AS Economics

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Introduction to Macroeconomics
AS Economics
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What is macroeconomics?

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What is macroeconomics?
Macroeconomics considers the performance of the economy as a whole.

We try to understand changes in

The rate of economic growth The rate of inflation

Unemployment
Our trade performance with other countries

Macroeconomics also includes an evaluation of the relative success or failure of government economic policies
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So what is the economy?

The economy is made up of four sectors sometimes called economic agents:

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Households who receive payments (income) for their services (eg labour and land) and use this money to buy the output of firms (ie consumption or household spending). Firms who use land labour and capital to produce goods and services for which they pay wages rent etc (income) and receive payment (expenditure) Government (also known as the public or state sector) and

International eg consumers buying overseas products (M) and Foreigners buying UK products (X)
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Key Concepts
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Gross Domestic Product (GDP)
The monetary value of all goods and services produced within the UK in a given time period

Real GDP
The volume of goods and services produced within the UK (i.e. GDP adjusted for changes in the price level)

Economic Growth
The percentage rate of increase of real GDP

Inflation
The annual percentage rate of change of the general price level
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Difference between micro & macro

Microeconomics Recession in the tourist industry due to the global downturn A government subsidy to steel producers A recession in the textiles industry Increased spending on the National Health Service
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Microeconomics

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Difference between micro & macro

Macroeconomics Strong economic growth arising from high levels of consumer spending A fall in exports because of a recession in leading European markets Higher interest rates to curb inflationary pressure

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The ever changing economy

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Manufacturing industry in the UK

Manufacturing industry in the UK has been in long term decline
It now contributes less than 18% of national output
It employs just over 3.3 million people (over 7 million in 1979) We have a very large trade deficit with other countries in manufactured products

The service sector is now the dominant sector of the UK economy

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Index of Production October shows 8.4% annual fall

Can you spot the recessions?
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Manufacturing

What are the main manufacturing industries in the economy?

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Objectives of economic policy

What are the governments main economic objectives?

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The main objectives of government economic policy

The key elements of the Government's strategy are: 1. Delivering macroeconomic stability (a very broad macroeconomic aim) 2. Meeting the productivity challenge (an important supply-side target) 3. Increasing employment opportunity for all (a labour market objective) 4. Ensuring fairness for families and communities (commitment to equity)

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5. Protecting the environment (green economics has a macroeconomic dimension)

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Macro stability
What are the governments main economic objectives? Low inflation Steady and sustained growth High levels of employment Improvements in living standards

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AS Economics
PowerPoint Briefings

So now you are going to look at some current economic data

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Meeting the Inflation Target

What trends can you see?

Are there any falls in Inflation?

When?
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Can you identify the 4 stages of the economic cycle???

Achieving sustained growth

BOOM RECESSION RECOVERY SLUMP

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Maintaining low unemployment?

Whats the relationship between GDP and unemployment

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Maintaining low unemployment?

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Hows consumer confidence?

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Standard of Living.
GDP per capita in Purchasing Power Standard in 2001 (PPS), (EU-15=100)
Greece Portugal Spain France EU15 Sw eden Finland UK Italy Germany Belgium Austria Netherlands Denmark Ireland Lux

This diagram uses INDEX numbers .

But Other than what are standards of money how living? you else can judge quality of life?
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210

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Unit 2 key theory we will look at

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Macro stability can be measured by the volatility of key indicators: 1. Consumer price inflation (annual % change in prices) 2. Real GDP growth over one or more business cycles 3. Changes in measured unemployment / employment 4. Fluctuations in the current account of the balance of payments 5. Changes in government finances (i.e. the size of the fiscal deficit or surplus) 6. Volatility of short term policy interest rates and long term interest rates such as the yield on government bonds 7. Stability of the exchange rate in currency markets
AS Economics

AS Economics
PowerPoint Briefings

To the computers.

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Please complete TWO surveys Fill in your student self evaluation form
If you look on your screen you should see this Click on the L6 Ec survey AND the exam self evaluation

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Your task
To find out the current economic figures for
GDP

Inflation
Employment/unemployment BoP Values of sterling against euro & $

Look up these figures for Germany, Italy, Japan, Eurozone, USA and UK.
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Current Economic Data

GDP Inflation Unemployment Balance of Payments

UK USA Japan Germany Italy

Eurozone
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How to research the data

Go to www.economist.com Select Economic data Select the economy required Go to the data file Read info provided

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Your written task

1. Compare the recent economic performance of of the UK with one other country.

2. WHAT other data/information would you need to know to decide whether the UK economy has better performance than the others? Identify at least 5 factors.

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Homework
News article research an article from a reputable source: BBC Financial Times Guardian Independent The Times The Economist Analyse the key issues raised in the article..
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Article must be on one of the following topics UK inflation UK employment / unemployment UK interest rates UK economic growth

What makes a stable economy?

Macro stability can be measured by the volatility of key indicators: 1. Consumer price inflation (annual % change in prices) 2. Real GDP growth over one or more business cycles 3. Changes in measured unemployment / employment 4. Fluctuations in the current account of the balance of payments 5. Changes in government finances (i.e. the size of the fiscal deficit or surplus) 6. Volatility of short term policy interest rates and long term interest rates such as the yield on government bonds 7. Stability of the exchange rate in currency markets A stable economy provides a framework for an improved supply-side performance i.e.

Stable low inflation encourages higher investment which is a determinant of improved productivity and non-price competitiveness Control of inflation helps to main price competitiveness for exporters and domestic businesses facing competition from imports Stability breeds higher levels of consumer and business confidence sentiment drives spending in the circular flow The maintenance of steady growth and price stability helps to keep short term and long term interest rates low, important in reducing the debt-servicing costs of people with mortgages and businesses with loans to repay A stable real economy helps to anchor stable expectations and this can act as an incentive for an economy to attract inflows of foreign direct investment

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