8/8/2019 Ad as Macro
1/147
Aggregate Demand
and Supply andMacroeconomic
Problems
Aggregate Demand
and Supply andMacroeconomic
Problems
8/8/2019 Ad as Macro
2/147
Macroeconomic ObjectivesMacroeconomic Objectives
s Distinction between microeconomicsand macroeconomics
s The major macroeconomic issues
( economic growth
( unemployment
( inflation
( balance of payments and exchange rates
3 balance of payments deficits and surpluses
3 exchange rate movements
s Distinction between microeconomicsand macroeconomics
s The major macroeconomic issues
( economic growth
( unemployment
( inflation
( balance of payments and exchange rates
3balance of payments deficits and surpluses
3 exchange rate movements
8/8/2019 Ad as Macro
3/147
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
8/8/2019 Ad as Macro
4/147
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
8/8/2019 Ad as Macro
5/147
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum),
Unemployment (average %), Inflation (average % per annum)
8/8/2019 Ad as Macro
6/147
The Circular Flow of IncomeThe Circular Flow of Income
s The inner flows The inner flow
8/8/2019 Ad as Macro
7/147
Factor
payments
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Consumption of
domestically
produced goods
and services (Cd)
The circular flow of incomeThe circular flow of income
Firms
Households
8/8/2019 Ad as Macro
8/147
The Circular Flow of IncomeThe Circular Flow of Income
s Withdrawals( net saving
( net taxes
( import expenditure
s Injections
(
investment( government expenditure
( export expenditure
s Withdrawals( net saving
( net taxes
( import expenditure
s Injections
(
investment( government expenditure
( export expenditure
8/8/2019 Ad as Macro
9/147
Factor
payments
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Consumption of
domestically
produced goods
and services (Cd)
Investment (I)Investment (I)
Government
expenditure (G)
Government
expenditure (G)
Export
expenditure (X)
Export
expenditure (X)
BANKS, etc
Net
saving (S)
Net
saving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Import
expenditure (M)
Import
expenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
8/8/2019 Ad as Macro
10/147
The Circular Flow of IncomeThe Circular Flow of Income
s The relationship between injections andwithdrawals( the links between them
s The relationship between injections andwithdrawals( the links between them
8/8/2019 Ad as Macro
11/147
Factor
payments
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Consumption of
domestically
produced goods
and services (Cd)
Investment (I)Investment (I)
Government
expenditure (G)
Government
expenditure (G)
Export
expenditure (X)
Export
expenditure (X)
BANKS, etc
Net
saving (S)
Net
saving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Import
expenditure (M)
Import
expenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
8/8/2019 Ad as Macro
12/147
The Circular Flow of IncomeThe Circular Flow of Income
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
8/8/2019 Ad as Macro
13/147
The Circular Flow of IncomeThe Circular Flow of Income
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
s Equilibrium in the circular flow
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
s Equilibrium in the circular flow
8/8/2019 Ad as Macro
14/147
Factor
payments
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Consumption of
domestically
produced goods
and services (Cd)
Investment (I)Investment (I)
Government
expenditure (G)
Government
expenditure (G)
Export
expenditure (X)
Export
expenditure (X)
BANKS, etc
Net
saving (S)
Net
saving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Import
expenditure (M)
Import
expenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
8/8/2019 Ad as Macro
15/147
The Circular Flow of IncomeThe Circular Flow of Income
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
s
Equilibrium in the circular flows The circular flow and the four
macroeconomic objectives
s The relationship between injections andwithdrawals
( the links between them
( planned injections may not equal plannedwithdrawals
s
Equilibrium in the circular flows The circular flow and the four
macroeconomic objectives
8/8/2019 Ad as Macro
16/147
Factor
payments
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Consumption of
domestically
produced goods
and services (Cd)
Investment (I)Investment (I)
Government
expenditure (G)
Government
expenditure (G)
Export
expenditure (X)
Export
expenditure (X)
BANKS, etc
Net
saving (S)
Net
saving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Import
expenditure (M)
Import
expenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
8/8/2019 Ad as Macro
17/147
Measuring national incomeMeasuring national income
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
8/8/2019 Ad as Macro
18/147
The circular flow of national income and expenditureThe circular flow of national income and expenditure
