Economics, 11th Edition

CHAPTER 4Goals and Problems of the Macroeconomy: Employment, Prices, and Production

CHAPTER OBJECTIVES

• Introduce the problem of unemployment—its causes, consequences, and related data and concepts—and the goal of full employment.
• Discuss inflation—its causes, consequences, and measures.
• Define full production and economic growth and introduce GDP, the primary measure of production.
• Describe problems associated with simultaneously reaching full employment, full production, and price stability.

This chapter begins the section of the textbook devoted to macroeconomics, which is the study of the economy as a whole, or the “big picture.” Macroeconomics brings us such topics as aggregate (total) employment and production, unemployment, inflation, economic growth, money, and government stabilization policies. (Microeconomics, which focuses on decision making by individual units in the economy, is covered in Part 3 of this textbook.) The study of macroeconomics will help you to understand the roles the household, business, and government sectors play in the economy, and how the sectors relate to each other. We will also learn about problems that arise in the big picture economy and how those problems can be resolved.

Before we begin any analysis, we need to become familiar with some basic terms and concepts involving employment, production, and prices. These three areas are the sources of the major problems of the macroeconomy: unemployment, falling production, and inflation. ...