Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Fiscal multiplier wikipedia , lookup
Nominal rigidity wikipedia , lookup
Economics of fascism wikipedia , lookup
Ragnar Nurkse's balanced growth theory wikipedia , lookup
Production for use wikipedia , lookup
Non-monetary economy wikipedia , lookup
Chinese economic reform wikipedia , lookup
Transformation in economics wikipedia , lookup
ECON 1211 Lecturer: Dr B. Nowbutsing Topic 1: Introduction to Macroeconomics and National Income Accounting 1. Macroeconomics 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. 20.1 2. Some key issues in macroeconomics Inflation – Unemployment – the rate of change of the general price level 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 20.2 3. 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 20.3 4. Inflation in the UK, 1950-99 30 25 15 10 5 19 90 19 70 0 19 50 % p.a. 20 Source: Economic Trends Annual Supplement, Labour Market Trends 20.4 5. 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 % p.a. 6. 16 14 12 10 8 6 4 2 0 1960-73 1973-81 UK USA 1981-90 1990-98 Germany 20.6 7. Unemployment in the UK, 1950-99 14 12 8 6 4 2 19 90 19 70 0 19 50 % p.a. 10 Source: Economic Trends Annual Supplement, Labour Market Trends 20.7 8. 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 9. Unemployment in UK, USA and Germany 10 % p.a. 8 6 4 2 0 1960-73 1973-81 UK USA 1981-90 1990-98 Germany 20.9 10. Economic growth in UK, USA and Germany 5 % p.a. 4 3 2 1 0 1960-73 1973-81 UK USA 1981-90 1990-98 Germany 20.10 11. Inflation Rate in Mauritius 20.11 12. Employment Rate in Mauritius 20.12 13. Economic Growth Rate in Mauritius 20.13 14. An Overview of Circular Flow The circular flow shows how real resources and financial payments flow between firms and households Households: supply factor services to firms, receive factor incomes from firms, buy output from firms Firms: use factors to make output, rent factor services from households, sell output to households 20.14 15. The circular flow of income, expenditure and output (closed economy) C Households Firms Y 20.15 16. National Income Accounting Gross Domestic Product (GDP) – measures the output made in the domestic economy, regardless of who owns the production inputs. Transactions do not take place between a single firm and a single household Firms hire labour from households but buy raw materials from other firms To avoid double counting, we have to use value added 20.16 16. National Income Accounting Value added: firm’s output – firm’s input goods used to make that output Intermediate vs. final goods Final goods are purchased by the ultimate user. Intermediate goods are partly-finished goods that form inputs to a subsequent production process that then uses them up 20.17 17. Investment and Saving In the initial flow, there was no saving and investment A leakage from the circular flow is money no longer recycled from households to firm (saving) An injection is money that flows to firms without being cycled through households (investment) 20.18 17. Investment and Saving Three measures of GDP (income, expenditure, output) Y=C+S Y: GDP; C: Consumption; S: Saving Y=C+I I: Investment Thus, S = I 20.19 18. The circular flow of income, expenditure and output I C S C+I Households Firms Y 20.20 19. Government in the Circular flow Government raises revenue both through direct taxes (Td) and indirect taxes (Te) Government finance two kinds of expenditures: (1) spending on goods and services, G, is purchase by the government of physical ` goods and services including wages (2) Transfer payment, B, pensions and other benefits 20.21 19. Government in the Circular flow Given B and Te, we must make a distinction between Y and Yd such that Yd = Y+ B – Td, Y=C+I+G The above measures GDP at market prices It we exclude indirect taxes, we get GDP at basic prices, i.e. Y = [C + I + G] – Te S = (Y + B- Td) – C or Y = S + C + Td - B 20.22 19. Government in the Circular flow Given Y = [C + I + G] – Te and Y = S + C + Td - B We get [C + I + G] – Te = Y = S + C + Td – B This implies S + Td – Te = I + G + B Left hand side is leakages from the circular flow Right hand side is injections to the circular flow The equation can be written as S – I = G + B - Td – Te Financial surplus in private sector can be offset by a government deficit 20.23 19. 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 20.24 20. Adding the foreign sector To incorporate the foreign sector into the circular flow we must recognize that residents of a country will buy imports from abroad and that domestic firms will sell (export) goods and services abroad. Y = C + I + G + (X – Z) - Te 20.25 21. 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 – 20.26 22. Three measures of national output Expenditure – – Income – – the sum of expenditures in the economy Y=C+I+G+X-Z the sum of incomes paid for factor services wages, profits, etc. Output – the sum of output (value added) produced in the economy 20.27 23. 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 market National prices prices income Profits, rents Selfemployment Wages and salaries 20.28 24. What GNP does and does not measure GNP is an aggregate measure (does not consider distribution of income- Lorenz Curve) GNP is a combination of price and quantity (inflation inflate GDP - distinguish between real and nominal measurements) GNP is not a comprehensive measure of everything that contributes to economic welfare Population change should be considered 20.29