8/8/2019 Ad as Macro
19/147
The circular flow of national income and expenditureThe circular flow of national income and expenditure
(1) Production(1) Production
(2) Incomes(2) Incomes (3) Expenditure(3) Expenditure
8/8/2019 Ad as Macro
20/147
Measuring national incomeMeasuring national income
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach
8/8/2019 Ad as Macro
21/147
Measuring national incomeMeasuring national income
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach( measuring GVA
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach( measuring GVA
8/8/2019 Ad as Macro
22/147
UK GVA ( d t b d ) 2001UK GVA ( d t b d ) 2001
8/8/2019 Ad as Macro
23/147
Agriculture, forestry and fishing 8 241 m
Mining, energy and water supply 41 378 m
Manufacturing
153 132 m
Construction 47 327 m
Wholesale and retail trade; repairs 106 766 m
Hotels and restaurants 29 359m
Transport and communication 70 252 m
Banking, finance, insurance, etc. 6 667 m
Letting of property 209 839 m
Public administration and defence 42 096 m
Education, health and social work 114 069 m
Other services 45 101 m
Total GVA 874 227 m
UK GVA (product-based measure): 2001UK GVA (product-based measure): 2001
UK GVA ( d t b d ) 2001UK GVA ( d t b d ) 2001
8/8/2019 Ad as Macro
24/147
0.9
4.7
17.5
5.4
12.2
3.4
8.0
0.8
24.0
4.8
13.0
5.2
100.0
Agriculture, forestry and fishing 8 241 m
Mining, energy and water supply 41 378 m
Manufacturing
153 132 m
Construction 47 327 m
Wholesale and retail trade; repairs 106 766 m
Hotels and restaurants 29 359m
Transport and communication 70 252 m
Banking, finance, insurance, etc. 6 667 m
Letting of property 209 839 m
Public administration and defence 42 096 m
Education, health and social work 114 069 m
Other services 45 101 m
Total GVA 874 227 m
Percen
tageofGV
A
UK GVA (product-based measure): 2001UK GVA (product-based measure): 2001
8/8/2019 Ad as Macro
25/147
UK GVA b t f i 2001UK GVA b t f i 2001
8/8/2019 Ad as Macro
26/147
Compensation of employees
(wages and salaries)556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)
238 625 m
Mixed incomes
60 073 m
Tax less subsidies on production
(other than those on products) plus
statistical discrepancy 19 158m
UK GVA by category of income: 2001UK GVA by category of income: 2001
UK GVA b t f i 2001UK GVA b categor of income 2001
8/8/2019 Ad as Macro
27/147
Compensation of employees
(wages and salaries)556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)
238 625 m
Mixed incomes
60 073 m
Tax less subsidies on production
(other than those on products) plus
statistical discrepancy 19 158m
Total GVA 874 227m
UK GVA by category of income: 2001UK GVA by category of income: 2001
UK GVA b t f i 2001UK GVA by category of income: 2001
8/8/2019 Ad as Macro
28/147
63.6
27.3
6.9
2.2
100.0
Compensation of employees
(wages and salaries)556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)
238 625 m
Mixed incomes
60 073 m
Tax less subsidies on production
(other than those on products) plus
statistical discrepancy 19 158m
Total GVA 874 227m
UK GVA by category of income: 2001UK GVA by category of income: 2001
Perc
entageofGVA
8/8/2019 Ad as Macro
29/147
8/8/2019 Ad as Macro
30/147
GVA (gross value added at basic prices) 874 227m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
8/8/2019 Ad as Macro
31/147
GVA (gross value added at basic prices) 874 227m
plus Taxes on products 120 499m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
8/8/2019 Ad as Macro
32/147
GVA (gross value added at basic prices) 874 227m
plus Taxes on products 120 499m
less Subsidies on products 6 712m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
8/8/2019 Ad as Macro
33/147
GVA (gross value added at basic prices) 874 227m
plus Taxes on products 120 499m
less Subsidies on products 6 712m
GDP (at market prices) 988 014m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
8/8/2019 Ad as Macro
34/147
Measuring national incomeMeasuring national income
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach( measuring GVA
s The income approach
s The expenditure approach
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
(
the income approach( the expenditure approach
s The product approach( measuring GVA
s The income approach
s The expenditure approach
UK GDP b t f dit GNY d NNY 2001UK GDP b t f dit GNY d NNY 2001
8/8/2019 Ad as Macro
35/147
million
Consumption expenditure of households and NPISH(C) 655 265
Government final consumption (G) 190 663
Gross capital formation (I) 164 048
Exports of goods and services (X) 268 451
less Imports of goods and services (M)290 912
Statistical discrepancy 499
Gross domestic product (GDP) (at market prices) 988 014
UK GDP by category of expenditure, GNY and NNY: 2001UK GDP by category of expenditure, GNY and NNY: 2001
8/8/2019 Ad as Macro
36/147
