Introduction to Macroeconomics PDF

I troductio to Macroeco o ic Macroeconomics examines how entire economies function. It analyzes broad economic factors and their interactions. This course explores key macroeconomic concepts, measures, and policies that shape national and global economies. Lear i g Outco e Key Co cept E...

I troductio to Macroeco o ic Macroeconomics examines how entire economies function. It analyzes broad economic factors and their interactions. This course explores key macroeconomic concepts, measures, and policies that shape national and global economies. Lear i g Outco e Key Co cept Eco o ic Mea ure Eco o ic Policy Global Co text Understand core Interpret and analyze Gain insights into fiscal Explore macroeconomic concepts of economic indicators like and monetary policy roles. factors' link to macroeconomics: GDP, GDP growth and CPI. international trade. inflation, and unemployment. Macroeco o ic Imagine the economy as a giant engine. Macroeconomics is like studying the engine's overall performance: Is the engine running smoothly? We look at GDP (Gross Domestic Product) to see how much the economy is producing overall. A healthy engine produces a lot! Is the engine overheating? Inflation tells us if prices are rising too quickly, like an engine getting too hot. Is the engine stalling? Unemployment rates show us how many people are out of work, similar to an engine struggling to turn over. Macroeconomists analyse these big-picture indicators to understand how the economy is working and what might cause it to speed up, slow down, or break down. They use this knowledge to advise governments and businesses on how to keep the economy running smoothly. Sloman, J., Garratt, D., & Guest, J. (2018). Microeco o ic Imagine a bustling farmers' market. Microeconomics zooms in on the individual interactions happening within this market: The apple stall: How does the farmer decide how many apples to grow and what price to charge? What happens if a storm damages the apple crop? The baker's stall: How does the baker decide how many loaves to bake? How do the prices of flour and butter affect their decisions? You, the shopper: How do you decide which apples to buy, and how many? What influences your choices – the price, your preferences, or maybe the baker's delicious apple pies? Microeconomics examines these individual choices and how they interact to determine what gets produced, how it's made, and who gets it. It's like looking at the individual gears and cogs that make the whole market function. Frank, R. H., & Bernanke, B. S. (2016) Microeco o ic v Macroeco o ic Microeco o ic Macroeco o ic Microeconomics studies how consumers Macroeconomics examines the overall and businesses make decisions about performance of the economy. It analyses using limited resources in a specific broad indicators like GDP (the total value market. It looks at how they interact and of goods and services produced), inflation react to changes in supply, demand, and (the rate at which prices increase), and prices. This helps us understand how unemployment rates to understand how goods and services are produced, shared, the economy functions. and used. Blanchard, O. (2021) Mankiw, N.G. (2021) Key Macroeco o ic I ue 1 Eco o ic Growt 2 I flatio Measures increase in an General rise in price economy's productive levels across an capacity over time. economy. Can erode Crucial for raising living purchasing power if standards. unchecked. 3 U e ploy e t Portion of labor force unable to find work. High rates indicate economic inefficiency. Gro Do e tic Product (GDP) Defi itio I porta ce Total value of all final goods Primary indicator of a and services produced country's economic health within a country's borders in and growth rate. Used to a year. compare economies. Calculatio Rate of c a ge Sum of consumer spending, The % rate of change in GDP business investment, year-on-year indicates level government spending, and of economic growth net exports. UK GDP Mea ure 1 Q2 2021 GDP UK GDP reached £520.6 million, reflecting economic recovery from pandemic disruptions. 2 Hi torical Co text GDP growth fluctuated in preceding years due to Brexit uncertainty and global economic shifts. 