Introduction to Macroeconomics (ECON 101) PDF

26/08/2024 Introduction to Macroeconomics Topic 1 – ECON 101 Prepared by Axl Fitzgerald L. Bulawan [email protected] Topic Outline What is macroeconomics? What does it study? How is macroeconomic studied? How are we goi...

26/08/2024 Introduction to Macroeconomics Topic 1 – ECON 101 Prepared by Axl Fitzgerald L. Bulawan [email protected] Topic Outline What is macroeconomics? What does it study? How is macroeconomic studied? How are we going to proceed with this course? Why should we study macroeconomics? 1 26/08/2024 2  26/08/2024 These news clippings all relate to the macroeconomy. These topics are all things that are studied in macroeconomics. 3  26/08/2024 What is macroeconomics? What does it study? What is macroeconomics? Macroeconomics is the study of the economy as a whole, including growth in incomes, changes in prices, and the rate of unemployment. Macroeconomists attempt both to explain economic events and to devise policies to improve economic performance. 4  26/08/2024 How does macroeconomics differ from microeconomics? Microeconomics is the study of how firms and individuals make decisions and how these decisionmakers interact, macroeconomics study how decisions made by firms and households in the aggregate affect the whole of the economy. What does macroeconomics study? Is the Philippines’ economy really getting stronger or weaker? What policies could we enact to grow our economy? 5  26/08/2024 What does macroeconomics study? Is inflation necessarily bad? What does a depreciating Peso mean? How is macroeconomic studied? 6  26/08/2024 How is macroeconomic studied? Economists also use models to understand the world, implications about human phenomena that depicts economic behavior. Models have two kinds of variables: endogenous variables and exogenous variables. Endogenous variables are those variables that a model tries to explains. Exogenous variables are those variables that a model takes as given. How is macroeconomic studied? Is economics too simplistic? Economists use a variety of models to simplify economic phenomenon. While they may seem simplistic, they reveal important findings. Often, simplicity is better to prove a point. However, economics have more advanced models that take in multiple variables of the economy. 7  26/08/2024 How is macroeconomic studied? In introductory economics and microeconomics, it is assumed that the market clears. Market clearing / flexible prices means the model is always in equilibrium, e.g. price quickly changes after changes in quantity demanded/supplied. It is often not the case. In macroeconomics, we need to distinguish between flexible and sticky prices. Sticky prices means that prices and wages change slowly as a result of other changes. How is macroeconomic studied? Various government agencies survey households and firms to learn about their economic activity—how much they are earning, what they are buying, what prices they are charging, how much they are producing, and so on. From these surveys, the government computes various statistics that summarize the state of the economy. Economists use these statistics to study the economy; policymakers use them to monitor developments and formulate policies. 8  26/08/2024 How is macroeconomic studied? How is macroeconomic studied? The most common economic indicators used in macroeconomics are the following: Gross Domestic Product (GDP)—value of economic activity Consumer Price Index (CPI)/Inflation—measures cost of living Employment/Unemployment Rate—measuring the labor force and joblessness 9  26/08/2024 How is macroeconomic studied? Presyo Trabaho Kita Consumer Employment / Gross Price Index Unemployment Domestic (CPI) / Rate Product Inflation (GDP) How is macroeconomic studied? GDP is the total economic output in an economy, measuring how much an economy produces. GDP can be viewed in two ways: as the total income of everyone in the economy or the total expenditure on the economy’s output of goods and services 10  26/08/2024 How is macroeconomic studied? Nominal GDP is the GDP at current prices, while real GDP is GDP at constant prices. GDP Deflator is another measure of the price level. 