Chapter 1: The world economy

There are 27 European countries that form together the European Union or EU-27. The European Union has a great power; its combined output exceeds USA output. Macroeconomists look at three variables when they study an economy; output, the unemployment rate and the inflation rate.

The economic performance of the European Union since 2000 has not been as good as it was before, in the 1990s. Output growth was lower than before and this led to very high unemployment. The only positive thing to say is that inflation was at a favorable height.

There are a lot of problems in the EU as a result of the worldwide recession in 2008. Short-run problems dominate but there are three other things that have been great issues in the debate:

1. The high unemployment. Although the unemployment has declined from its high peak, it is still very high.

2. Income per person (or per capita).

3. The introduction of the common currency, the euro. Economists argue whether the Euro is good for the countries using it.

When we look at the economy of the US we can say without doubt that the 1990s were the best years. The output growth rate was positive while the unemployment rate was substantially lower than it was before. Also inflation rates were lower than in previous decades. However, the inflation rate was still slightly higher than in Europe.

However, since 2000 the economy of the US has slowed down. US families were hit by four shocks between 2007 and 2008:

• Increase in oil prices

• A fall in house prices. This led to a decrease in the wealth of American households, since the homes of Americans account for three-quarters of their total wealth.

• A fall of the