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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. Macroeconomics is . the study of the economy as a whole it deals with broad aggregates

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chapter 19 introduction to macroeconomics

Chapter 19Introduction to macroeconomics

David Begg, Stanley Fischer and Rudiger Dornbusch, Economics,

8th Edition, McGraw-Hill, 2005

PowerPoint presentation by Alex Tackie and Damian Ward

macroeconomics is
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.
some key issues in macroeconomics
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
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
    • a variety of policy measures used by the government to affect the overall performance of the economy
inflation in the uk 1950 2003
Inflation in the UK, 1950-2003

Source: Economic Trends Annual Supplement, Labour Market Trends

inflation in turkey 19 83 200 4
Inflation in Turkey, 1983-2004

Source: Central Bank of the Republic of Turkey.

unemployment in the uk 1950 2003
Unemployment in the UK1950-2003

Source: Economic Trends Annual Supplement, Labour Market Trends

government in the circular flow

I

C + I + G

C + I + G - Te

C

S

G

Te

Households

Government

Firms

B - Td

Y + B - Td

Y

Government in the circular flow
adding the foreign sector
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.
gdp and gnp
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
three measures of national output
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
national income accounting a summary
National income accounting: a summary

NYA

NYA

GNP

(and

GNI)

at

market

prices

Deprec'n

GDP

at

market

prices

G

NNP

at basic

prices

Indirect

taxes

I

National

income

Profits,

rents

NX

Self-

employment

C

Wages

and

salaries

what gnp does and does not measure
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