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2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
low inflation.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
The average growth rate of output in
the economy since 1900 has been
about 3.4 percent per year.
An area of economics called growth
theory is concerned with the
question of what determines this
rate.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
There are a number of ways to
increase output. An economy can:
Add more workers
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
Output per worker hour is called
labor productivity.
For the 1952-2000 period, labor
productivity exhibits:
an upward trend, and
fairly sizable fluctuations around that
trend.
The growth rate was much higher in
the 1950s and 1960s than it has
been since the early 1970s.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Output per Worker Hour
(Productivity), 1952-2000
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
Part of the reason for the upward
trend in productivity is an increase in
the amount of capital per worker.
With more capital per worker, more
output can be produced per year.
The other reason is that the quality
of labor and capital has been
increasing.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Capital per Worker, 1952-2000
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Long-Run Output and
Productivity Growth
A harder question to answer is why
has the quality of labor and capital
grown more slowly since the early
1970s.
The growth of the Internet, which
brings about an increase in the
quality of capital, should lead to a
new age of productivity growth.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Recessions, Depressions,
and Unemployment
The business cycle describes the
periodic ups and downs in the
economy, or deviations of output
and employment away from the long-
run trend.
A recession is roughly a period in
which real GDP declines for at least
two consecutive quarters. It is
marked by falling output and rising
unemployment.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Recessions, Depressions,
and Unemployment
A depression is a prolonged and
deep recession. The precise
definitions of prolonged and deep
are debatable.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Real GDP and Unemployment Rates,
1929-1933
Real GDP and Unemployment Rates, 19291933
THE EARLY PART OF THE GREAT DEPRESSION, 19291933
PERCENTAGE
CHANGE NUMBER OF
IN REAL UNEMPLOYMENT UNEMPLOYED
GDP RATE (MILLIONS)
1929 3.2 1.5
1930 8.6 8.9 4.3
1931 6.4 16.3 8.0
1932 13.0 24.1 12.1
1933 .4 25.2 12.8
Note: Percentage fall in real GDP between 1929 and 1933 was 26.6 percent.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Real GDP and Unemployment Rates,
1980-1982
Real GDP and Unemployment Rates, 19801982
THE RECESSION OF 19801982
PERCENTAGE
CHANGE NUMBER OF CAPACITY
IN REAL UNEMPLOYMENT UNEMPLOYED UTILIZATION
GDP RATE (MILLIONS) (PERCENTAGE)
1979 5.8 6.1 85.2
1980 0.2 7.1 7.6 80.9
1981 2.5 7.6 8.3 79.9
1982 2.0 9.7 10.7 72.1
Note: Percentage increase in real GDP between 1979 and 1982 was 0.1 percent.
Sources: Historical Statistics of the United States and U.S. Department of Commerce, Bureau of Economic Analysis.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Defining and Measuring Unemployment
la b o r fo rc e = e m p lo y e d + u n e m p lo y e d
p o p u la tio n = la b o r fo rc e + n o t in la b o r fo rc e
u n e m p lo y e d
u n e m p lo y m e n t ra te =
e m p lo y e d + u n e m p lo y e d
la b o r fo rc e
la b o r fo rc e p a rtic ip a tio n ra te =
p o p u la tio n
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Employed, Unemployed,
and the Labor Force, 1953-1999