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝑮𝑫𝑷 𝑮𝑫𝑷 𝑫𝒆𝒇𝒍𝒂𝒕𝒐𝒓 = 𝑹𝒆𝒂𝒍 𝑮𝑫𝑷 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝑮𝑫𝑷 = 𝑹𝒆𝒂𝒍 𝑮𝑫𝑷 𝒙 𝑮𝑫𝑷 𝑫𝒆𝒇𝒍𝒂𝒕𝒐𝒓 𝑵𝒐𝒎𝒊𝒏𝒂𝒍 𝑮𝑫𝑷 𝑹𝒆𝒂𝒍 𝑮𝑫𝑷 = 𝑮𝑫𝑷 𝑫𝒆𝒇𝒍𝒂𝒕𝒐𝒓 How is macroeconomic studied? 𝑌 = 𝐶 + 𝐼 + 𝐺 + 𝑁𝑋 The national income accounts shows the components of GDP, where: GDP (Y) Consumption (C) Investment (I) Government spending (G) Net exports (NX) = Exports – Imports Exports (X) Imports (I) 11  26/08/2024 How is macroeconomic studied? Other measures of income include: Gross National Product (GNP) – economic output produced by nationals of an Are POGO’s economy. As such, it excludes economic output produced income by foreigners in the Philippines. calculated in 𝑮𝑵𝑷 = 𝑮𝑫𝑷 the GDP? + 𝑭𝒂𝒄𝒕𝒐𝒓 𝑷𝒂𝒚𝒎𝒆𝒏𝒕𝒔 𝒇𝒓𝒐𝒎 𝑨𝒃𝒓𝒐𝒂𝒅 − 𝑭𝒂𝒄𝒕𝒐𝒓 𝑷𝒂𝒚𝒎𝒆𝒏𝒕𝒔 𝒕𝒐 𝑨𝒃𝒓𝒐𝒂𝒅 12  26/08/2024 How is macroeconomic studied? The consumer price index (CPI) represents the current prices of a certain bundle of good relative to a base year. 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 𝑪𝑷𝑰 = 𝑩𝒂𝒔𝒆 𝒚𝒆𝒂𝒓 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒃𝒂𝒔𝒌𝒆𝒕 𝒐𝒇 𝒈𝒐𝒐𝒅𝒔 Measures increases in the price level, i.e. the inflation rate. 𝑪𝑷𝑰𝒄𝒖𝒓𝒓𝒆𝒏𝒕 − 𝑪𝑷𝑰𝒃𝒂𝒔𝒆 𝑰𝒏𝒇𝒍𝒂𝒕𝒊𝒐𝒏 𝒓𝒂𝒕𝒆 = 𝑪𝑷𝑰𝒃𝒂𝒔𝒆 13  26/08/2024 How is macroeconomic studied? Working age population – Filipinos aged 15-64 years old Labor Force – People of a certain age (15 years and above in the Philippines) who are: Working (Employed) Not working or engaged in business but are actively looking for work (Unemployed) Not in the Labor Force – Neither employed nor unemployed, e.g. students, housewives, tambay How is macroeconomic studied? Unemployed – Part of the labor force but not engaged in work or business Employed – Worked at least one hour in a week Underemployed – Employed but looking for additional work or not working a full week, i.e. part timers Also refers to situation in which workers are forced to work in low-paying or low-skill jobs. Underemployment rate – Proportion of unemployed individuals relative to the labor force 14 26/08/2024 15  26/08/2024 Review Are drug dealers part of the calculation of GDP? Why is GDP both treated as income and expenditure? If the July 2024 inflation rate is 6.0%, does that mean that the price level from June to July 2024 increased by 6.0%? What is the Bangko Sentral ng Pilipinas’ target for the inflation rate? Are you, as students, part of the unemployed? 16  26/08/2024 How are we going to proceed with this course? How are we going to proceed with this course? Long run, flexible prices Very long run, flexible prices Short run, sticky prices 17  26/08/2024 How are we going to proceed with this course? Mode of learning both asynchronous and synchronous. You are expected to read learning material before class. Lectures will primarily be a distillation of the topic, incorporating locally relevant information, and a consultation for whatever clarifications or questions you might have on the topic or the activities. First two weeks full face-to-face. Next week thereafter, we will meet once a week. Schedule is in the Course Guide. In case of class suspensions, we will conduct makeup classes during the other day as necessary. How are we going to proceed with this course? 18  26/08/2024 How are we going to proceed with this course? Strict academic honesty Strictly no grade solicitation Promptness Safe space Consultation hours Why should we study macroeconomics? 19  26/08/2024 Why should we study macroeconomics? We make economic decisions all the time— what we eat, when we should marry, and where to invest. More importantly, we elect leaders that decide economic policies for us. Why should we study macroeconomics? As management and accountancy students, understanding macroeconomics is important. Appreciating economic phenomena is relevant in making entrepreneurial and investment decisions. 20  26/08/2024 Thank you! Topic 1 – ECON 101 Prepared by Axl Fitzgerald L. Bulawan [email protected] 21