Introduction to Macroeconomics Intro to Macro Economics Macroeconomics is concerned with the study of the whole economy, and the effects of changes in the international economy on a country. Related topics include the economics of the European Union, economic developments in the United States and other leading countries and also the short and longer term effects of globalisation on individual countries Introduction to Macroeconomics AS Economics Mrs Gordon's theory

What is macroeconomics? Intro to Macro Economics What is macroeconomics? Mrs Gordon's theory

What is macroeconomics? Intro to Macro Economics What is macroeconomics? Macroeconomics considers the performance of the economy as a whole. We try to understand changes in The rate of economic growth The rate of inflation Unemployment Our trade performance with other countries Macroeconomics also includes an evaluation of the relative success or failure of government economic policies The economy is made up of four sectors sometimes called economic agents: Households who receive payments (income) for their services (eg labour and land) and use this money to buy the output of firms (ie consumption or household spending). Firms who use land labour and capital to produce goods and services for which they pay wages rent etc (income) and receive payment (expenditure) Government (also known as the public or state sector) and International eg consumers buying overseas products (M) and Foreigners buying UK products (X) Mrs Gordon's theory

So what is ‘the economy’? Intro to Macro Economics So what is ‘the economy’? The economy is made up of four sectors sometimes called economic agents: Households who receive payments (income) for their services (eg labour and land) and use this money to buy the output of firms (ie consumption or household spending). Firms who use land labour and capital to produce goods and services for which they pay wages rent etc (income) and receive payment (expenditure) Government (also known as the public or state sector) and International eg consumers buying overseas products (M) and Foreigners buying UK products (X) Vital knowledge Mrs Gordon's theory

Intro to Macro Economics Key Concepts Gross Domestic Product (GDP) The monetary value of all goods and services produced within the UK in a given time period Real GDP The volume of goods and services produced within the UK (i.e. GDP adjusted for changes in the price level) Economic Growth The percentage rate of increase of real GDP Inflation The annual percentage rate of change of the general price level You will learn all about this ! Mrs Gordon's theory

Difference between micro & macro Intro to Macro Economics Difference between micro & macro Microeconomics Recession in the tourist industry due to the global downturn A government subsidy to steel producers A recession in the textiles industry Increased spending on the National Health Service Mrs Gordon's theory

Intro to Macro Economics Microeconomics Mrs Gordon's theory

Difference between micro & macro Intro to Macro Economics Difference between micro & macro Macroeconomics Strong economic growth arising from high levels of consumer spending A fall in exports because of a recession in leading European markets Higher interest rates to curb inflationary pressure Mrs Gordon's theory

The ever changing economy Intro to Macro Economics The ever changing economy Mrs Gordon's theory

Manufacturing industry in the UK Intro to Macro Economics Manufacturing industry in the UK Manufacturing industry in the UK has been in long term decline It now contributes less than 18% of national output It employs just over 3.3 million people (over 7 million in 1979) We have a very large trade deficit with other countries in manufactured products The service sector is now the dominant sector of the UK economy Mrs Gordon's theory

Index of Production October shows 8.4% annual fall Can you spot the recessions?

Intro to Macro Economics Manufacturing What are the main manufacturing industries in the economy? Mrs Gordon's theory

Objectives of economic policy Intro to Macro Economics Objectives of economic policy What are the government’s main economic objectives? Mrs Gordon's theory

The main objectives of government economic policy The key elements of the Government's strategy are: Delivering macroeconomic stability (a very broad macroeconomic aim) Meeting the productivity challenge (an important supply-side target) Increasing employment opportunity for all (a labour market objective) Ensuring fairness for families and communities (commitment to equity) Protecting the environment (green economics has a macroeconomic dimension) Vital knowledge

Intro to Macro Economics Macro stability… What are the government’s main economic objectives? Low inflation Steady and sustained growth High levels of employment Improvements in living standards Mrs Gordon's theory

So now you are going to look at some current economic data

Meeting the Inflation Target What trends can you see? Are there any falls in Inflation? When?

Achieving sustained growth Intro to Macro Economics Achieving sustained growth Can you identify the 4 stages of the economic cycle??? BOOM RECESSION RECOVERY SLUMP National Income is the monetary value of the output of goods and services produced within the economy over a period of time. Real GDP (national income) is one way of measuring the speed at which an economy is expanding production and income over time Mrs Gordon's theory

Maintaining low unemployment? Intro to Macro Economics Maintaining low unemployment? What’s the relationship between GDP and unemployment Mrs Gordon's theory

Maintaining low unemployment? Intro to Macro Economics Maintaining low unemployment? Mrs Gordon's theory

How’s consumer confidence? Intro to Macro Economics How’s consumer confidence? Mrs Gordon's theory

Standard of Living. But what are ‘standards of living’? This diagram uses INDEX numbers …. But what are ‘standards of living’? Other than ‘money’ how else can you judge quality of life?

Unit 2 key theory – we will look at Macro stability can be measured by the volatility of key indicators: 1. Consumer price inflation (annual % change in prices) 2. Real GDP growth over one or more business cycles 3. Changes in measured unemployment / employment 4. Fluctuations in the current account of the balance of payments 5. Changes in government finances (i.e. the size of the fiscal deficit or surplus) 6. Volatility of short term policy interest rates and long term interest rates such as the yield on government bonds 7. Stability of the exchange rate in currency markets You will learn all about this !

To the computers….

Please complete TWO surveys Fill in your student self evaluation form… If you look on your screen you should see this Click on the L6 Ec survey AND the exam self evaluation

Your task To find out the current economic figures for GDP Inflation Employment/unemployment BoP Values of sterling against euro & $ Look up these figures for Germany, Italy, Japan, Eurozone, USA and UK.

Current Economic Data UK USA Japan Germany Italy Eurozone GDP Inflation Unemployment Balance of Payments UK USA Japan Germany Italy Eurozone

How to research the data Go to www.economist.com Select Economic data Select the economy required Go to the data file Read info provided…

Your written task… Compare the recent economic performance of of the UK with one other country. WHAT other data/information would you need to know to decide whether the UK economy has better performance than the others? Identify at least 5 factors.

Homework News article – research an article from a reputable source: BBC Financial Times Guardian Independent The Times The Economist Article must be on one of the following topics… UK inflation UK employment / unemployment UK interest rates UK economic growth Analyse the key issues raised in the article..

What makes a stable economy? Macro stability can be measured by the volatility of key indicators: 1. Consumer price inflation (annual % change in prices) 2. Real GDP growth over one or more business cycles 3. Changes in measured unemployment / employment 4. Fluctuations in the current account of the balance of payments 5. Changes in government finances (i.e. the size of the fiscal deficit or surplus) 6. Volatility of short term policy interest rates and long term interest rates such as the yield on government bonds 7. Stability of the exchange rate in currency markets A stable economy provides a framework for an improved supply-side performance i.e. • Stable low inflation encourages higher investment which is a determinant of improved productivity and non-price competitiveness • Control of inflation helps to main price competitiveness for exporters and domestic businesses facing competition from imports • Stability breeds higher levels of consumer and business confidence – sentiment drives spending in the circular flow • The maintenance of steady growth and price stability helps to keep short term and long term interest rates low, important in reducing the debt-servicing costs of people with mortgages and businesses with loans to repay • A stable real economy helps to anchor stable expectations and this can act as an incentive for an economy to attract inflows of foreign direct investment