Employed, Unemployed, and the Labor Force, 19531999
(1) (2) (3) (4) (5) (6)
POPULATION
16 YEARS LABOR LABOR-FORCE
OLD OR OVER FORCE EMPLOYED UNEMPLOYED PARTICIPATION UNEMPLOYMENT
(MILLIONS) (MILLIONS) (MILLIONS) (MILLIONS) RATE RATE
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Unemployment Rates for Different
Demographic Groups
Unemployment Rates by Demographic Group, 1982 and 2000
NOVEMBER JULY
YEARS 1982 2000
Total 10.8 4.2
White 9.6 3.6
Men 20+ 9.0 2.6
1619 22.7 11.7
Women 20+ 8.1 3.5
1619 19.7 10.2
African-American
Men 20.2 8.6
20+ 19.3 7.1
1619 52.4 28.5
Women 20+ 16.5 7.0
1619 46.3 27.2
Source: U.S. Department of Labor, Bureau of Labor Statistics. Data are not seasonally adjusted.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Unemployment Rates in
States and Regions
Regional Differences in Unemployment, 1975, 1982, and 1991
1975 1982 1991
U.S. avg. 8.5 9.7 6.7
Cal. 9.9 9.9 7.5
Fla. 10.7 8.2 7.3
Ill. 7.1 11.3 7.1
Mass. 11.2 7.9 9.0
Mich. 12.5 15.5 9.2
N.J. 10.2 9.0 6.6
N.Y. 9.5 8.6 7.2
N.C. 8.6 9.0 5.8
Ohio 9.1 12.5 6.4
Tex. 5.6 6.9 6.6
Sources: Statistical Abstract of the United States, various editions.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Discouraged-Worker Effects
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Duration of Unemployment
Average Duration of Unemployment, 19791999
YEAR WEEKS YEAR WEEKS
1979 10.8 1990 12.0
1980 11.9 1991 13.7
1981 13.7 1992 17.7
1982 15.6 1993 18.0
1983 20.0 1994 18.8
1984 18.2 1995 16.6
1985 15.6 1996 16.7
1986 15.0 1997 15.8
1987 14.5 1998 14.5
1988 13.5 1999 14.4
1989 11.9
Sources: U.S. Department of Labor, Bureau of Labor Statistics.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Types of Unemployment
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Two Serious Inflationary
Periods Since 1970
Inflation Rates, 19741976 and 19801983
RECESSION INFLATION
BEGINS RATE
1974 11.0
1975 9.1
1976 5.8
1980 13.5
1981 10.3
1982 6.2
1983 3.2
Source: See Table 18.8.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inflation
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Inflation and the Business Cycle
Inflation During Three Expansions
INFLATION RATE
1972 3.2
1973 6.2
1974 11.0
1976 5.8
1977 6.5
1978 7.6
1979 11.3
1980 13.5
1984 4.3
1985 3.6
1986 1.9
1987 3.6
1988 4.1
1989 4.8
Source: See Table 18.8.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Price Indexes
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Consumer Price Index (CPI)
The CPI, 19501999
PERCENTAGE PERCENTAGE PERCENTAGE
CHANGE CHANGE CHANGE
YEAR IN CPI CPI YEAR IN CPI CPI YEAR IN CPI CPI
1950 1.3 24.1 1967 3.1 33.4 1984 4.3 103.9
1951 7.9 26.0 1968 4.2 34.8 1985 3.6 107.6
1952 1.9 26.5 1969 5.5 36.7 1986 1.9 109.6
1953 0.8 26.7 1970 5.7 38.8 1987 3.6 113.6
1954 0.7 26.9 1971 4.4 40.5 1988 4.1 118.3
1955 0.4 26.8 1972 3.2 41.8 1989 4.8 124.0
1956 1.5 27.2 1973 6.2 44.4 1990 5.4 130.7
1957 3.3 28.1 1974 11.0 49.3 1991 4.2 136.2
1958 2.8 28.9 1975 9.1 53.8 1992 3.0 140.3
1959 0.7 29.1 1976 5.8 56.9 1993 3.0 144.5
1960 1.7 29.6 1977 6.5 60.6 1994 2.6 148.2
1961 1.0 29.9 1978 7.6 65.2 1995 2.8 152.4
1962 1.0 30.2 1979 11.3 72.6 1996 3.0 156.9
1963 1.3 30.6 1980 13.5 82.4 1997 2.3 160.5
1964 1.3 31.0 1981 10.3 90.9 1998 1.6 163.0
1965 1.6 31.5 1982 6.2 96.5 1999 2.2 166.6
1966 2.9 32.4 1983 3.2 99.6
Sources: Bureau of Labor Statistics, U.S. Department of Labor.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Costs of Inflation
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Costs of Inflation
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Costs of Inflation
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Costs of Inflation
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair