Aggregate Demand and Supply and Macroeconomic Problems

Macroeconomic Objectives Distinction between microeconomics and macroeconomics The major macroeconomic issues economic growth unemployment inflation balance of payments and exchange rates balance of payments deficits and surpluses exchange rate movements

Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)

Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)

Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)

The Circular Flow of Income The inner flow

The circular flow of income Firms Factor payments Consumption of domestically produced goods and services (Cd) Households

The Circular Flow of Income Withdrawals net saving net taxes import expenditure Injections investment government expenditure export expenditure

The circular flow of income Export expenditure (X) INJECTIONS Government expenditure (G) Investment (I) Consumption of domestically produced goods and services (Cd) BANKS, etc Net saving (S) ABROAD Import expenditure (M) Factor payments GOV. Net taxes (T) WITHDRAWALS

The Circular Flow of Income The relationship between injections and withdrawals the links between them

The circular flow of income Export expenditure (X) INJECTIONS Government expenditure (G) Investment (I) Consumption of domestically produced goods and services (Cd) BANKS, etc Net saving (S) ABROAD Import expenditure (M) Factor payments GOV. Net taxes (T) WITHDRAWALS

The Circular Flow of Income The relationship between injections and withdrawals the links between them planned injections may not equal planned withdrawals

The Circular Flow of Income The relationship between injections and withdrawals the links between them planned injections may not equal planned withdrawals Equilibrium in the circular flow

The circular flow of income Export expenditure (X) INJECTIONS Government expenditure (G) Investment (I) Consumption of domestically produced goods and services (Cd) BANKS, etc Net saving (S) ABROAD Import expenditure (M) Factor payments GOV. Net taxes (T) WITHDRAWALS

The Circular Flow of Income The relationship between injections and withdrawals the links between them planned injections may not equal planned withdrawals Equilibrium in the circular flow The circular flow and the four macroeconomic objectives

The circular flow of income Export expenditure (X) INJECTIONS Government expenditure (G) Investment (I) Consumption of domestically produced goods and services (Cd) BANKS, etc Net saving (S) ABROAD Import expenditure (M) Factor payments GOV. Net taxes (T) WITHDRAWALS

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach

The circular flow of national income and expenditure

The circular flow of national income and expenditure (1) Production (2) Incomes (3) Expenditure

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach measuring GVA

UK GVA (product-based measure): 2001 Agriculture, forestry and fishing £8 241 m Mining, energy and water supply £41 378 m Manufacturing £153 132 m Construction £47 327 m Wholesale and retail trade; repairs £106 766 m Hotels and restaurants £29 359m Transport and communication £70 252 m Banking, finance, insurance, etc. £6 667 m Letting of property £209 839 m Public administration and defence £42 096 m Education, health and social work £114 069 m Other services £45 101 m

UK GVA (product-based measure): 2001 Agriculture, forestry and fishing £8 241 m Mining, energy and water supply £41 378 m Manufacturing £153 132 m Construction £47 327 m Wholesale and retail trade; repairs £106 766 m Hotels and restaurants £29 359m Transport and communication £70 252 m Banking, finance, insurance, etc. £6 667 m Letting of property £209 839 m Public administration and defence £42 096 m Education, health and social work £114 069 m Other services £45 101 m Total GVA £874 227 m

UK GVA (product-based measure): 2001 Agriculture, forestry and fishing £8 241 m Mining, energy and water supply £41 378 m Manufacturing £153 132 m Construction £47 327 m Wholesale and retail trade; repairs £106 766 m Hotels and restaurants £29 359m Transport and communication £70 252 m Banking, finance, insurance, etc. £6 667 m Letting of property £209 839 m Public administration and defence £42 096 m Education, health and social work £114 069 m Other services £45 101 m Total GVA £874 227 m 0.9 4.7 17.5 5.4 12.2 3.4 8.0 0.8 24.0 4.8 13.0 5.2 100.0 Percentage of GVA

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach measuring GVA The income approach

UK GVA by category of income: 2001 Compensation of employees (wages and salaries) £556 371 m Operating surplus (gross profit, rent and interest of firms government and other institutions) £238 625 m Mixed incomes £60 073 m Tax less subsidies on production (other than those on products) plus statistical discrepancy £19 158m

UK GVA by category of income: 2001 Compensation of employees (wages and salaries) £556 371 m Operating surplus (gross profit, rent and interest of firms government and other institutions) £238 625 m Mixed incomes £60 073 m Tax less subsidies on production (other than those on products) plus statistical discrepancy £19 158m Total GVA £874 227m

UK GVA by category of income: 2001 Compensation of employees (wages and salaries) £556 371 m Operating surplus (gross profit, rent and interest of firms government and other institutions) £238 625 m Mixed incomes £60 073 m Tax less subsidies on production (other than those on products) plus statistical discrepancy £19 158m Total GVA £874 227m 63.6 27.3 6.9 2.2 100.0 Percentage of GVA