Measuring national incomeMeasuring national income
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
( the income approach
( the expenditure approach
s The product approach( measuring GVA
s The income approach( from GVA to GDP
s From GDP to net national income (NNY)
s GDP: the measure of national incomes Methods of measuring GDP
( the product approach
( the income approach
( the expenditure approach
s The product approach( measuring GVA
s The income approach( from GVA to GDP
s From GDP to net national income (NNY)
8/8/2019 Ad as Macro
37/147
UK GDP b categor of e pendit re GNY and NNY 2001UK GDP by category of expenditure GNY and NNY: 2001
8/8/2019 Ad as Macro
38/147
million
Consumption expenditure of households and NPISH(C) 655 265
Government final consumption (G) 190 663
Gross capital formation (I) 164 048
Exports of goods and services (X) 268 451
less Imports of goods and services (M)290 912
Statistical discrepancy 499
Gross domestic product (GDP) (at market prices) 988 014
plus Net income from abroad 5 756
Gross national income (GNY) 993 770
less Capital consumption (depreciation) 111 275
Net national income (NNY) 882 495
UK GDP by category of expenditure, GNY and NNY: 2001UK GDP by category of expenditure, GNY and NNY: 2001
8/8/2019 Ad as Macro
39/147
8/8/2019 Ad as Macro
40/147
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
41/147
Human Development Index (HDI) for selected countries (2000)p ( ) ( )
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
42/147
u a e e op e t de ( ) o se ected cou t es ( 000)p ( ) ( )
8/8/2019 Ad as Macro
43/147
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
44/147
p ( ) ( )p ( ) ( )
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
45/147
p ( ) ( )p ( ) ( )
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
46/147
p ( ) ( )p ( ) ( )
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
47/147
p ( ) ( )( ) ( )
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
8/8/2019 Ad as Macro
48/147
p ( ) ( )
8/8/2019 Ad as Macro
49/147
Growth and the Business CycleGrowth and the Business Cycle
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
The business cycleThe business cycle
8/8/2019 Ad as Macro
50/147
O
Nation a
loutput
Time
Potential output
The business cycleThe business cycle
Actualoutput
8/8/2019 Ad as Macro
51/147
s Growth in actual and potential output
s Economic growth and the businesscycle
( fluctuations in actual growth
( the phases of the business cycle
s Growth in actual and potential output
s Economic growth and the businesscycle
( fluctuations in actual growth
( the phases of the business cycle
Growth and the Business CycleGrowth and the Business Cycle
The business cycleThe business cycle
8/8/2019 Ad as Macro
52/147
O
Nation a
loutput
Time
Potential output
Actualoutput
1
2
3
4
1
2
3
4
The business cycley
8/8/2019 Ad as Macro
53/147
s Growth in actual and potential output
s Economic growth and the businesscycle
( fluctuations in actual growth
( the phases of the business cycle
( trend growth
s Growth in actual and potential output
s Economic growth and the businesscycle
( fluctuations in actual growth
( the phases of the business cycle
( trend growth
Growth and the Business CycleGrowth and the Business Cycle
The business cycleThe business cycle
8/8/2019 Ad as Macro
54/147
O
Nation a
loutput
Time
Potential output
Actualoutput
Trend
output
yy
G C
8/8/2019 Ad as Macro
55/147
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
(
the phases of the business cycle( long-term output trend
( the business cycle in practice
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
( the phases of the business cycle
( long-term output trend
( the business cycle in practice
Growth and the Business CycleGrowth and the Business Cycle
G h d h B i C l
8/8/2019 Ad as Macro
56/147
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
(
the phases of the business cycle( long-term output trend
( the business cycle in practice
3 the irregularity of the cycle
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
( the phases of the business cycle
( long-term output trend
( the business cycle in practice
3 the irregularity of the cycle
Growth and the Business CycleGrowth and the Business Cycle
8/8/2019 Ad as Macro
57/147
G th d th B i C lG th d th B i C l
8/8/2019 Ad as Macro
58/147
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
(
the phases of the business cycle( long-term output trend
( the business cycle in practice
3 the irregularity of the cycle
3 the length of the phases
3 the magnitude of the phases
s Growth in actual and potential growth
s Economic growth and the business cycle
( fluctuations in actual growth
( the phases of the business cycle
( long-term output trend
( the business cycle in practice
3 the irregularity of the cycle
3 the length of the phases
3 the magnitude of the phases
