A Tour of the

World

Chapter 1

An introductory Question
GDP in 2013
US=16.8 Trillion Dollars $
China=56.88 Trillion Chinese Yuan
GDP per Capita in 2013:
US=$53,143 ;
China= 41,908($6,705) , 1 =0.16 $
Can China make its citizens richer by making 1
=1 dollars???

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What Macroeconomics Is About

Macroeconomics studies the performance of the entire economy
and government policies that affect economic performance.
Two main areas of research:
Long-run economic growth. (Part 4: The Growth Theory )
Short-run fluctuations. (Part 2, 3, 5)
Unemployment (Part 3 : The AS-AD model )
Inflation (Part 3 : The AS-AD model )
The international economy (Part 5: The Open Economy)

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Table of Contents
1-1
1-2
1-3
1-4
1-5

1-4

The Crisis
The United States
The Euro Area
China
Hong Kong

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1-1 The Crisis

Table 1-1 World Output Growth since 2000

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1-1 The Crisis

Figure 1-1 Stock prices in the United States, the
Euro area, and emerging economies, 20072010

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1-1 The Crisis

Figure 1-2 Unemployment rates in the United States
and the Euro area, 20002012

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1-2 The United States

Figure 1-3 The United States

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1-2 The United States

When macroeconomists study an economy, they
first look at three variables:
Output growth
The unemployment rate
The inflation rate

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1-2 The United States

Table 1-2

Growth, Unemployment, and Inflation in the United States

Output growth rate

1980-1999
(average)

20002007
(average)

2008

2009

2010

2011

2012

3.0

2.6

0.0

-3.5

3.0

1.5

1.8

Unemployment rate

6.5

5.0

5.8

9.3

9.6

9.1

9.0

Inflation rate

4.2

2.8

3.8

-0.3

1.7

2.9

1.2

Output growth rate: annual rate of growth of output (GDP). Unemployment rate: average over
the year. Inflation rate: annual rate of change of the price level (GDP deflator).

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1-2 The United States

Figure 1-4 U.S. Federal Budget surpluses as a
percent of GDP since 1990

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1-3 The Euro Area

Figure 1-5
The Euro area

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1-3 The Euro Area

Table 1-3 Growth, Unemployment, and Inflation in
the Euro Area, 19802012

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1-3 The European Union

Two issues dominate the agenda of European
macroeconomists:
High unemployment
Common currency

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1-3 The European Union

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 labor market institutions.
Some economists point to what they call labor market
rigidities.
Other economists point to the fact that unemployment is
not high everywhere in Europe.
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1-3 The European Union

What Has the Euro Do for Its Members?
Supporters of the Euro point first to its
enormous symbolic importance.
Others worry that the symbolism of the euro
may come with some economic costs.

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1-4 China
Figure 1-6 China

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1-4 China
Table 1-4 Growth and Inflation in China, 19802012

Since 1980, Chinese output has grown at close to 10% per

year, and the forecasts are for more of the same.
This is a truly astonishing number: Compare it to the 3.1%
number achieved by the U.S. economy over the same
period. At that rate, output doubles every 7 years.
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1-5 Hong Kong-Growth Rate

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1-5 Hong Kong-GDP

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1-5 Hong Kong-Unemployment Rate

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Looking Ahead
These are the questions to which you have been exposed in this chapter:

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What caused the crisis? Why did it transmit so fast from the United
States to the rest of the World?

Can monetary and fiscal policies be used to avoid recession? What

are the pros and cons of joining a common currency such as the euro
area?

Why do growth rates differ so much across countries, even over long
periods? Can other countries emulate China and grow at the same
rate?

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