Chapter 20 Introduction to macroeconomics The McGraw Hill Companies, 2005 Chapter 19 Introduction to macroeconomics David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 8th Edition, McGraw Hi. David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 8th Edition, McGrawHill, 2005 PowerPoint presentation by Alex Tackie and Damian Ward
Chapter 19 Introduction to macroeconomics David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 8th Edition, McGraw-Hill, 2005 PowerPoint presentation by Alex Tackie and Damian Ward ©The McGraw-Hill Companies, 2005 Macroeconomics is • the study of the economy as a whole • it deals with broad aggregates • but uses the same style of thinking about economic issues as in microeconomics ©The McGraw-Hill Companies, 2005 Some key issues in macroeconomics • Inflation – the rate of change of the general price level • Unemployment – a measure of the number of people looking for work, but who are without jobs • Output – real gross national product (GNP) measures total income of an economy • it is closely related to the economy's total output ©The McGraw-Hill Companies, 2005 More key issues in macroeconomics • Economic growth – increases in real GNP, an indication of the expansion of the economy’s total output • Macroeconomic policy – a variety of policy measures used by the government to affect the overall performance of the economy ©The McGraw-Hill Companies, 2005 % p.a Inflation in the UK, 1950-2003 30 25 20 15 10 2000 1990 1980 1970 1960 1950 Source: Economic Trends Annual Supplement, Labour Market Trends ©The McGraw-Hill Companies, 2005 Inflation in UK, USA and Germany 1960 - 2004 16 14 12 10 UK USA Germany Annual % 1960-73 1973-81 1981-90 1990-01 2001-04 ©The McGraw-Hill Companies, 2005 Unemployment in the UK 1950-2003 14 12 % p.a 10 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 Source: Economic Trends Annual Supplement, Labour Market Trends ©The McGraw-Hill Companies, 2005 Unemployment in UK, USA and Germany 10 % p.a 1960-73 1973-81 UK 1981-90 USA 1990-01 2001-04 Germany ©The McGraw-Hill Companies, 2005 Economic growth in UK, USA and Germany % p.a 1960-73 1973-81 UK 1981-90 USA 1990-01 2001-04 Germany ©The McGraw-Hill Companies, 2005 The circular flow of income, expenditure and output I C+I C S Households Firms Y 10 ©The McGraw-Hill Companies, 2005 Government in the circular flow I C+I+G C S G Households C + I + G - Te Te Government Firms B - Td Y + B - Td Y 11 ©The McGraw-Hill Companies, 2005 Adding the foreign sector • To incorporate the foreign sector into the circular flow • we must recognise that residents of a country will buy imports from abroad • and that domestic firms will sell (export) goods and services abroad 12 ©The McGraw-Hill Companies, 2005 GDP and GNP • Gross domestic product (GDP) – measures the output produced by factors of production located in the domestic economy • Gross national product (GNP) – measures the total income earned by domestic citizens • GNP = GDP + net income from abroad 13 ©The McGraw-Hill Companies, 2005 Three measures of national output • Expenditure – the sum of expenditures in the economy –Y=C+I+G+X-Z • Income – the sum of incomes paid for factor services – wages, profits, etc • Output – the sum of output (value added) produced in the economy 14 ©The McGraw-Hill Companies, 2005 National income accounting: a summary NYA GNP (and GNI) at market prices NYA G I NX C Deprec'n Indirect taxes GDP NNP at market at basic National prices prices income 15 Profits, rents Selfemployment Wages and salaries ©The McGraw-Hill Companies, 2005 What GNP does and does not measure • Some care is needed: – to distinguish between real and nominal measurements – to take account of population changes – to remember that GNP is not a comprehensive measure of everything that contributes to economic welfare 16 ©The McGraw-Hill Companies, 2005 ... national product (GNP) measures total income of an economy • it is closely related to the economy''s total output ©The McGraw-Hill Companies, 200 5 More key issues in macroeconomics • Economic growth... 1950 -200 3 30 25 20 15 10 200 0 1990 1980 1970 1960 1950 Source: Economic Trends Annual Supplement, Labour Market Trends ©The McGraw-Hill Companies, 200 5 Inflation in UK, USA and Germany 1960 - 200 4... Government Firms B - Td Y + B - Td Y 11 âThe McGraw-Hill Companies, 200 5 Adding the foreign sector ã To incorporate the foreign sector into the circular flow • we must recognise that residents of a