Introduction to Economics WS2024 PDF

Introduction to Economics Lecture Eight: Intro to Macroeconomics + GDP WS2024 Assoc. Prof. Dr. Hebatallah Ghoneim 12/10/2024 1 Macroeconomics Macroeconomics is the...

Introduction to Economics Lecture Eight: Intro to Macroeconomics + GDP WS2024 Assoc. Prof. Dr. Hebatallah Ghoneim 12/10/2024 1 Macroeconomics Macroeconomics is the study of economy wide phenomena, including inflation, unemployment, and economic growth. 12/10/2024 2 The Economist as Policy Adviser Often, economists are asked to explain the causes of economic events. Why, for example, is unemployment higher for teenagers than for older workers? Sometimes, economists are asked to recommend policies to improve economic outcomes. What, for instance, should the government do to improve the economic well-being of teenagers? When economists are trying to explain the world, they are scientists. When they are trying to help improve it, they are policy advisers. 12/10/2024 3 Positive versus Normative Analysis In general, statements about the world come in two types: 1- Positive statements are descriptive. They make a claim about how the world is. 2- Normative statements are prescriptive. They make a claim about how the world ought to be. Posit.: Minimum-wage laws cause unemployment. Normat.: The government should raise the minimum wage. A key difference between positive and normative statements is how we judge their validity: Confirm or refute positive statements by examining evidence. Normative statement cannot be judged using data alone. Deciding what is good or bad policy is not just a matter of science. 12/10/2024 4  Economic Models: Circular Flow Diagrams 12/10/2024 5 Our Second Model: The Production Possibilities Frontier 12/10/2024 6 Measuring a Nation’s Income Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. This Photo by Unknown Author is licensed under CC BY-NC-ND 12/10/2024 7 Calculating GDP: Real vs Nominal 12/10/2024 8 The Components of GDP Y = C + I + G + NX. Consumption: Spending by households on goods and services, with the exception of purchases of new housing Investment: Spending on capital equipment, inventories, and structures, including household purchases of new housing. Government purchases: Spending on goods and services by the government. Net Exports: Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports). 12/10/2024 9 Measuring GDP 12/10/2024 10 Other Measures of Income Gross national product (GNP)= GDP + income citizens earn abroad - income foreigners earn domestically Net national product (NNP)= GNP – depreciation NNP=National Income (NI)= Profits + Wages+ Rent+ Interest Personal Income (PI)=NI-indirect taxes – delayed profits + government transfers Disposable Income (DI)= DI – Direct Income 12/10/2024 11 Is GDP a Good Measure of Economic Well-Being? GDP measures both the economy’s total income and the economy’s total expenditure on goods and services. GDP per capita tells us the income and expenditure of the average person in the economy. GDP is not, however, a perfect measure of well-being. GDP does not include the quality of life. Nevertheless, a larger GDP implies that individuals can afford a better quality of life. GDP excludes the informal sector. GDP excludes is the quality of the environment. 12/10/2024 12 Thank you 12/10/2024 13