Unit 1 Realm of Macroeconomics (UCC)

ECN201: Principles of Macroeconomics ONL-D DR. VERONICA REID-JOHNSON  ZOOM CLASS ZOOM ROOM OPENS: 5:50PM CLASSES START 6:05 PM  WHO AM I? DR. VERONICA REID-JOHNSON [email protected]  PhD Business & Management, Universit...

ECN201: Principles of Macroeconomics ONL-D DR. VERONICA REID-JOHNSON  ZOOM CLASS ZOOM ROOM OPENS: 5:50PM CLASSES START 6:05 PM  WHO AM I? DR. VERONICA REID-JOHNSON [email protected]  PhD Business & Management, University of Nottingham  MSc. Management, UWI St Augustine  BSc. Economics, UWI Mona/St. Augustine  Beautiful Earth Natural Hair Spa, 2011-2018  UCC Assistant Professor, 2020-Present  TEACHING PHILOSOPHY  Active Engagement: I emphasise active learning, where students are encouraged to participate, ask questions, and engage in discussions and hands-on activities.  Real-World Relevance: I strive to make the content relevant to the real world. I draw on practical examples, case studies, and current industry trends.  Practical Skills: In addition to theoretical knowledge, students can expect to develop practical skills that are directly applicable to entrepreneurship.  Feedback Loop: I provide timely and constructive feedback on assignments and assessments, and I encourage students to use feedback as a tool for improvement.  LECTURE FORMATS Blended Format (Lecture + Group Discussion): – Lecture on macroeconomic principles – Break-out group discussions/case studies where you apply these concepts. Flipped Classroom: – Pre-lecture readings/videos on core topics. – In-class discussion of readings and apply theory.  TO BE SUCCESSFUL YOU MUST: Read chapter before class Read class notes before class Prepare with your group before class (as needed)  COURSE TOPICS o Unit 1 The Realm of Macroeconomics o Unit 2 The Goals of Macroeconomics Policy o Unit 3 Income and Spending o Unit 4 Demand-side Equilibrium and Changes on the Demand Side WEEK 8: MSA o Unit 5 Supply-side Equilibrium o Unit 6 Fiscal and Monetary Policy o Unit 7 Money and the Banking System o Unit 8 International Trade GENERAL OBJECTIVES o The course is intended to expose you to theories and concepts of macroeconomics. o Students are expected to understand, concepts of aggregate income, employment, and the price level, economic stabilization policies, economic growth and development and international economics. o Importantly, at the end of the course, you should be able to apply the economic theories you have learnt to real life situations.  COURSE LEARNING OUTCOMES (1) o Describe why household, business, government, and global behaviour determine the aggregate demand for goods and services. o Outline the behavior of businesses and how the rest of the world determines the aggregate supply of goods and services. o Explain how aggregate demand and aggregate supply interacts to drive a free market economy. o Evaluate the implications of interference in a market economy, including government policy. o Outline the basics of national income accounting.  COURSE LEARNING OUTCOMES (2) o Explain the causes and consequences of business cycles. o Explain the roles of fiscal and monetary policy in fighting recessions and inflation. o Analyse the factors that contribute to and detract from long-term economic growth. o Apply economic reasoning to understand the operation of an economy. o Explain the interaction between the domestic economy and the rest of the world. o Apply basic international trade and finance concepts to global pricing issues, including working with exchange rates.  RECOMMENDED READING Mankiw, G. (2019). Macroeconomics. Macmillan Higher Education. Sloman, J., Garratt, D., Guest, J. (2018). Economics. Pearson.  COURSE ASSESSMENTS Areas of Assessment Week Summary Weighting Assessment 1 (Individual 4 assessment) 10% Mid Semester Assignment 8 (MSA) 20% 10 Assessment 3 (Group work) 20% Assessment 4 (Group 10 presentation) 10% TOTAL Coursework Assessment 60% FINAL Semester Assessment (2-hr timed exam) 40% Total 100%  Objectives  The meaning of Economics  Difference between microeconomics and macroeconomics  Economics Economics is the social science that studies the production, distribution, and consumption of goods and services.  The Meaning of Economics Economics is a social science studying human behaviour, and in particular, the way in which individuals and societies choose among the alternative uses of scarce resources to satisfy wants.  Microeconomics VS Macroeconomics Microeconomics: It is the branch of economics that studies individual units e.g., households, firms and industries and how these units interrelate.  Microeconomics VS Macroeconomics Macroeconomics: It is the branch of economics that studies economic aggregates (grand totals). It is concerned with the workings of the wider economy, including the measurement and determination of national income, output and expenditure, and the consequences for employment and inflation. It focuses on studying the economic behaviour of entire economies.  Objectives  Concept of “aggregation”  Show how demand/supply analysis are common to both microeconomics and macroeconomics  Explain the concept of “aggregate demand” and “aggregate supply”  Explain using graphs (diagrams) the following macroeconomics concepts: inflation, recession and unemployment, economic growth  Objectives  Discuss policies which the government may use to combat the problems of inflation and recession and unemployment (use graphs to illustrate) Aggregate Demand/Aggregate Supply Total demand for goods and services in the economy. Total supply of goods and services in an economy.  Aggregates Aggregation means combining many individual markets into one overall market. The dollar is the common denominator or a measuring unit of all goods and services.  