Chapter 4

Macroeconomics: The Bird’s Eye View

of the Economy

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distribution without the prior written consent of McGraw-Hill Education.
 Introduction
• The Great Depression
– In the U.S.:
• American economy slowed dramatically
• Factories cut production 31%
• Number of people without jobs nearly tripled by
1933 when the unemployment rate hit 25%
• Stocks lost a third of their value in 3 weeks
– In Germany:
• Nearly a third of all workers were without jobs
• Banking system collapsed
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 COVID-19 and the economy
• COVID-19 had a major toll on global
economy
– According to the IMF’s WOE, global output
declined by 3.5 percent
– Governments announced unprecedented
relief packages to offset the economic
slowdown
 The Major Macroeconomic
Issues
• Economic Growth
– A process of steady increases in the
quantity and quality of the goods and
services the economy can produce

– An old piece of mine on sustainable growth:

– http://www.milliyet.com.tr/yazarlar/selva-
demiralp/surdurulebilir-buyume-icin-ne-2794930/

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 The Major Macroeconomics
Issues
• Standards of Living
– The degree to which people have access
to goods and services that make their lives
easier, healthier, safer, and more enjoyable

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 Output of the U.S.
Economy, 1929-2016

In 2001 output of the U.S. economy was:

•15 times the 1929 level
•4 times the 1964 level
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Output per Person and per Worker
in the U.S. Economy, 1929-2016

In 2014:
•Output/worker was almost 5 times the 1929 level

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Turkish GDP

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Corresponding Picture for the
Turkish Economy
Economic Growth in Turkey

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 The Major Macroeconomic
Issues
• Productivity
– In 2016 the average U.S. worker could
produce five times more than in 1930s.
– Average labor productivity:

Total output
= output per employed worker
Number of people employed

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 The Major Macroeconomic
Issues
• Productivity
– U.S. trends in output per employed worker
• 1950 - 1973: increased more than 2% per year
• 1974 - 1995: close to 1% per year
• 1996 - 2007: between 1% and 2% per year

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 Productivity Growth in Turkey
• 2002-2008: 6.1 % per year
• 2011-2015: 3.5 % per year
• Recent studies report no productivity
growth in the period after 2016.
World Bank Report on Turkish
Productivity

https://blogs.worldbank.org/psd/micro-shifts-macro-gains-firm-productivity-and-economic-growth-turkey
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The U.S. Unemployment
Rate, 1929-2016

The unemployment rate:

•% of the labor force that is out of work
Observations:
•Rises during recessions
•Always greater than zero 23
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Turkish Unemployment Rate

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 The U.S. Inflation Rate,
1929-2016

Inflation
•The rate prices in general are increasing over time
•Varies over time -- high in the ‘70s and low in the ‘90’s and today
•Varies between countries -- in 2001 3% in U.S. & 400% in Ukraine
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Turkish Inflation Rate
 The Major Macroeconomic
Issues
• National economies are becoming
increasingly interdependent:
– In 2016 the U.S.:
• Exported 12% of all goods and services
produced.
• Imported 15% of the goods and services used
by Americans.

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 The Major Macroeconomic
Issues
• The international flows create political
and economic issues:
– The impact of trade on jobs
– Trade imbalances
• When exports and imports differ significantly
• Trade deficit: exports < imports
• Trade surplus: exports > imports

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Exports and Imports as a Share of
U.S. Output, 1929-2016

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 The Major Macroeconomic
Issues
• Economic growth and living standards
• Productivity
• Recessions and expansions
• Unemployment
• Inflation
• Economic interdependence among
nations

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 Macroeconomic Policy
• Monetary Policy
– Determination of the nation’s money supply
– Controlled by the central bank or, in the
U.S., the Federal Reserve System (Fed)
– In Turkey, CBRT is in charge
– The central bank has the power to inject
more money into the economy, or remove
it. How much money should there be?

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 Macroeconomic Policy
• Fiscal Policy
– Decisions that determine the government’s
budget, including the amount and
composition of government expenditures
and government revenues
– How much should the government spend,
and on what?

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 Macroeconomic Policy
• Fiscal policy influences the balance
between government spending and
taxes:
– A deficit occurs when government
spending is greater than tax revenue.
– A surplus occurs when government
spending is less than tax revenue.

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 Macroeconomic Policy
• Structural Policy
– Government policies aimed at changing
the underlying structure, or institutions, of
the nation’s economy
– What should the economy look like?

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