WEEK 6
Macro Economics - The National Economy
Macro Economic objectives * Reduce unemployment * Control inflation * Increase GDP * Balance/surplus on balance of payments * Conflicting Economic objectives
Aggregate demand Total spending on goods and services produced in the economy. It consists of four elements, consumer expenditure (C), investment (I), government expenditure (G) and the expenditure on exports (X), less any expenditure on foreign goods and services (M). Thus AD = C + I + G + X – M.
The circular flow of income * Withdrawals (W) * Transfer payments * Injections (J)
Measuring National Income and Output
Gross domestic product (GDP) The value of output produced within the country over a 12 month period.
The three ways of measuring GDP * Product method * Income method * Expenditure method
Taking account of Inflation * Nominal GDP and real GDP * Per-capita measures * Purchasing-power parity rate
GDP statistics and a country’s standard of living?
Problems of measuring national output * Non-marketed items * The ‘underground’ economy
Problems of using GDP statistics to measure welfare * Production does not equal consumption * Production has human costs * GDP ignores externalities
Economic growth and the business cycle
Causes of long-term growth
Increases in the quantity and quality of resources: capital labour, land and raw materials
The benefits of growth * It leads to increased levels of consumption * It can help avoid other