A FIRST LOOK ATMACROECONOMICS*
Origins and Issues of Macroeconomics
Modern macroeconomics began during the
, 1929–1939. The
was adecade of high unemployment and stagnant produc-tion throughout the world. Macroeconomics initially focused on short-term problems, such as high unem-ployment. Recently long-term problems, such as eco-nomic growth, have come to be considered vital.
Economic Growth and Fluctuations
is the expansion of the economy’sproduction possibilities. It is measured by the increasein
real gross domestic product
, also called
is the value of the total production of all thenation’s farms, factories, shops, and offices measured inthe prices of a single year.
is the quantity of real GDP that isproduced when all the economy’s labor, capital, land,and entrepreneurial ability are fully employed.
productivity growth slowdown
was theslowing of the growth rate of output per person thatoccurred during the 1970s.The periodic but irregular up-and-down movement inproduction is the
. It occurs as realGDP fluctuates irregularly around potential GDP. A business cycle has four parts:
— the lower turning point, when a reces-sion ends and an expansion begins.
— a period of time during which realGDP increases.
— the upper turning point, when an expan-sion ends and a recession begins.
— a period during which real GDPdecreases for at least two successive quarters.
This chapter is Chapter 20 in
.The most recent recession began in the first quarter of 2001 and ended in the fourth quarter of 2001. Thisrecession was milder than previous recessions. A depres-sion is a severe recession.
Between 1976 and 2006, the growth rate of realGDP in the United States was about equal to thatof the rest of the world but was more variable.
Between 1996 and 2006, of the advanced econo-mies Japan grew the slowest and the newly indus-trialized nations of Asia grew the fastest.The
is the accumulated loss of outputthat results from a slowdown in the growth rate of realGDP per person. The productivity growth slowdownof the 1970s has created a Lucas wedge of $72 trillion.The
) is the gap between realGDP and potential GDP. The recessions since 1973have created an accumulated Okun gap of $3.3 trillion.Economic growth expands future consumption possi-bilities. However, economic growth allows less currentconsumption as resources must be devoted to capitalaccumulation and might lead to more rapid depletionof resources and more pollution.
Jobs and Unemployment
In 2006, 143 million people had jobs. More new jobsare created during expansions and jobs are lost duringrecessions. A person is unemployed if he or she does not have a jobbut is looking for work. The
isthe number of unemployed workers as a percentage of all the people who have jobs or are looking for one.
Unemployment increases during a recession anddecreases during an expansion.
The average unemployment rate in the UnitedStates is higher than in Japan, but lower than inCanada and Western Europe.