Demand/Supply and Macro and Micro-economics PRODUCTION PRICES INCOME EMPLOYMENT MICROECONOMI Production in Individual prices: Wages in auto Employment in CS individual firms or Price of gasoline, industry, executive individual business industries. apartment rents, salaries, etc. entities, number of How much of steel milk etc. employees in or how many cars particular categories, are produced. MACROECONOMI National Consumer price National Income, Labour force, CS production/output, index, inflation rate, Total corporate unemployment rate, Gross Domestic product price index, profits, Total wages, Employment in the Product, Growth in Aggregate price level Minimum wages etc. country the economy, Gross National Product  Inflation a sustained increase in the general price level. One of the economist described it as “too much money chasing too few goods”.  Types of Inflation 1. Demand-pull, where AD increases which will increase the price level.  Types of Inflation 2. Cost-push where the cost of resources forces the suppliers to increase the price of the goods being supplied.  Inflation Continued 1. Inflation causes overall price levels to increase because of the increase in AD. 2. AD curve to shift to the right ( increase in demand). 3. Investments will increase  Inflation Continued 4. Unemployment will decrease and a new equilibrium position will be achieved. 5. Inflation benefits borrowers and the lenders will lose because of decrease in the money value. Government Policies to reduce Inflation Reduce Spending by:  Decreasing Government spending  Increasing taxation  Recession A period during which the total output of the economy declines for two to three quarters of a year. During this period, the businesses close down, investments decrease, price levels may decrease and unemployment will increase.  Recession Continued The AD curve will shift inwards. If recession continuous and if the GDP decreases by 10% or more than it is called as a Depression. Depression refers to a sustained decrease in the general price level.  Recession Graph P AS r i c e E1 L e v e E l 2 AD 1 AD 2 0 Output/ Real GDP Government Policies to reduce Recession Increase Spending by:  Increasing Government spending  decreasing taxation  Review Questions 1. Differentiate Between Micro and Macroeconomics 2. Differentiate between Inflation and recession.  Unemployment The number of persons of the working age (15-65) who are willing and able to work but cannot find gainful employment. Government Policies to reduce Unemployment Increase Spending by:  Increasing Government spending  decreasing taxation  Economic Growth A state in which economy’s growth is increasing, business increase production, investing is increasing, unemployment rate is declining, Aggregate Demand for goods and services will increase so also the Aggregate Supply. AS and AD curves will shift to the right.  Economic Growth AS 1 P r AS 2 i c e L e v e AD 2 l AD 1 0 Output/ Real GDP  Objectives  Explain meaning of “stagflation” using a diagram  Discuss causes of “stagflation”  Discuss solutions to “stagflation” using diagrams  Stagflation It combined the words “stagnation” and “inflation” to describe a phenomenon in which economic growth stagnated while the rate of inflation increased. Economy’s aggregate supply curve shifts inward. When this happens, real GDP declines as the price level rises.  Stagflation Graph AS 2 P r AS 1 i c e E2 L e v e E1 l AD 0 Output/ Real GDP Causes of Stagflation Increasing the money supply whilst increasing taxation. Increasing the money supply whilst increasing the interest rate. When we have conflicting expansionary and contractionary policies. Solution to Stagflation Monetary policy is used to reduce inflation - the central bank could increase the discount rate which would increase the interest rate and discourage spending. Government could cut taxes to increase economic growth. Reduce dependence on oil. One major cause of stagflation is the rising oil prices. Increase productivity, thus increasing aggregate supply. Limit wage increases to reduce inflation.  The Business Cycle This shows the periodic growth and decline of an economy, measured mainly by its GDP.  Review Questions 1. Explain the sections of the business cycle.  Objectives  Explain the meaning of Gross Domestic Product (GDP)  Differentiate between “real GDP” and “nominal GDP”  Discuss the characteristics of GDP  Outline the limitations of GDP Gross Domestic Product The sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year. It is a comprehensive measure of all the output.  Nominal GDP GDP expressed at current prices. It is often called money GDP. Nominal GDP is calculated by valuing all outputs at current prices.  Real GDP GDP adjusted for changes in the price level. Real GDP is calculated by valuing outputs of different years at common prices. Therefore, real GDP is a far better measure than nominal GDP of changes in total production and so gives a true picture of the economy. Characteristics of GDP  The GDP for a particular year includes only goods and services produced within the year.  Only final goods and services are counted  Domestic in the definition denotes production within the geographical boundaries of the country.  For the most part, only goods and services that pass through organized markets count for the GDP Gross National Product Gross National Product equals GDP plus net property income from abroad. Net property income from abroad represents the balance of the inflow and outflow from an economy arising from the receipt and payment of interest, rent, dividends and profits.  GDP vs GNP GDP: The market value of all final goods and services produced within an economy within a specific period of time. GNP: The sum total of all final goods and services produced by nationals/ residence of a country in a given year.  Final vs Intermediate goods Final goods and services are those that are purchased by the end user. Intermediate good is a good purchased for resale or for use in producing another good.  Limitations of GDP GDP places no value on leisure. The value is not included. Paper transactions (transactions of shares, stocks etc.) are not counted. Transactions of used goods are not included. “Economic bads” as well as “Economic goods” get counted in GDP..  Limitations of GDP Ecological costs are not netted out of the GDP. Underground activities (legal or illegal) are not counted. Only market activities are counted. Household production (home cleaning, child care) are not included because they are not paid through markets.  End of Unit 1 Review! Review! Review! then ask questions.