Chapter 1

Economic Growth, Business Cycles,

and Unemployment
 The economy has mood problems like almost peoples

1. Cold/ flu
2. The body is weak, not
Peoples enthusiastic in activities
3. Headaches, sore backs, etc..

Problem
s 1. Lack of growth
2. Business cycle
Economy 3. Unemployment
4. Inflation, etc
 Macroeconomic Problems
Every country has experienced serious problems in its economy  need
systematical problems solving  need Macroeconomics.
Macroeconomics presents various solutions to economic problems.
Colander : almost every economy experiences these three major
macroeconomic problems :
1. Low economic growth
2. Economic instability
3. Unemployment
What is an economy without problems like?
The answer is Full Employment
Full Employment: a condition in which all economic resources have been
fully utilized.
Full employment does not mean zero unemployment. The unemployment
rate does not go to zero due to structural and frictional factors. Only
cyclical unemployment can reach zero percent.
The implication is a balanced economic condition, efficient and effective
economic activity, no inflation / deflation (prices without significant
volatility).
What Causes of The Economic Problems?
Most of the economic problems arise due to the fact that
economic resources are not used effectively and efficiently.

The quantity and quality of the resources are insufficient

based on specifications of economic activity that have
been determined.
 Economic Growth

Economic growth is defined as the growth of goods and services

produced by an economy. Economic growth is caused by an
increase in the production capacity of economic resources.

If there is economic growth, every economic actor feels fulfilled

all his needs.
 Measuring The Economic Growth

Economic growth = growth of output produced in the

economy.

Measuring instruments of economic growth = Real GDP.

GDP = Gross Domestic Product

Example Measuring The Economic Growth
Year 2018 real GDP India $ 10,000 (bilyun). Year
2019 real GDP India $ 10.700
Rate of economic growth India at 2019
%
 Business Cycle

Business Cycle is defined as a fluctuation in economic

activity which results in a fluctuation in the level of output.

In a business cycle there is a possibility that the economy

will experience: Recession, Depression, Boom, Recovery,
Peak, etc.
 Unemployment
Unemployment is defined as the share of the labor
force who are unemployed, and they are looking for
work.
UER = *100%
The labor force is the population of working age (15 to
64 years) who wish to work, they are outside the
voluntary unemployment group.
Example Measuring The Unemployment Rate
Population data in Papua, 2019 : UER = *100%
Data Number of people UER = *100% = 6.049%
Working age 15,675,893
Voluntary 548,972
Unemployment rate in Papua at
unemployment 2019 is 6.049%
Unemployment 984,325

From the data number of labor force

is 15,126,921 peoples
 Inflation

Inflation is the tendency for an increase in the price

level of goods and services at a certain time
(month, year) that occurs in an economy / country.
 Measuring The Rate of Inflation

Rate of inflation = growth rate of general prices

Measuring instruments of general prices = CPI
(Consumer Price Index) or GDP Deflator.
GDP = Gross Domestic Product
Example Measuring The Rate of Inflation
Year 2018 CPI of India 112.
Year 2019 CPI of India 120.
Rate of inflation of India at 2019
%
 The Causes of Inflation
The Causes of Inflation :
1. Demand Pull Inflation, is the tendency of rising prices due to
the too strong increase in aggregate demand. The aggregate
demand increase, for example, due to increase in income or
increase in population growth.
2. Cost Push Inflation, is the tendency of rising prices due to
increase in the cost of production. For example, increase in
the cost of production due to the increase in factor (input)
prices.