3 Future Projectio Economists forecast moderate growth, contingent on post-Brexit trade agreements and global conditions. GDP Growt Rate Co pari o Country 2019 Growth 2020 Growth 2021 Growth Rate Rate Rate UK 1.4% -9.8% 7.4% Germany 0.6% -4.6% 2.9% USA 2.3% -3.4% 5.7% I flatio Overview 1 Defi itio 2 Mea ure e t 3 I pact Sustained increase in the Typically measured by changes Affects purchasing power, general price level of goods in the Consumer Price Index savings, investment decisions, and services in an economy. (CPI) or GDP deflator. and overall economic stability. Co u er Price I dex (CPI) Defi itio Calculatio Measures average change Based on surveys of in prices paid by urban consumer spending habits consumers for a market and price data from basket of goods. retailers. Inflation rate = Rate of change of CPI U age Used to adjust wages, pensions, and government benefits for cost-of-living changes. UK I flatio Rate Septe ber 2021 UK inflation rate reached 3.1%, 1 exceeding Bank of England's 2% target. Cau e Supply chain disruptions, energy price 2 increases, and pent-up consumer demand contributed. I plicatio Higher inflation may lead to interest 3 rate hikes and reduced consumer purchasing power.  PDF file Document 1.pdf 74.7 KB U e ploy e t Co cept 1 Defi itio 2 Type Percentage of labor force Includes frictional, that is jobless, actively structural, and cyclical seeking work, and unemployment. Each has available to work. different causes and solutions. 3 Mea ure e t Typically calculated through labor force surveys and unemployment benefit claims data. UK U e ploy e t Tre d : What are the implications of the drop in the unemployment rate between 2018 and 2021 1 Ju e-Augu t 2018 Unemployment rate for ages 16 and over was 5.6%. 2 Ju e-Augu t 2021 Unemployment rate dropped to 4.6%, despite pandemic disruptions. 3 I plicatio Lower unemployment suggests economic recovery, but may mask underemployment or labor shortages. I ter atio al Trade Fi a ce Ba ic Export I port Trade Bala ce Goods and services sold Goods and services Difference between to foreign buyers. bought from foreign exports and imports. Contribute to domestic sellers. Can increase Surplus when exports economic growth. consumer choice but exceed imports, deficit may compete with when reversed. domestic production. Bala ce of Pay e t Defi itio Co po e t Record of all transactions Includes current account , between a country and the capital account, and rest of the world. financial account. Each tracks different types of transactions. I porta ce Reflects a country's economic health, international competitiveness, and currency demand. Curre t Accou t 1 Co po e t 2 Calculatio Records trade in goods Current Account = and services, income Exports - Imports + Net flows, and unilateral Income from Abroad + Net transfers. Current Transfers 3 Curre t Accou t 4 Sig ifica ce Statu Large deficits may Current Account Deficit indicate economic Imports > Exports imbalances and potential currency devaluation Current Account Surplus risks. Exports > Imports UK Curre t Accou t Bala ce 1 2000-2008 UK maintained relatively stable current account deficit, averaging around 2% of GDP. 2 2009-2011 Deficit widened post-financial crisis, reaching nearly 5% of GDP by 2011. 3 2012-2017 Deficit continued to grow, peaking at over 5% of GDP, raising concerns about sustainability. I tere t Rate Overview Defi itio Type Cost of borrowing money or Include nominal rates, real return on lending, rates, and effective rates. expressed as a percentage. Each serves different economic purposes. I porta ce Influences saving, borrowing, investment decisions, and overall economic activity. Ce tral Ba k a d Mo etary Policy 1 Ba k of E gla d (UK) 2 Federal Re erve (US) Sets base rate to Uses federal funds rate to influence broader manage inflation and economy. Aims for 2% employment. Dual inflation target. mandate approach. 3 Europea Ce tral Ba k (Eurozo e) Sets key interest rates for euro area. Focuses on price stability across member countries. UK I tere t Rate Tre d UK interest rates have shown major shifts over time, reflecting changing economic conditions and policy responses. 1 1979: Hi toric Peak Rates hit record 17% to combat severe inflation. 2 1971-2021: Lo g-ter Patter Average rate of 7.24% maintained over five decades. 3 2% Ba eli e Standard target rate for maintaining price stability. 4 2020: COVID-19 I pact Rates cut to 0.10% to counter pandemic economic effects. 