8 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Grow th The Business Cycle Unemployment Inflation CPI Redistributiv e Effects of Inflation Anticipated I nflation Effects of In flation on Ou tput Key Terms Previo us Slide Next Slid e End End Show Show Introduction to Economic Growth and Instability 8 C H A P T E R
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8 - 1 Copyright McGraw-Hill/Irwin, 2005 Economic Growth The Business Cycle Unemployment Inflation CPI Redistributive Effects of Inflation Anticipated.
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8 - 1Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Introduction to Economic Growth and
Instability
8C H A P T E R
8 - 2Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
ECONOMIC GROWTHAn increase in real GDP over timeAn increase in real GDP per capita over time
•Growth as a Goal•Arithmetic of Growth
•Rule of 70•Main Sources of Growth
•Increases in Resources•Increases in Productivity
8 - 3Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
ECONOMIC GROWTH
Growth in the United States
•Improved Products and Services
•Added Leisure
•Other Impacts
•Relative International Growth Rates
8 - 4Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
THE BUSINESS CYCLEPhases of the Business CyclePEAK
Le
vel o
f b
usi
ne
ss a
cti
vit
y
Time
RECESSIONTROUGH RECOVERY
GROWTH
TREND
8 - 5Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
THE BUSINESS CYCLECausation: A First Glance •Many Causation Theories•Cyclical Impact
GLOBAL PERSPECTIVEInflation Rates in Five Industrial Nations1992 - 2002
19971992 2002
8 - 15Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DEMAND-PULL INFLATION
INFLATIONTypes of Inflation
COST-PUSH INFLATION
•Rising Per-Unit Production Costs
•Supply-Side Inflation
•Supply Shocks
•Complexities
8 - 16Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
REDISTRIBUTIVE EFFECTSOF INFLATION
Nominal Income
Real Income
Anticipations
• Anticipated Inflation
• Unanticipated Inflation
8 - 17Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
REDISTRIBUTIVE EFFECTSOF INFLATION
Who is Hurt by Inflation?• Fixed-Income Receivers
•Savers
•Creditors
8 - 18Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
REDISTRIBUTIVE EFFECTSOF INFLATION
Who is Unaffected or Helped by Inflation?
• Flexible-Income Receivers• Cost of Living Adjustments (COLAs)
•Debtors
8 - 19Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
REDISTRIBUTIVE EFFECTSOF INFLATION
Addenda•Deflation•Mixed Effects•Arbitrariness
8 - 20Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
NominalInterest
Rate
RealInterest
Rate
InflationPremium
=11%
5%
6%+
ANTICIPATED INFLATION
8 - 21Copyright McGraw-Hill/Irwin, 2005
Economic Growth
The Business Cycle
Unemployment
Inflation
CPI
Redistributive Effects of Inflation
Anticipated Inflation
Effects of Inflation on Output
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
EFFECTS OF INFLATION ON OUTPUT
•Cost-Push Inflation and Real Output
•Demand-Pull Inflation and Real Output
•Hyperinflation & Breakdown
economic growthreal GDP per capitarule of 70productivitybusiness cyclepeakrecessiontroughrecoverylabor forceunemployment ratediscouraged workersfrictional unemploymentstructural unemploymentcyclical unemploymentfull-employment rate of unemploymentnatural rate of unemployment (NRU)
potential outputGDP gapOkun’s LawinflationConsumer Price Index (CPI)demand-pull inflationcost-push inflationper-unit production costsnominal incomereal incomeanticipated inflationunanticipated inflationcost of living adjustments