Macroeconomic Introduction

INTRODUCTION
CHAPTER 1:
A TOUR OF THE WORLD
Blanchard, Amighini and Giavazzi, Macroeconomics: A European Perspective PowerPoints on the Web, 2nd edition Pearson Education Limited 2014
1.1 Europe and the Euro

Slide
1.2
When macroeconomists study an economy, they first

look at three variables:
Output
The unemployment rate
The inflation rate
1.1 Europe and the Euro (Continued)

Slide
1.3
Table 1.1
Growth, unemployment and inflation in the EU since 1991
Source: Statistical Annex of the European Economy, Spring 2012.


Slide
1.4
The economic performance of European countries after the turn of

the millennium has not been as good as it was in the 1990s:
Average annual output growth reflected a significant slowdown in
all of the largest European economies since 2008, and a
recession in 2009.
Low output growth was accompanied by persistently high

unemployment.
The only good news is about inflation. Average annual inflation

was 1.9% in the EU and 1% in the euro area.
In the economies of central Europe inflation jumped during the

transition but it stabilised in the following decade.

Slide
1.5
Three issues dominate the agenda of European

macroeconomists:
High unemployment
Growth of income per person
Common currency

Slide
1.6
How can European unemployment be reduced?
The unemployment rate in continental Europe and the USA since 1970
Until the beginning of the 1980s, the unemployment rate in the four major European
countries was lower than the US rate, but then it rapidly increased.
Figure 1.2
Source: IMF, World Economic Outlook, Spring 2009, p. 1. (Data from 2010 onwards are forecasts.)

Slide
1.7
How can European unemployment be reduced?

There is still disagreement about the causes of high
European unemployment:
Politicians often blame macroeconomic policy.
Most economists believe, however, that the source of

the problem is labour market institutions.
Some economists point to what they call labour market

rigidities.
Other economists emphasise the fact that

unemployment is not high everywhere in Europe.

Slide
1.8
Why has income gap between EU & USA started to grow?
Table 1.2
Income per capita in Europe compared to the USA (USA = 100)
Source: OECD Economic Outlook database.

Slide
1.9
What has the euro done for Europe?
Supporters of the euro point first to its enormous

symbolic importance: after a long history of wars
and conflicts,a large number of European
countries are now linked by a common currency
Others worry that the symbolism of the euro may
come with some economic costs: the recent crisis
that hit the euro and the euro countries is among
those costs
1.2 The Economic Outlook in the USA

Slide
1.10
Table 1.3
Growth, unemployment and inflation in the USA since 1991
From an economic point of view, there is no question that the

1990s were amongst the best years in recent memory.
In the recent past, however, the economy has slowed down. Data
for 2011 do not seem to suggest that the economy has started
growing again.

(Continued)
Slide
1.11
What are the reasons for the recent slow down?
Oil prices (in 2008 US dollars): January 1947 December 2008

The price of oil reached a historic high in 2008.
Figure 1.3

(Continued)
Slide
1.12
What are the reasons for the recent slow down?
US house prices at constant dollars: 18802020

House prices in the USA boomed after 2000.
Figure 1.4

(Continued)
Slide
1.13
Should we worry about the US trade deficit?
The US trade deficit since 1990

The US trade deficit has increased by about 1% of GDP in 1990 to 5% of GDP
in 2008.
Figure 1.5
1.3 The Largest Emerging Economies

Slide
1.14
Brazil, China, India and Russia (which are often called

BRICs) have grown rapidly over the last decade and
are now the largest economies outside of the group of
advanced countries.
Where does the growth come from?
High accumulation of capital
Very fast technological progress
1.4 Looking Ahead

Slide
1.15
These are the questions to which you have been exposed in this
chapter:
What determines expansions and recessions? Can monetary policy

be used to prevent a recession in the United States? How will the
euro affect monetary policy in Europe?
Why is inflation so much lower today than it was in the past? Can
Europe reduce its unemployment rate? Should the United States
reduce its trade deficit?
Why do growth rates differ so much across countries, even over long
periods? Has the United States entered a New Economy, in which
growth will be much higher in the future? Can other countries
emulate China and grow at the same rate?
Gathering Macro Data

Slide
1.16
International organisations, such as the Organisation for

Economic Cooperation and Development (OECD), gather data
for the richest countries.
For countries that are not members of the OECD, one of the main
sources of information is the International Financial Statistics (IFS),
published by the International Monetary Fund (IMF).
The IMF also publishes, twice a year, the World Economic

Outlook, an assessment of macroeconomic developments in
various parts of the world.
In the United States, an extremely good annual resource is the

Economic Report of the President, prepared by the Council of
Economic Advisors.
Key Terms
Slide
1.17
European Union (EU27)

BRICs
Organisation for Economic Cooperation and
Development (OECD)
International Monetary Fund (IMF)

Macroeconomic Introduction

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INTRODUCTION

1.1 Europe and the Euro

When macroeconomists study an economy, they first

The unemployment rate

The inflation rate

1.1 Europe and the Euro (Continued)

Growth, unemployment and inflation in the EU since 1991

Source: Statistical Annex of the European Economy, Spring 2012.

1.1 Europe and the Euro (Continued)

The economic performance of European countries after the turn of

Low output growth was accompanied by persistently high

The only good news is about inflation. Average annual inflation

In the economies of central Europe inflation jumped during the

1.1 Europe and the Euro (Continued)

Three issues dominate the agenda of European

1.1 Europe and the Euro (Continued)

How can European unemployment be reduced?

1.1 Europe and the Euro (Continued)

How can European unemployment be reduced?

Politicians often blame macroeconomic policy.

Most economists believe, however, that the source of

Some economists point to what they call labour market

Other economists emphasise the fact that

1.1 Europe and the Euro (Continued)

Why has income gap between EU & USA started to grow?

Income per capita in Europe compared to the USA (USA = 100)

Source: OECD Economic Outlook database.

1.1 Europe and the Euro (Continued)

What has the euro done for Europe?

Supporters of the euro point first to its enormous

1.2 The Economic Outlook in the USA

Growth, unemployment and inflation in the USA since 1991

From an economic point of view, there is no question that the

1.2 The Economic Outlook in the USA

What are the reasons for the recent slow down?

Oil prices (in 2008 US dollars): January 1947 December 2008

1.2 The Economic Outlook in the USA

What are the reasons for the recent slow down?

US house prices at constant dollars: 18802020

1.2 The Economic Outlook in the USA

Should we worry about the US trade deficit?

The US trade deficit since 1990

1.3 The Largest Emerging Economies

Brazil, China, India and Russia (which are often called

1.4 Looking Ahead

What determines expansions and recessions? Can monetary policy

Gathering Macro Data

International organisations, such as the Organisation for

The IMF also publishes, twice a year, the World Economic

In the United States, an extremely good annual resource is the

European Union (EU27)

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