Growth and the Business CycleGrowth and the Business Cycle
G th d th B i C lG th d th B i C l
8/8/2019 Ad as Macro
59/147
s Causes of fluctuations in actual growth
( aggregate demand
(
aggregate demand relative to potentialoutput
s Actual growth in practice
( experience since 1970
s Causes of fluctuations in actual growth
( aggregate demand
(
aggregate demand relative to potentialoutput
s Actual growth in practice
( experience since 1970
Growth and the Business CycleGrowth and the Business Cycle
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
60/147
Annua
lgrowthrat e
(%
)
UK
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
61/147
Annua
lgrowthrat e
(%
)
UK
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
62/147
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Annua
lgrowthrat e
(%
)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
63/147
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Annua
lgrowthrat e
(%
)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
64/147
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Annua
lgrowthrat e
(%
)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
65/147
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Annua
lgrowthrat e
(%
)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
66/147
Annua
lgrowthrat e
(%
)
UK
France USA
Germany
-2
-1
0
1
2
3
4
5
6
7
8
9
10
8/8/2019 Ad as Macro
67/147
8/8/2019 Ad as Macro
68/147
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
8/8/2019 Ad as Macro
69/147
Annua
lgrowthrat e
(%
)
UK
France USA
GermanyJapan
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Growth and the Business CycleGrowth and the Business Cycle
8/8/2019 Ad as Macro
70/147
s
Causes of potential growth( increases in the quantity of factors
3 capital
3 labour
3 land and raw materials
3 the problem of diminishing returns
( increases in factor productivity
s
Policies to achieve growth( demand-side and supply-side policies
( market-orientated and interventionistpolicies
s
Causes of potential growth( increases in the quantity of factors
3 capital
3 labour
3 land and raw materials3 the problem of diminishing returns
( increases in factor productivity
s
Policies to achieve growth( demand-side and supply-side policies
( market-orientated and interventionistpolicies
Growth and the Business CycleGrowth and the Business Cycle
8/8/2019 Ad as Macro
71/147
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
72/147
UK
2
4
6
8
10
12
14
Unemployment(%o
fw
orkforce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
73/147
UK
2
4
6
8
10
12
14
Unemployment(%o
fw
orkforce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
74/147
2
4
6
8
10
12
14
Unemployment(%o
fw
orkforce)
UK
France
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
75/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
76/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
77/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
78/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France USA
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
79/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France USA
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
80/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France USA
Germany Japan
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
81/147
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
UK
France USA
Germany Japan
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
82/147
UK
France USA
Germany Japan
OECD
2
4
6
8
10
12
14
Unemployment(%o
fworkforce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
8/8/2019 Ad as Macro
83/147
UK
France USA
Germany Japan
OECD
2
4
6
8
10
12
14
Unemploy
ment(%o
fworkforce)
Standardised unemployment rates in differentsectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
8/8/2019 Ad as Macro
84/147
sectors of the labour market (2002)sectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
8/8/2019 Ad as Macro
85/147
sectors of the labour market (2002)sectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
8/8/2019 Ad as Macro
86/147
sectors of the labour market (2002)sectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
Standardised unemployment rates in differentsectors of the labour market (2002)
8/8/2019 Ad as Macro
87/147
sectors of the labour market (2002)sectors of the labour market (2002)
8/8/2019 Ad as Macro
88/147
Disequilibrium unemploymentDisequilibrium unemployment
8/8/2019 Ad as Macro
89/147
QeO
Averag
e(real)wage
rate
No. of workers
ASL
ADL
We
8/8/2019 Ad as Macro
90/147
Disequilibrium unemploymentDisequilibrium unemployment
8/8/2019 Ad as Macro
91/147
O
Averag
e(real)wage
rate
No. of workers
ASL
ADL
We
W2
Q2 Q1
B A
UnemploymentUnemployment
8/8/2019 Ad as Macro
92/147
UnemploymentUnemployment
s Unemployment and the labour market( the aggregate demand and supply of labour
( equilibrium in the model
