Macroeconomics

Prepared by
Nagi elsharkawi
‫مدرس مساعد بقسم االقتصاد‬

prepared by nagi elsharkawi

 Macroeconomics Micro
Aggregate demand individual demand
Aggregate supply individual supply
Price level
GDP
Inflation
Unemployment

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 microeconomics Examines the functioning of individual industries and
the behavior of individual decision-making units—firms and households
macroeconomics Deals with the economy as a whole.
Macroeconomics focuses on the determinants of total national income, deals with
aggregates such as aggregate consumption and investment, and looks at the overall
level of prices instead of individual prices.
aggregate behavior The behavior of all households and firms together.

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 Macroeconomic Concerns
Three of the major concerns of macroeconomics are

Output growth

Unemployment

Inflation and deflation

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 Time in Economics
• The short run describes what happens to the economy from year to year

• The medium run describes what happens to the economy over a decade

or so.

• The long run describes what happens to the economy over a half century

or longer

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 Aggregate Output
National income and product accounts are an accounting system
used to measure of aggregate economic activity.

The measure of aggregate output in the national income accounts

is gross domestic product, or GDP.

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 Nominal and Real GDP

Nominal GDP is the sum of the quantities of final goods

produced times their current price.
Nominal GDP increases over time because:
 The production of most goods increases over time.
 The prices of most goods also increase over time.
Real GDP is constructed as the sum of the quantities of
final goods times constant (rather than current) prices.

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 Gross Domestic Product

gross domestic product (GDP) The total market value of all

final goods and services produced within a given period by factors of
production located within a country.
Final Goods and Services
final goods and services Goods and services produced for final use
intermediate goods Goods that are produced by one firm for use in
further processing by another firm.

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Nominal and Real GDP

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 To construct real GDP, multiply the number of cars in each year
by a common price. Suppose we use the price of the car in
2000 as the common price. This approach gives us, in effect,
real GDP in 2000 dollars.

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Real GDP per capita is the ratio of real GDP to the population of
the country.
GDP growth equals:
(Yt  Yt 1 )
Yt 1
Periods of positive GDP growth are called expansions.
Periods of negative GDP growth are called recessions.

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 The Unemployment Rate
labor force = employment + unemployment
L = N + U

U
Unemployment rate: u
L
8.8
u2003   6.0%
137.7  8.8

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 The Inflation Rate
Inflation is a sustained rise in the general level of prices—the
price level.

The inflation rate is the rate at which the price level increases.
(Conversely, deflation is a sustained decline in the price level. It
corresponds to a negative inflation rate). Deflation is rare, but it
does happen. Japan has experienced deflation since the late
1990s.

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 The GDP Deflator

The GDP deflator in year t, Pt, is defined as the ratio of nominal

GDP to real GDP in year t:
nominal GDPt $Yt
Pt  
real GDPt Yt

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