AS Economics PowerPoint Briefings Introduction to Macroeconomics AS Economics

AS EconomicsPowerPoint BriefingsPowerPoint Briefings

Introduction to Macroeconomics

AS Economics

Tutor2u & Mrs Tutor2u & Mrs GG

AS EconomicsAS Economics

What is macroeconomics?

http://www.tutor2u.net/


http://news.bbc.co.uk/1/hi/business/economy/default.stm



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





So what is ‘the economy’?

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

• 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

• 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





Microeconomics





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





The ever changing economy





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





Index of ProductionOctober shows 8.4% annual fall

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?





Manufacturing

What are the main manufacturing industries in the economy?







http://news.bbc.co.uk/1/hi/business/1861801.stm



Objectives of economic policy

• What are the government’s main economic objectives?





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)

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

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Macro stability…

• What are the government’s main economic objectives?

• Low inflation

• Steady and sustained growth

• High levels of employment

• Improvements in living standards



AS EconomicsPowerPoint BriefingsPowerPoint Briefings

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



Meeting the Inflation Target

What trends can you see?

Are there any falls in Inflation?

When?





Achieving sustained growth

BOOM

RECESSIONRECOVERY

SLUMP

Can you identify the 4 stages of the economic

cycle???





Maintaining low unemployment?What’s the relationship

between GDP and unemployment





Maintaining low unemployment?





How’s consumer confidence?





This diagram uses INDEX numbers ….

Standard of Living.

But what are ‘standards of

living’?

Other than ‘money’ how else can you judge quality

of life?





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 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

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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.





Current Economic Data

GDP Inflation Unemployment Balance of Payments

UK

USA

Japan

Germany

Italy

Eurozone





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…

http://www.economist.com/





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.





Homework

• News article – research an article from a reputable source:

• BBC

• Financial Times

• Guardian

• Independent

• The Times

• The Economist

• Article must be on one of the following topics…

• UK inflation

• UK employment / unemployment

• UK interest rates

• UK economic growth

• Analyse the key issues raised in the article..





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

Documents

AS Economics PowerPoint Briefings Introduction to Macroeconomics AS Economics