Download Introduction to macroeconomics

Introduction to macroeconomics
Macroeconomics is
Macroeconomics is ...
• the study of the economy as a whole
• it deals with broad aggregates
• but
but uses the same style of thinking about uses the same style of thinking about
economic issues as in microeconomics.
20.1
Some key issues in macroeconomics
Some key issues in macroeconomics
• Inflation
– the rate of change of the general price level
• Unemployment
– aa measure of the number of people looking for work, but measure of the number of people looking for work but
who are without jobs
• Output
O t t
– real gross national product (GNP) measures total income of an economy
• it is closely related to the economy's total output
20.2
More key issues in macroeconomics
More key issues in macroeconomics
• Economic growth
– increases in real GNP, an indication of the ,
expansion of the economy’s total output
• Macroeconomic policy
Macroeconomic policy
– a variety of policy measures used by the government to affect the overall performance of ff
h
ll
f
f
the economy
20.3
Inflation in the UK 1950 99
Inflation in the UK, 1950‐99
30
25
15
10
5
19
90
19
70
0
19
50
%p
p.a.
20
Source: Economic Trends Annual Supplement, Labour Market Trends
20.4
Inflation in selected European countries
Inflation in selected European countries
Germany
France
Belgium
EU
Finland
UK
Spain
Italy
Portugal
Greece
0
1
2
3
4
5
% change 1998 compared with 1997
20.5
Inflation in UK USA and Germany
Inflation in UK, USA and Germany
16
14
%p
p.a.
12
10
8
6
4
2
0
1960-73
1960
73
1973-81
1973
81
UK
USA
1981-90
1981
90
1990-98
1990
98
Germany
20.6
U
Unemployment in the UK, 1950‐99
l
i h UK 1950 99
14
12
8
6
4
2
19
90
19
70
0
19
50
%p
p.a.
10
Source: Economic Trends Annual Supplement, Labour Market Trends
20.7
Unemployment
in selected European countries
Germany
France
Belgium
EU
Finland
UK
Spain
Italy
Portugal
Greece
0
5
10
15
20
% unemployment (ILO measure) 1998
20.8
Unemployment
in UK, USA and Germany
10
%p
p.a.
8
6
4
2
0
1960-73
1960
73
1973-81
1973
81
UK
USA
1981-90
1981
90
1990-98
1990
98
Germany
20.9
Economic growth
in UK, USA and Germany
5
%p
p.a.
4
3
2
1
0
1960-73
1960
73
1973-81
1973
81
UK
USA
1981-90
1981
90
1990-98
1990
98
Germany
20.10
The circular flow of income, expenditure and output
I
C
S
C+I
Households
Firms
Y
20.11
Government in the circular flow
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
20.12
Adding the foreign sector
Adding the foreign sector
• To incorporate the foreign sector into the circular flow
circular flow
• we must recognize that residents of a country will buy imports from abroad
• and
and that domestic firms will sell (export) that domestic firms will sell (export)
goods and services abroad.
20.13
GDP and GNP
GDP and GNP
• Gross domestic product (GDP)
– measures the output produced by factors of p p
y
production located in the domestic economy
• Gross national product (GNP)
Gross national product (GNP)
– measures the total income earned by domestic citizens
ii
• GNP = GDP + net income from abroad
20.14
Three measures of national output
Three measures of national output
• Expenditure
di
– 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.
wages profits etc
• Output
– the sum of output (value added) produced in the economy
20.15
National income accounting: a summary
National income accounting: a summary
NYA
G
GNP
(and
GNI)
at
market
prices
I
X-Z
C
NYA
Deprec'n
Indirect
taxes
GDP
NNP
at
market at basic National
prices prices income
Profits,,
rents
Selfemployment
Wages
and
salaries
20.16
What GNP does and does not measure
What GNP does and does not measure
• Some care is needed:
– to distinguish between real
g
and nominal
measurements
– to take account of population changes
to take account of population changes
– to remember that GNP is not a comprehensive measure of everything that contributes to
measure of everything that contributes to economic welfare
20.17