Matakuliah
Tahun
: J0594-Teori Ekonomi
: 2009
INTRODUCTION TO ECONOMIC GROWTH
AND INSTABILITY
Pertemuan 5
Economic Growth
• Increase in Real GDP
• Increase in Real GDP Per Capita
• Growth as a Goal
• Arithmetic of Growth
- Rule of 70
Approximate
number of years
required to double
real GDP
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=
70
annual percentage rate
of growth
3
Selected Growth Rates
Percentage Change (annual rate)
6
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GLOBAL PERSPECTIVE
U.S.
4
2
0
France
Germany
U.K.
Italy
Japan
-2
-4
1997
1999
2001
2003
2005
Source: Economic Report of the President, 2006
4
The Business Cycle
Phases of the Business Cycle
Peak
Level of Real Output
Peak
Peak
Trough
Trough
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Time
5
Unemployment
• Twin Problems of the Business Cycle
– Unemployment
– Inflation
• Measurement of Unemployment
• Labor Force
• Unemployment Rate
– Part-Time Employment
– Discouraged Workers
Unemployment Rate
Bina Nusantara University
=
Unemployed
x 100
Labor Force
6
Unemployment
Labor Force, Employment, and Unemployment, 2005
Under 16
And/or
Institutionalized
(70.5 Million)
Not in
Labor Force
(76.8 Million)
Total
Population
(296.6 Million)
Employed
(141.7 Million)
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Labor
Force
(149.3 Million)
7
Unemployed (7.6 Million)
Unemployment & Full Employment
• Types of Unemployment
– Frictional Unemployment
– Structural Unemployment
– Cyclical Unemployment
• Definition of Full Employment
Full Employment issomething less than
100 percent of the labor force
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8
Unemployment
• Economic Cost of Unemployment
• Potential Output
• GDP Gap and Okun’s Law
GDP
Gap
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=
Actual GDP
- Potential GDP
9
Unemployment
GDP (billions of 1996 dollars)
Actual and Potential GDP and the Unemployment Rate
12,000
12,000
The GDP Gap
GDP gap
(positive)
11,000
11,000
10,000
10,000
9,000
9,000
Potential GDP
8,000
8,000
GDP gap
(negative)
7,000
7,000
6,000
6,000
Actual GDP
5,000
5,000
1985
1987
Unemployment
(percent of civilian
Labor force)
1985
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1987
1989
1989
1991
1991
1993
1993
1995
1995
1997
1997
1999
1999
2001
2001
2003
2003
2005
2005
10 10
8
8
6
6
4
4
2
2
0
0
1985
The Unemployment Rate
1985 1987 1987
1989
1989
1991 1991
19931993
1995
1995
1997
1997
1999
1999
2001
2001
2003
2003
2005
2005
Source: Congressional Budget Office & Bureau of Economic Analysis
10
Unemployment
• Unequal Burdens
–
–
–
–
–
–
Occupation
Age
Race and Ethnicity
Gender
Education
Duration
• Noneconomic Costs
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11
Unemployment
GLOBAL PERSPECTIVE
Unemployment Rates in Five Industrial Nations,1995-2005
Unemployment Rate (percent)
15
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France
10
Italy
Germany
U.S.
5
Japan
0
1995
2000
2005
Source: Bureau of Labor Statistics
12
Inflation
• Inflation Defined
• Measurement of Inflation
– Consumer Price Index
CPI =
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Price of the Most Recent Market
Basket in the Particular Year
x 100
Price of the Same Market
Basket in 1982-1984
13
Inflation
• Types of Inflation
– Demand Pull Inflation
– Cost-Push Inflation
• Per Unit Production Costs
• Redistributive Effects
– Nominal and Real Income
– Anticipations
• Anticipated Inflation
• Unanticipated Inflation
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14
Inflation
• Who is Hurt by Inflation?
– Fixed-Income Receivers
– Savers
– Creditors
• Who is Unaffected or Hurt by Inflation?
– Flexible-Income Receivers
• Cost-of-Living Adjustments (COLAs)
– Debtors
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15
Inflation
• Anticipated Inflation
– Nominal Interest Rate
– Real Interest Rate
– Inflation Premium
6%
11%
=
+
5%
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Nominal
Interest
Rate
Real
Interest
Rate
Inflation
Premium
16
Inflation
•
•
•
•
•
•
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Deflation
Mixed Effects
Arbitrariness
Cost-Push Inflation and Real Output
Demand-Pull Inflation and Real Output
Hyperinflation
17