01.1_introduction to macro
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Introduction to MacroeconomicsAS Economics
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What is macroeconomics?
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What is macroeconomics?
Macroeconomics considers the performanceof 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 ofgovernment economic policies
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So what is the economy?
The economy is made up offour sectors sometimescalled economic agents:
Households who receive payments (income) fortheir services (eg labour and land) and use this
money to buy the output of firms (ie consumption orhousehold spending).
Firms who use land labour and capital to producegoods and services for which they pay wages rentetc (income) and receive payment (expenditure)
Government (also known as the public or statesector) and
International eg consumers buying overseasproducts (M) and Foreigners buying UK products (X)
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Key Concepts
Gross Domestic Product (GDP)
The monetary value of all goods and servicesproduced within the UK in a given time period
Real GDP
The volume of goods and services produced within theUK (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 generalprice level
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Difference between micro & macro
Microeconomics
Recession in the tourist industry due tothe global downturn
A government subsidy to steelproducers
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 fromhigh levels of consumer spending
A fall in exports because of arecession in leading European markets
Higher interest rates to curbinflationary 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 inlong 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 dominantsector of the UK economy
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Index of Production
October shows 8.4% annual fall
Cany
ouspot
therecessions?
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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 governmenteconomic policy
The key elements of the Government's strategy are:
1. Delivering macroeconomic stability (a very broadmacroeconomic aim)
2. Meeting the productivity challenge (an importantsupply-side target)
3. Increasing employment opportunity for all (alabour market objective)
4. Ensuring fairness for families and communities(commitment to equity)
5. Protecting the environment (green economics hasa 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 EconomicsPowerPoint Briefings
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So now you are going to look at some
current economic data
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Meeting the Inflation Target
What trends canyou see?
Are thereany falls in
Inflation?
When?
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Achieving sustained growth
BOOMRECESSION
RECOVERY
SLUMP
Can you identify the 4stages of the economic
cycle???
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Maintaining low unemployment?Whats therelationship
between GDP andunemployment
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Maintaining low unemployment?
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Hows consumer confidence?
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GDP per capita in Purchasing Power Standard in 2001 (PPS), (EU-15=100)
0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210
Lux
Ireland
Denmark
Netherlands
Austria
Belgium
Germany
Italy
UK
Finland
Sweden
EU15
France
Spain
Portugal
Greece
This diagramuses INDEXnumbers .
Standard of Living.
But what arestandards of
living?
Other thanmoney howelse can you
judge qualityof life?
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Unit 2 key theory we will look at
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 businesscycles
3. Changes in measured unemployment /employment4. Fluctuations in the current account of the balanceof payments5. Changes in government finances (i.e. the size of
the fiscal deficit or surplus)6. Volatility of short term policy interest rates andlong term interest rates such as the yield ongovernment bonds7. Stability of the exchange rate in currency markets
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To the computers.
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Please complete TWO surveys
Fill in your student selfevaluation form
If you look on your screenyou 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 ofPayments
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 ofof the UK with one other country.
2. WHAT other data/information would you need
to know to decide whether the UK economy hasbetter performance than the others? Identify atleast 5 factors.
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Homework
News article researchan article from areputable source:
BBC
Financial Times
Guardian
Independent
The Times
The Economist
Article must be on oneof the following topics
UK inflation
UK employment /unemployment
UK interest rates
UK economic growth
Analyse the key issuesraised in the article..
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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 cycles3. Changes in measured unemployment / employment4. Fluctuations in the current account of the balance of payments5. 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 suchas 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 ofimproved productivity and non-price competitiveness Control of inflation helps to main price competitiveness for exporters anddomestic 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 shortterm and long term interest rates low, important in reducing the debt-servicingcosts of people with mortgages and businesses with loans to repay A stable real economy helps to anchor stable expectations and this can actas an incentive for an economy to attract inflows of foreign direct investment
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