Chapter 20 Introduction to macroeconomics and national income accounting
David Begg, Stanley Fischer and Rudiger Dornbusch, Economics, 6th Edition, McGraw-Hill, 2000 Power Point presentation by Peter Smith
Macroeconomics is ...
n the study of the economy as a whole
n it deals with broad aggregates
n but uses the same style of thinking
about economic issues as in microeconomics.
20.2
Some key issues in macroeconomics
n Inflation
n Unemployment
– the rate of change of the general price level
– a measure of the number of people looking for
work, but who are without jobs
n Output
– real gross national product (GNP) measures
total income of an economy
n it is closely related to the economy's total output
20.3
More key issues in macroeconomics
n Economic growth
– increases in real GNP, an indication of the expansion of the economy’s total output
n Macroeconomic policy
– a variety of policy measures used by the
government to affect the overall performance of the economy
20.4
Inflation in the UK, 1950-99
30
25
20
.
a
.
15
p %
10
5
0
1950
1970
1990
Source: Economic Trends Annual Supplement, Labour Market Trends
20.5
Inflation in selected European countries
Germany
France
Belgium
EU
Finland
UK
Spain
Italy
Portugal
Greece
0
1
2
3
4
5
% change 1998 compared with 1997
20.6
Inflation in UK, USA and Germany
16
14
12
.
10
a
.
8
p %
6
4
2
0
1960-73 1973-81 1981-90 1990-98
20.7
UK USA Germany
Unemployment in the UK, 1950-99
14
12
10
.
a
8
.
6
p %
4
2
0
1950
1970
1990
Source: Economic Trends Annual Supplement, Labour Market Trends
20.8
Unemployment in selected European countries
Germany
France
Belgium
EU
Finland
UK
Spain
Italy
Portugal
Greece
0
5
10
15
20
% unemployment (ILO measure) 1998
20.9
Unemployment in UK, USA and Germany
10
8
.
6
a
.
p %
4
2
0
1960-73 1973-81 1981-90 1990-98
20.10
UK USA Germany
Economic growth in UK, USA and Germany
5
4
.
3
a
.
p %
2
1
0
1960-73 1973-81 1981-90 1990-98
20.11
UK USA Germany
The circular flow of income, expenditure and output I
C + I
C
S
Households Firms
Y
20.12
Government in the circular flow
I
C + I + G
C + I + G - Te
C
S
G
Te
Households Government Firms
B - Td
Y + B - Td
Y
20.13
Adding the foreign sector
n To incorporate the foreign sector
into the circular flow
n we must recognize that residents of
a country will buy imports from abroad
n and that domestic firms will sell
(export) goods and services abroad.
20.14
GDP and GNP
n Gross domestic product (GDP) – measures the output produced by
factors of production located in the domestic economy
n Gross national product (GNP)
– measures the total income earned by
domestic citizens
n GNP = GDP + net income from abroad
20.15
Three measures of national output
n Expenditure
– the sum of expenditures in the economy – Y = C + I + G + X - Z
n Income
– the sum of incomes paid for factor
services
– wages, profits, etc.
n Output
– the sum of output (value added)
produced in the economy
20.16
National income accounting: a summary
NYA
Deprec'n
NYA G
Indirect taxes
I
Profits, rents
X - Z
Self- employment
NNP at basic prices
National income
GDP at market prices
C
GNP (and GNI) at market prices
Wages and salaries
20.17
What GNP does and does not measure
n Some care is needed:
– to distinguish between real and nominal
measurements
– to take account of population changes – to remember that GNP is not a
comprehensive measure of everything that contributes to economic welfare
20.18