5 2024: Po t-COVID Recovery Rates increased to 4% amid inflationary pressures. Gover e t Budget Ba ic Gover e t I co e Gover e t Expe diture T e Trea ury Primarily from taxes, including Covers public services like Manages national finances. income tax, VAT, and corporate tax. healthcare, education, defense, Responsible for budget Also includes non-tax revenues. and infrastructure. Includes formulation, economic policy, and transfer payments. financial regulations. UK Public Sector Borrowi g Pre-2008 1 Relatively stable borrowing levels, averaging around £40 billion annually. 2008-2010 2 Sharp increase due to financial crisis, peaking at over £150 billion. 2010-2020 3 Gradual reduction through austerity measures, interrupted by COVID-19 related surge. T e Circular Flow Model Hou e old Fir Flow Provide factor services (labor) to Produce goods/services using Inner flow represents real goods firms. Receive factor incomes factor inputs. Pay factor incomes and services. Outer flow (wages) and spend on and receive revenue from sales. represents monetary goods/services. transactions. I jectio a d Wit drawal I jectio Wit drawal Bala ce Investment (I), Government Savings (S), Taxes (T), Imports (M). Economic equilibrium when Spending (G), Exports (X). Add to Leak from circular flow. injections equal withdrawals. I + G + circular flow. X=S+T+M Type of Eco o ic Spe di g 1 Co u ptio (C) 2 I ve t e t (I) Household spending on Business spending on goods and services. capital goods. Includes Typically largest equipment, structures, component of aggregate and inventory changes. demand. 3 Gover e t Spe di g (G) Public sector expenditure on goods and services. Includes both consumption and investment. I ter atio al Trade Co po e t Export (X) I port (M) Goods and services sold to Goods and services bought foreign buyers. Adds to from foreign sellers. domestic aggregate Subtracted from domestic demand. aggregate demand. Net Export (X-M) Difference between exports and imports. Can be positive (surplus) or negative (deficit). Aggregate De a d For ula Co po e t 1 AD = C + I + G + (X-M) Sig ifica ce 2 Represents total planned expenditure in an economy at a given price level. Policy I plicatio 3 Changes in components can be targeted by fiscal and monetary policies. Aggregate Supply 1 Defi itio 2 S ort-ru AS 3 Lo g-ru AS Total quantity of goods and Upward sloping curve. Reflects Vertical line. Represents services firms are willing to changing production costs as potential GDP when all produce at various price output changes. resources are fully employed. levels. Macroeco o ic Equilibriu Defi itio S ort-ru Equilibriu Point where aggregate Intersection of AD and demand equals aggregate short-run AS. Can deviate supply. Determines from potential GDP. equilibrium price level and output. Lo g-ru Equilibriu Economy operates at potential GDP. Price level adjusts to balance AD and long-run AS. Fi cal Policy 1 Defi itio 2 Expa io ary Policy Use of government Increases government spending and taxation to spending or reduces influence the economy. taxes to stimulate economic growth. 3 Co tractio ary Policy Decreases government spending or increases taxes to slow economic growth and inflation. Mo etary Policy Defi itio 1 Central bank actions to control money supply and interest rates. Tool 2 Open market operations, reserve requirements, and discount rate adjustments. Goal 3 Price stability, full employment, and sustainable economic growth. Eco o ic Growt a d Develop e t Eco o ic Growt Eco o ic Increase in an economy's Develop e t productive capacity over Broader concept including time. Measured by GDP improvements in living growth rate. standards, education, and healthcare. Su tai able Growt Balances economic expansion with environmental protection and social equity. Bibliograp y Blanchard, O. (2021), Macroeconomics. Pearson Education. Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning. Mankiw, N. G. (2021). Principles of microeconomics. Cengage Learning. Krugman, P. R., & Wells, R. (2018). Macroeconomics. Worth Publishers. Begg, D., Fischer, S., & Dornbusch, R. (2014). Economics. McGraw-Hill Education. The World Bank. (2023). World Development Indicators. Retrieved from https://data.worldbank.org/indicator Office for National Statistics. (2023). UK Economic Statistics. Retrieved from https://www.ons.gov.uk/economy