Sep 20 2012

Measuring the Macroeconomic Objectives – research activity

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:

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:

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.

Assignment: Complete the readings and online activities above. Then use the data in the table linked below to answer the quesitons that follow.


Questions:

  1. Calculate the unemployment rates for each of the years in the table. Describe what happened to unemployment over the years displayed.
  2. Calculate the inflation rates between each of the years in the table. Describe what happened to inflation over the years displayed.
  3. Calculate the Real GDP for each of the years in the table.
  4. 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.
  5. 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?
  6. Based on your analysis of the data above, to what extent has the United States succeeded in achieving its three macroeconomic objectives of:

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

7 responses so far

7 Responses to “Measuring the Macroeconomic Objectives – research activity”

  1. Resume Objectiveson 13 Oct 2011 at 7:13 am

    it is very good and informative.I high appreciate this post

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  2. Miwaon 24 Oct 2011 at 10:02 am

    The factors which are full employment, price level stability, contribute Economic growth I think. It is interesting that when students first glance on the definition of full employment. We can divide labor force to three kinds: first is employment, and unemployment that are not willing to have a job such as housewife. The last one is unemployment who is willing to have a job but have not found a job. The problem of government is the third kind people I think. Full employment means there are not the third kind of people. China has the strong problem of unemployment recent years. Many graduated university student can not find any jobs. Also it is high competition in employment. That would make disparity between rich and poor I think because some can earn money but some have not income. In addition, employment can be divided into several categories which are long time and part time, also seasonal employment and so on.

    The second thing that the article talks about is price level stability. I agree that high inflation or deflation have bad impact on people and Economic growth. Because when there is always a big change of money value let people unlikely to save. As we know, the formula that Real GDP=Nominal GDP – inflation. So the inflation also has impact on GDP.

    Economic growth is a familiar topic of us. We know that technology, investment, security, saving, and so on is significant parts of Economic growth. We try our best to eliminate the disparity between rich and poor for reducing the crimes. Try to control the interest rate to let more companies can pay for investment or technology. Transforming the financial by tax from rich to poor is helpful for Economic growth. Also keeping inflation and deflation away is good for Economic growth as well.

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  3. Lukason 28 Oct 2011 at 10:06 am

    1. Percent Unemployment:

    2005: 4.86%

    2006: 4.86%

    2007: 5.36%

    2008: 8.06%

    2009: 9.80%

    2010: 9.66%

    2011: 9.49%

    Unemployment more than doubled between 2005 and 2009 and then roughly settled off.

    2. Inflation rate:

    2005-6: 2.48%

    2006-7: 4.06%

    2007-8: 0.14%

    2008-9: 2.66%

    2009-10: 1.53%

    2010-11: 3.56%

    Inflation seems to fluctuate, peaking every other year.

    3. Real GDP in trillions of dollars? in 2005

    2005: 12.58

    2006: 12.95

    2007: 13.14

    2008: 13.06

    2009: 12.70

    2010: 12.63

    2011: 12.57

    4. Real GDP growth rates

    2005-6: 2.94%

    2006-7: 1.47%

    2007-8: -0.61%

    2008-9: -2.76%

    2009-10: -0.55%

    2010-11: -0.48%

    The economy entered a recession or depression beginning in 2007. Since then the amount of goods and services produced has actually decreased every year, leading to a lower standard of living.

    5. There does not seem to be much correlation. One might expect that periods of high inflation and high unemployment might be correlated, but this does not seem to be the case. In the later years of this example unemployment stays nearly constant while the inflation rate continues to fluctuate. Also, 2007 was the beginning of a large rise in unemployment, and also had the lowest inflation rate out of all the years surveyed.

    6. As of 2011, the U.S. has not done very well in the area of full employment, has done reasonably well in keeping prices stable, and has not done well in economic growth.

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  4. Esane Guoon 07 Nov 2011 at 7:46 am

    In my opinion full employment of the nations work force is very positive for the national economics, although it still means that there are some people not working in the society, but that percentage is very low, almost only the ones who are not willing to work. This would be that almost everyone in the labor force is doing something for the society, and would maximize the total output overall in the country. At the same time, there might as well be a demand shortage in the country because the average living standards increased with the employment rate, which would be the disadvantage of the full employment situation. The inflation or the consumer price index should be kept as low as possible because it can grantee a healthy and increasing economic growth and high employment rates. Economic growth is something that the government and economics matter a lot; it can also be the measure of GDP (real Gross Domestic Product). It shows the total products output of the country and can be compared to the former data to know whether it increased or decreased. The real Gross Domestic Product could be increased in many ways such as development of the technology, more employment or known as labor. Economic growth is also the main goal of many countries’ since it will help to stimulate the average living standards of the citizens.