( disequilibrium unemployment
( equilibrium unemployment
s Unemployment and the labour market( the aggregate demand and supply of labour
( equilibrium in the model
( disequilibrium unemployment
( equilibrium unemployment
Equilibrium unemploymentEquilibrium unemployment
8/8/2019 Ad as Macro
93/147
O
Averag
e(real)wage
rate
No. of workers
ADL
We
ASL
e
Qe
Equilibrium unemploymentEquilibrium unemployment
8/8/2019 Ad as Macro
94/147
Q2QeO
Averag
e(
real)wage
rate
No. of workers
ASL
ADL
We
N
e d
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
8/8/2019 Ad as Macro
95/147
O
Averag
e(
real)wage
rate
No. of workers
ADL
We
e
Qe
ASL
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
8/8/2019 Ad as Macro
96/147
O
Averag
e(
real)wage
rate
No. of workers
ASL
ADL
We
W2 b a
e
Disequilibriumunemployment
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
8/8/2019 Ad as Macro
97/147
O
Averag
e(
real)wage
rate
No. of workers
ASL
ADL
We
W2 b a
e
N
c
Equilibriumunemployment
Disequilibriumunemployment
UnemploymentUnemployment
8/8/2019 Ad as Macro
98/147
p yp y
s Disequilibrium unemployment
( real-wage (classical) unemployment
( demand-deficient (cyclical) unemployment
( unemployment arising from a growth in thelabour supply
s Disequilibrium unemployment
( real-wage (classical) unemployment
( demand-deficient (cyclical) unemployment
( unemployment arising from a growth in thelabour supply
UnemploymentUnemployment
8/8/2019 Ad as Macro
99/147
p yp y
s Equilibrium unemployment
( frictional (search) unemployment
(
structural unemployment3 changing pattern of demand
3 technological unemployment
3 regional unemployment
( seasonal unemployment
s Equilibrium unemployment
( frictional (search) unemployment
(
structural unemployment3 changing pattern of demand
3 technological unemployment
3 regional unemployment
( seasonal unemployment
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
100/147
gg g pp ygg g pp y
s
The aggregate demand curves
The aggregate demand curve
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
101/147
O
Pricelevel
National output
AD
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
102/147
gg g pp ygg g pp y
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
103/147
gg g pp ygg g pp y
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
8/8/2019 Ad as Macro
104/147
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
105/147
gg g y
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
106/147
O
Pricelevel
National output
AD
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
107/147
s
The aggregate demand curve( Why aggregate demand curves slope
downwards
3 import effect
3 interest-rate effect
3 savings effect
s
The aggregate demand curve( Why aggregate demand curves slope
downwards
3 import effect
3 interest-rate effect
3 savings effect
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
108/147
O
Pricelevel
National output
AD
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
109/147
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3
import effect3 interest-rate effect
3 savings effect
s The aggregate supply curve
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3
import effect3 interest-rate effect
3 savings effect
s The aggregate supply curve
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
110/147
O
Pricelevel
National output
AS
AD
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
111/147
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
3 savings effect
s The aggregate supply curve
( Why aggregate supply curves generallyslope upwards
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
3 savings effect
s The aggregate supply curve
( Why aggregate supply curves generallyslope upwards
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
112/147
O
Pricelevel
National output
AS
AD
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
113/147
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
3 savings effect
s The aggregate supply curve
( Why aggregate supply curves generallyslope upwards
s Equilibrium
s The aggregate demand curve
( Why aggregate demand curves slopedownwards
3 import effect
3 interest-rate effect
3 savings effect
s The aggregate supply curve
( Why aggregate supply curves generallyslope upwards
s Equilibrium
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
114/147
O
Pricelevel
National output
AS
AD
Pe
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
8/8/2019 Ad as Macro
115/147
O
Pricelevel
National output
AS
AD
Pe
P2ab
Aggregate Demand and SupplyAggregate Demand and Supply
8/8/2019 Ad as Macro
116/147
s The aggregate demand curve( Why aggregate demand curves slope
downwards3 import effect
3
interest-rate effect3 savings effect
s The aggregate supply curve( WhyAScurves generally slope upwards
s Equilibrium( Effect of a shift in theAD curve
s The aggregate demand curve( Why aggregate demand curves slope
