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Introduction to Economic Growth Unemployment and Inflation

19. Introduction to Economic Growth Unemployment and Inflation. Chapter Objectives. The Business Cycle and its Primary Phases How Economic Growth is Measured and Why is it Important How Unemployment and Inflation are Measured

evangeline-sweeney
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Introduction to Economic Growth Unemployment and Inflation

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  1. 19 Introduction to Economic Growth Unemployment and Inflation

  2. Chapter Objectives • The Business Cycle and its Primary Phases • How Economic Growth is Measured and Why is it Important • How Unemployment and Inflation are Measured • The Types of Unemployment and Inflation and their Various Economic Impacts

  3. Economic Growth • Increase in Real GDP • Increase in Real GDP Per Capita • Growth as a Goal • Arithmetic of Growth • Rule of 70 19.1 Approximate number of years required to double real GDP 70 = annual percentage rate of growth

  4. (1) Year (4) Real GDP per capita (5) % Change in Real GDP Per Capita (Year to Previous Year) (2) Real GDP Economic Growth in SA (3) % Change in Real GDP (Year to Previous Year) …in millions of rands 5.2 1.7 6.6 -1.2 -0.3 3.1 4.2 5.3 3.7 671 652 803 427 935 617 1 000 737 1 086 901 1 134 582 1 301 773 1 571 082 1 814 521 1970 1975 1980 1985 1990 1995 2000 2005 2009 2.5 -0.06 4.2 -3.4 -2.4 1.0 2.1 3.9 2.5 29 881 31 736 32 883 31 384 30 648 28 815 29 792 33 176 36 951 Source: www.resbank.co.za

  5. Economic Growth • Main Sources of Growth • Increases in Inputs • Increases in Resource Productivity • Growth in S.A. • Improved Products and Services • Added Leisure • Other Impacts

  6. The Business Cycle Phases of the Business Cycle 19.1 Peak Peak Trend Peak Expansion Growth Level of Real Output Recession Expansion Trough Recession Trough Time Cyclical Impact: Durables and Nondurables

  7. Unemployed x = Unemployment Rate 100 Labor Force Unemployment • Twin Problems of the Business Cycle • Unemployment • Inflation • Measurement of Unemployment • Labor Force • Unemployment Rate • Part-Time Employment • Discouraged Workers 19.2

  8. Unemployment • Types of Unemployment • Frictional Unemployment • Structural Unemployment • Cyclical Unemployment • Full Employment • Natural Rate of Unemployment (NRU)

  9. Year on Year Change Jul-Sept 2008 Unemployment in SA Apr-Jun 2009 Jul-Sept 2009 …in thousands 31 172 17 077 12 885 4 192 14 095 24.5% 54.8% 30 801 17 777 13 655 4122 13 024 23.2% 57.7% 371 -700 -770 70 1 071 1.3% -2.9% 31 080 17 495 13 369 4 125 13 585 23.6% 56.3% Population 15-64 Labour Force Employed Unemployed Not Economically Active Unemployment rate Labour Force Participation rate Source: www.resbank.co.za

  10. GDP Gap - = Actual GDP Potential GDP Unemployment • Economic Cost of Unemployment • Potential Output

  11. Unemployment • Unequal Burdens • Occupation • Age • Race and Ethnicity • Gender • Education • Duration • Noneconomic Costs

  12. Price of the Most Recent Market Basket in the Particular Year x CPI = 100 Price of the Same Market Basket in 1982-1984 Inflation • Inflation Defined • Measurement of Inflation • Consumer Price Index

  13. Inflation Annual Inflation Rate in South Africa, 1967-2010 Source: StatsSA

  14. GLOBAL PERSPECTIVE Inflation Inflation Rates in Five Industrial Nations, 1995-2005 Italy U.S. Inflation Rate (percent) France Germany Japan 1995 2000 2005 Source: Bureau of Labor Statistics

  15. Inflation • Types of Inflation • Demand Pull Inflation • Cost-Push Inflation • Per Unit Production Costs • Redistributive Effects • Nominal and Real Income • Anticipations • Anticipated Inflation • Unanticipated Inflation 19.3

  16. Inflation • Who is Hurt by Inflation? • Fixed-Income Receivers • Savers • Creditors • Who is Unaffected or Hurt by Inflation? • Flexible-Income Receivers • Cost-of-Living Adjustments (COLAs) • Debtors

  17. Inflation • Anticipated Inflation • Nominal Interest Rate • Real Interest Rate • Inflation Premium 19.2 11% 6% = + 5% Inflation Premium Nominal Interest Rate Real Interest Rate

  18. Inflation • Cost-Push Inflation and Real Output • Demand-Pull Inflation and Real Output • Inflation targeting in S.A. • Hyperinflation • Case of Zimbabwe

  19. The Stock Market and the Economy Last Word Do Stock Prices Affect Macroeconomic Instability? • Supply and Demand in the Stock Market • Collective Expectations of Future Profits and Losses • Volatility of the Stock Market • Wealth Effect • Investment Effect • Studies Show Consumption and Investment Unaffected • Little Impact on Macro economy • Stock Market Bubbles Do Have an Impact • Stock Price Cycle Predictions • Index of Leading Indicators • Stock Prices Not a Reliable Predictor Alone

  20. economic growth real GDP per capita rule of 70 business cycle peak recession trough expansion labor force unemployment rate frictional unemployment structural unemployment cyclical unemployment natural rate of unemployment (NRU) potential output GDP gap inflation Consumer Price Index (CPI) demand-pull inflation cost-push inflation per-unit production costs nominal income real income anticipated inflation unanticipated inflation real interest rate nominal interest rate Inflation targeting hyperinflation Key Terms

  21. Next Chapter Preview… Government and Market Failure Chapter 20!

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