    1. Unemployment over the years displayed in the grapg given in the question are the following:

    2005: 4.86% 2006: 4.86% 2007: 5.36% 2008: 8.06% 2009: 9.80% 2010: 9.66%

    2011: 9.49%

    The unemployment rate from 2005 to 2009 is increasing but become almost stable from 2009 to 2010

    2. The inflation rate between the years are the following: 2005~6: 2.48% 2006~7: 4.06%

    2007~8: 0.14% 2008~9: 2.66% 2009~10: 1.53% 2010~11: 3.56%

    The inflation rate doesn't have much of a sequence through out the years

    3. Real GDP in trillions of dollars for each year in the graph can be shown as the following:

    2005: 12.58 2006: 12.95 2007: 13.14 2008: 13.06 2009: 12.70 2010: 12.63

    2011: 12.57

    4. the Real GDP growth rates between each of the years in the table

    2005-6: 2.94% 2006-7: 1.47% 2007-8: -0.61 2008-9: -2.76% 2009-10: -0.55%

    2010-11: -0.48%

    The amount of goods and services produced from the year of 2007 has decreased causing that the living stander to decrease.

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  5. Aliceon 07 Nov 2011 at 3:51 pm

    1. Unemployment rate = (number of unemployment/total labor force) x 100%

    2005: unemployment rate = (7 / 144) x 100% = 4.86%

    2006: 4.86%

    2007: 5.36%

    2008: 8.06%

    2009: 9.80%

    2010: 9.66%

    2011: 9.49%

    Unemployment keeps increasing in a steep slope during 2006 to 2009, and then it begins to decrease a little.

    2. Inflation rate = [(this year’s CPI - last year’s CPI) / last year’s CPI] x 100%

    2005-6: inflation rate = [(201.8 – 196.8) / 196.8] x 100% = 2.54%

    2006-7: 4.06%

    2007-8: 0.14%

    2008-9: 2.66%

    2009-10: 1.53%

    2010-11: 3.56%

    Inflation rate seems cyclic, up and down in a regular way.

    3. Real GDP = (nominal GDP / GDP deflator) x 100

    2005: GDP = (12.58 / 100) x 100 = 12.58 (trillions)

    2006: 12.95 trillions

    2007: 13.14 trillions

    2008: 13.06 trillions

    2009: 12.70 trillions

    2010: 12.63 trillions

    2011: 12.57 trillions

    4. Real GDP growth rate = [(this year’s real GDP – last year’s real GDP) / last year’s real GDP] x 100%

    2005-6: [(12.95 – 12.58) / 12.58] x 100% = 2.94%

    2006-7: 1.47%

    2007-8: -0.61%

    2008-9: -2.76%

    2009-10: -0.55%

    2010-11: -0.48%

    The real GDP growth during 2005 to 2007, but after 2007 the real GDP began to decrease. Such negative growth rates represent that the US is in a recession.

    5. Although from my studying I expect unemployment and inflation rates will have an opposite relationship which means higher inflation rate will lead to a lower unemployment rate. But by analyzing the numbers I calculated I can not find an obviously relation between these two rates. Also I can not find out the relationship between these two rates and real GDP growth rate.

    6. Base on my analysis of the data above, the US seems has not succeeded in achieving all of its three macroeconomic objectives. Because the high unemployment rate means it does not achieves its full employment. And wild fluctuations in inflation rates are clearly not a sign of stable price level. Also the negative numbers of GDP growth rates are not what the US wants to achieves.

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  6. angel chenon 07 Nov 2011 at 5:13 pm

    I think that little inflation can help the society and economics develop. During the little inflation time, producer will feel that the products’ price increase which can encourage them to produce more products. Because of that producer will employ more people to produce. But in large inflation time, it cannot. Since producer will notice the inflation and decrease supply. A little inflation can solve society problem, like criminal.Since the unemployment is low which can help government to reduce the social problems.Also,I think China has unemployment problem.Because of recession and inflation.Foreign factory find that their domestic wage becomes lower and Chinese workers’ wage becomes higher. China lost the advantage of energy-intensive industries. So they may move their factories to their country or other countries.Many Chinese workers who don’t have many sill will face the problems of losing jobs.In addition Chinese factories are lack of high skilled employee.I think this is a kind of structural unemployment.

    From the data i calculate i cannot find the relationship between the unemployment rate and the rate of GDP growth,so i cannot know the reason about the U.S

    1. Percent Unemployment:

    2005: 4.86%2006: 4.86%2007: 5.36%2008: 8.06%2009: 9.80%2010: 9.66%2011: 9.49%

    Unemployment more than doubled between 2005 and 2009 and then roughly settled off.

    2. Inflation rate:2005-6: 2.48%2006-7: 4.06%2007-8: 0.14%2008-9: 2.66%2009-10: 1.53%

    2010-11: 3.56%

    Inflation seems to fluctuate, peaking every other year.

    3. Real GDP (trillion)2005: 12.582006: 12.952007: 13.142008: 13.062009: 12.702010: 12.63

    2011: 12.57

    4. Real GDP growth rates

    2005-6: 2.94%2006-7: 1.47%2007-8: -0.61%2008-9: -2.76%2009-10: -0.55%2010-11: -0.48%

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  7. honeyshaneon 09 Sep 2012 at 4:29 am

    I still remember the law of the demand and supply in my high school years in economic class. For a certain company, the transparency and honesty include great factors that would affect for the constituents in the company. I also adhere that for a certain business either small enterprise or huge companies, the main factor that all workers should have are those stated above.Hence, the hardworking and the way of how the company being run would also determine the company's success or failure. All of those things are the factors in which the employment of a certain country would have a very positive impact regarding the economics in a certain society. a work force counts that much.

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