capital, and Intermediate Goods

a government taxing everyone as a whole (say through income or sales tax) to raise money to fund projects (Macro issue or micro issue)

Macroeconomics Issue

The level of employment in the economy is a ________________ issue. Understanding how many workers firms decide to hire is a _______________________ issue.

Macroeconomics; Microeconomics Macroeconomics is the study of the economy as a whole whereas micro is looking at individual decisions.

Generally, the more production an economy has the better off the average individual in that country is. Why?

Since the main input to production is labor, as we see more output being produced, we usually see more jobs being created which allows for individuals to consume more goods and services. More consumption leads to a better life, on average. Note that we will talk a lot about the average person or say things like usually when discussing economic data. That is because macroeconomics is trying to look at the economy as a whole. However, even if an economy is doing well by macroeconomic standards, there can and usually are individuals that are struggling.

Output

The production of goods and services by individuals and businesses Assume our entire economy is simplified down to one thing: a T-shirt company. This T-shirt company produces simple T-shirts (this will be our output). To produce a T-shirt, the company must use inputs to production, specifically workers (known as labor), sewing machines (known as capital), and the other intermediate goods like ink, cotton, and thread.

Economic Indicators

The three biggies in Macroeconomics - Employment - Output and Production - Prices

Expansions (Expansionary periods)

These occur when the economy is expanding, meaning that the overall production of output and employment are both increasing.

Inflation rate has become stable over time, why?

This is because the Central Bank of the US, better known as the Federal Reserve, or the Fed, has a mandate to achieve stable prices in an economy. Currently, the Fed targets a 2% annual inflation rate. If the inflation rate is higher or lower than this target rate, the Fed may conduct policy.