Chapter 20Introduction to macroeconomics and national income accountingDavid Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 6th Edition, McGraw-Hill, 2000Power Point presentation by Peter Smith

20.*Macroeconomics is ...the study of the economy as a whole

it deals with broad aggregates

but uses the same style of thinking about economic issues as in microeconomics.

20.*Some key issues in macroeconomicsInflationthe rate of change of the general price levelUnemploymenta measure of the number of people looking for work, but who are without jobsOutputreal gross national product (GNP) measures total income of an economyit is closely related to the economy's total output

20.*More key issues in macroeconomicsEconomic growthincreases in real GNP, an indication of the expansion of the economys total outputMacroeconomic policya variety of policy measures used by the government to affect the overall performance of the economy

20.*Inflation in the UK, 1950-99Source: Economic Trends Annual Supplement, Labour Market Trends

20.*Inflation in selected European countries

20.*Inflation in UK, USA and Germany

20.*Unemployment in the UK, 1950-99Source: Economic Trends Annual Supplement, Labour Market Trends

20.*Unemploymentin selected European countries

20.*Unemploymentin UK, USA and Germany

20.*Economic growthin UK, USA and Germany

20.*The circular flow of income, expenditure and output

20.*Government in the circular flow

20.*Adding the foreign sectorTo incorporate the foreign sector into the circular flowwe must recognize that residents of a country will buy imports from abroadand that domestic firms will sell (export) goods and services abroad.

20.*GDP and GNPGross domestic product (GDP)measures the output produced by factors of production located in the domestic economyGross national product (GNP)measures the total income earned by domestic citizensGNP = GDP + net income from abroad

20.*Three measures of national outputExpenditurethe sum of expenditures in the economyY = C + I + G + X - ZIncomethe sum of incomes paid for factor serviceswages, profits, etc.Outputthe sum of output (value added) produced in the economy

20.*National income accounting: a summaryGNP(andGNI)atmarketprices

20.*What GNP does and does not measureSome care is needed:to distinguish between real and nominal measurementsto take account of population changesto remember that GNP is not a comprehensive measure of everything that contributes to economic welfare

**See the introduction to chapter 20 in the main text.*See Section 20-1 in the main text.*See Section 20-1 in the main text.*See Section 20-2 in the main text, and Figure 20-1.This version shows a longer period.*Data on the Harmonised Indices of Consumer Prices, taken from Labour Market Trends, February 2000.

*Data taken from Table 20-4 in the main text

*Data relate to the claimant count.*Data from Labour Market Trends, February 2000.

*Data taken from Table 20-4 in the main text

*Data taken from Table 20-4 in the main text

*Animation sequence for the circular flow with no government and no international trade.:1 begin with two sets of agents, Households and Firms2 Firms produce output3 which flows as income to households4 who allocate their income partly to Consumption and partly to Saving5 Household C is augmented by Firms' investment, to create total expenditure (C + I). so we have the circular flow

This is discussed in Section 20-4 of the main text.*No build-up this time, the whole Figure will spiral in to cue, adding the government into the circular flow. This is also in Section 20-4.*See Section 20-4 in the main text.*See Section 20-4 of the main text.

Income from abroad tends to be relatively small for the UK, but may be substantial for countries such as Egypt or the Philippines where there are large flows of repatriated income from workers abroad. *See Section 20-4 in the main text.

We use Z for imports because we have used I for investment, and will sue M for money...*See Figure 20-5 in the main text.Animation provides one block at a time from the left.*See Section 20-5 of the main text.