Professional Documents
Culture Documents
— Socrates
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Chapter Goals
24-2
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
What is Macroeconomics?
Macroeconomics is the study of problems that
affect the economy as a whole (lack of growth,
recessions, unemployment, and inflation) and what
to do about them
Economists almost always debate what
macroeconomic policies to follow, but the debate
today is hotter than usual, as the United States
deals with the aftermath of the bursting financial
bubble in 2007
To understand the nature of current policy debate,
it’s helpful to review the historical development of
macroeconomics
24-3
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-4
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Two Frameworks:
The Long Run and the Short Run
The long-run growth framework focuses on incentives
for supply
• Sometimes called supply-side economics
• Issues of growth are considered in a long-run
framework
The short-run business cycle focuses on demand
• Sometimes called demand-side economics
• Business cycles are generally considered in
a short-run framework
Inflation and unemployment fall within both frameworks
24-5
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Two Frameworks:
The Long Run and the Short Run
The stark division between the short-run
and the long-run frameworks is problematic
The economy is simultaneously in the long run
and short run
24-6
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Growth Rates around the World
Growth
Economists measure growth with changes in total output
over a long period of time
Potential output is the highest amount of output an
economy can sustainably produce and sell using
existing production processes and resources
U.S. economic output has grown at an annual 2.5 to 3.5
percent rate since World War I that represents the rise in
potential output. What it will be in the future is uncertain.
Per capita output is output divided by the total population
Even if total output is increasing, the population may be
growing even faster, so per capita output would be falling
24-8
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-9
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
-10 Panic
Panic of 1907
of 1893
Great
-20 Depression
1860 1880 1900 1920 1940 1960 1980 2000 2020
24-10
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-11
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Peak
rn
tu
Do
Secular
Up
w
Growth
nt
ur
rn
Trend
n
tu
Up
Trough
24-12
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-13
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Structural Stagnation
24-14
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-15
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-16
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
24-17
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Chapter Summary
Classical economists use a laissez-faire
approach while Keynesian economists use an
active government approach
Modern conventional economics has been a blend
of the Keynesian and Classical approaches
24-19
Economic Growth, Business
Cycles, and Structural Stagnation 24
1
Chapter Summary
Phases of the business cycle include peak,
trough, upturn, and downturn
Structural stagnation is a cyclical downturn not
expected to end soon without major changes to
the structure of the economy
Cyclical unemployment fluctuates with the
business cycle. Structural unemployment is
caused by economic restructuring.
The target rate of unemployment is the lowest
sustainable rate of unemployment possible
under existing institutions
24-20