Sep 20 2012
The activity below is to introduce Economics students to the three primary Macroeconomic objectives of any government or policy making body. These are :
Full employment of the nations work force: This means that nearly everyone who wants to work in the country is able to find a job. It does not mean that there is no unemployment, rather that the unemployment that does prevail in the economy is voluntary, i.e. it exists because workers are simply not willing to work at the prevailing wage rate. If there is involuntary unemployment in the economy, then the country is not meeting its macroeconomic objective, and there is likely a recession caused by a lack of overall demand (aggregate demand) for the nation’s goods and services.
Resources for learning about Full Employment:
- Textbook (Welker’s IB Economics for the IB Diploma) pages 286 – 288, 295-299.
- Reffonomics – Measuring Unemployment
- Reffonomics – the Types of Unemployment
- Reffonomics – Unemployment and Employment Quiz
Price level stability: Changes in the average price level of goods and services in the nation are measured by calculating inflation, commonly using a consumer price index to do so. Low and stable inflation is one of the macroeconomic objectives since price level volatility (high inflation or deflation) has several harmful effects on a nation’s households and business firms. Keeping inflation low and stable promotes a healthy environment for achieving business investment, full employment and economic growth
Resources for learning about Price level stability:
- Textbook pages 302-303, 306-307, 311-314
- Reffonomics – Calculating Inflation using a CPI
- Reffonomics – The effects of inflation
- Reffonomics – Inflation Quiz
Economic growth: The third macroeconomic objective is to increase the output of the nation’s goods and services year after year. Economic growth refers to the increase in real Gross Domestic Product (GDP) and can be measured by finding the total value of a nation’s output one year, comparing it to the previous year, and adjusting it for any changes in the price level between the years. Economic growth is a desirable goal because it generally means that incomes are rising and people’s lives are getting better. Of course, GDP only measures the physical output of goods and services, and does not include many non-economic variables that also should be considered when measuring people’s well-being. But rising incomes and output are deemed worthy goals since they are associated with rising living standards.
- Textbook pages 244, 251-253, 337-340
- Reffonomics – Real GDP lesson
- Reffonomics – Real GDP Multiple Choice Quiz
Assignment: Complete the readings and online activities above. Then use the data in the table linked below to answer the quesitons that follow.
- Calculate the unemployment rates for each of the years in the table. Describe what happened to unemployment over the years displayed.
- Calculate the inflation rates between each of the years in the table. Describe what happened to inflation over the years displayed.
- Calculate the Real GDP for each of the years in the table.
- Calculate the Real GDP growth rates between each of the years in the table. Describe what happened to real GDP from one year to the next in the years displayed.
- Describe the relationship between the inflation and unemployment rates you calculated for each of the years. Is there any correlation in how the figures change from year to year?
- Based on your analysis of the data above, to what extent has the United States succeeded in achieving its three macroeconomic objectives of:
- Full employment?
- Price level stability?
- Economic growth?
About the author: Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author