01.1_Introduction to Macro

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AS EconomicsPowerPoint Briefings

Tutor2u & Mrs G additions

Introduction to MacroeconomicsAS Economics
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Tutor2u & Mrs G AS Economics

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



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



The ever changing economy



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



Index of Production

October shows 8.4% annual fall

Cany

ouspot

therecessions?



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?



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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So now you are going to look at some

current economic data



Meeting the Inflation Target

What trends canyou see?

Are thereany falls in

Inflation?

When?



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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AS E i


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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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01.1_Introduction to Macro