downwards3 import effect
3
interest-rate effect3 savings effect
s The aggregate supply curve( WhyAScurves generally slope upwards
s Equilibrium( Effect of a shift in theAD curve
InflationInflation
8/8/2019 Ad as Macro
117/147
s Defining inflation
s The costs of inflation
(
redistribution( uncertainty
( balance of payments
( resources used to cope with inflation
s Experience of inflation since 1965
s
Defining inflation
s The costs of inflation
(
redistribution( uncertainty
( balance of payments
( resources used to cope with inflation
s Experience of inflation since 1965
UK26
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
118/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
UK26
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
119/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
24
26UK
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
120/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15
24
26UK
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
121/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15
24
26UK USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
122/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15
24
26UK USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
123/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15
24
26UK USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
124/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15 Japan
24
26UK USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
125/147
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
EU 15 Japan
UK USAOECD24
26Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
126/147
EU 15 JapanOECD
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
UK USAOECD24
26Inflation rates in selected industrial countriesInflation rates in selected industrial countries
8/8/2019 Ad as Macro
127/147
EU 15 JapanOECD
0
2
4
6
8
10
12
14
16
18
20
22
24
Inflation(%i
ncreaseinretailp
rices)
InflationInflation
8/8/2019 Ad as Macro
128/147
s Types of inflation( demand pull
s Types of inflation( demand pull
Demand-pull inflationDemand-pull inflation
8/8/2019 Ad as Macro
129/147
O
Pr
icelevel
National output
AS
AD1
P1
Q1
8/8/2019 Ad as Macro
130/147
8/8/2019 Ad as Macro
131/147
InflationInflation
8/8/2019 Ad as Macro
132/147
s Types of inflation( demand pull
( cost push
s Types of inflation( demand pull
( cost push
InflationInflation
8/8/2019 Ad as Macro
133/147
s Types of inflation( demand pull
( cost push3wage push
s Types of inflation( demand pull
( cost push3wage push
InflationInflation
8/8/2019 Ad as Macro
134/147
s Types of inflation( demand pull
( cost push3wage push
3 profit push
s Types of inflation( demand pull
( cost push3wage push
3profit push
InflationInflation
8/8/2019 Ad as Macro
135/147
s Types of inflation( demand pull
( cost push3wage push
3 profit push3 import-price push
s Types of inflation( demand pull
( cost push3wage push
3profit push3 import-price push
Cost-push inflationCost-push inflation
8/8/2019 Ad as Macro
136/147
O
Pricelevel
National output
AS1
AD
P1
Q1
AS
Cost-push inflationCost-push inflation
8/8/2019 Ad as Macro
137/147
O
Pricelevel
National output
AS1
AD
P1
Q1
AS2
AS
Cost-push inflationCost-push inflation
8/8/2019 Ad as Macro
138/147
O
Pricelevel
National output
AS1
AD
P1
Q1
AS2
P2
Q2
InflationInflation
8/8/2019 Ad as Macro
139/147
s Types of inflation
( demand pull
( cost push
3
wage push3 profit push
3 import-price push
(
the interaction of demand-pull and cost-push inflation
s Types of inflation
( demand pull
( cost push
3wage push
3profit push
3 import-price push
(
the interaction of demand-pull and cost-push inflation
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
8/8/2019 Ad as Macro
140/147
O
Pricelevel
National output
AS1
AD1
P1
AS
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
8/8/2019 Ad as Macro
141/147
O
Pricelevel
National output
AS1
AD1
P1
AS2
AD2
P2
AS3AS
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
8/8/2019 Ad as Macro
142/147
O
Pricelevel
National output
AS1
AD1
P1
AD2
P2
3
AD3
P3
AS2
InflationInflation
8/8/2019 Ad as Macro
143/147
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
InflationInflation
8/8/2019 Ad as Macro
144/147
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
InflationInflation
8/8/2019 Ad as Macro
145/147
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
s Policies to tackle inflation
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
s Policies to tackle inflation
InflationInflation
8/8/2019 Ad as Macro
146/147
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
s Policies to tackle inflation( demand-side policies
s Types of inflation( demand pull
( cost push3wage push
3
profit push3 import-price push
( structural (demand shift)
( expectations and inflation
s Policies to tackle inflation( demand-side policies
8/8/2019 Ad as Macro
147/147