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach measuring GVA The income approach From GVA to GDP

UK GDP (product-based measure): 2001 GVA (gross value added at basic prices) £874 227m

UK GDP (product-based measure): 2001 GVA (gross value added at basic prices) £874 227m plus Taxes on products £120 499m

UK GDP (product-based measure): 2001 GVA (gross value added at basic prices) £874 227m plus Taxes on products £120 499m less Subsidies on products £6 712m

UK GDP (product-based measure): 2001 GVA (gross value added at basic prices) £874 227m plus Taxes on products £120 499m less Subsidies on products £6 712m GDP (at market prices) £988 014m

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach measuring GVA The income approach The expenditure approach

UK GDP by category of expenditure, GNY and NNY: 2001 £million Consumption expenditure of households and NPISH (C) 655 265 Government final consumption (G) 190 663 Gross capital formation (I) 164 048 Exports of goods and services (X) 268 451 less Imports of goods and services (M) 290 912 Statistical discrepancy 499 Gross domestic product (GDP) (at market prices) 988 014

Measuring national income GDP: the measure of national income Methods of measuring GDP the product approach the income approach the expenditure approach The product approach measuring GVA The income approach from GVA to GDP From GDP to net national income (NNY)

UK GDP by category of expenditure, GNY and NNY: 2001 £million Consumption expenditure of households and NPISH (C) 655 265 Government final consumption (G) 190 663 Gross capital formation (I) 164 048 Exports of goods and services (X) 268 451 less Imports of goods and services (M) 290 912 Statistical discrepancy 499 Gross domestic product (GDP) (at market prices) 988 014 plus Net income from abroad 5 756 Gross national income (GNY) 993 770

UK GDP by category of expenditure, GNY and NNY: 2001 £million Consumption expenditure of households and NPISH (C) 655 265 Government final consumption (G) 190 663 Gross capital formation (I) 164 048 Exports of goods and services (X) 268 451 less Imports of goods and services (M) 290 912 Statistical discrepancy 499 Gross domestic product (GDP) (at market prices) 988 014 plus Net income from abroad 5 756 Gross national income (GNY) 993 770 less Capital consumption (depreciation) -111 275 Net national income (NNY) 882 495

Measuring national income GDP as a measure of social welfare benefits of using GDP weaknesses The Human Development Index (HDI)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Human Development Index (HDI) for selected countries (2000)

Growth and the Business Cycle Growth in actual and potential growth Economic growth and the business cycle fluctuations in actual growth

The business cycle National output Time Potential output Actual output

Growth and the Business Cycle Growth in actual and potential output Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle

The business cycle National output Time Potential output 3 4 2 Actual 1 2 3 4 National output Actual output 3 4 2 1 O Time

Growth and the Business Cycle Growth in actual and potential output Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle trend growth

The business cycle National output Time Potential output Trend output Actual output O Time

Growth and the Business Cycle Growth in actual and potential growth Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle long-term output trend the business cycle in practice

Growth and the Business Cycle Growth in actual and potential growth Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle long-term output trend the business cycle in practice the irregularity of the cycle

Growth and the Business Cycle Growth in actual and potential growth Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle long-term output trend the business cycle in practice the irregularity of the cycle the length of the phases

Growth and the Business Cycle Growth in actual and potential growth Economic growth and the business cycle fluctuations in actual growth the phases of the business cycle long-term output trend the business cycle in practice the irregularity of the cycle the length of the phases the magnitude of the phases

Growth and the Business Cycle Causes of fluctuations in actual growth aggregate demand aggregate demand relative to potential output Actual growth in practice experience since 1970

Growth rates in selected industrial countries UK Annual growth rate (%)

Growth rates in selected industrial countries UK Annual growth rate (%)

Growth rates in selected industrial countries UK France Annual growth rate (%)

Growth rates in selected industrial countries UK France Annual growth rate (%)

Growth rates in selected industrial countries UK Germany France Annual growth rate (%)

Growth rates in selected industrial countries UK Germany France Annual growth rate (%)

Growth rates in selected industrial countries UK Germany France USA Annual growth rate (%)

Growth rates in selected industrial countries UK Germany France USA Annual growth rate (%)

Growth rates in selected industrial countries UK Germany Japan France USA Annual growth rate (%)

Growth rates in selected industrial countries UK Germany Japan France USA Annual growth rate (%)

Growth and the Business Cycle Causes of potential growth increases in the quantity of factors capital labour land and raw materials the problem of diminishing returns increases in factor productivity Policies to achieve growth demand-side and supply-side policies market-orientated and interventionist policies

Unemployment The meaning of 'unemployment' The costs of unemployment Official measures of unemployment claimant unemployment do claimant statistics give a true picture of unemployment? standardised unemployment (ILO / OECD)

Unemployment rates in selected industrial countries UK

Unemployment rates in selected industrial countries UK

Unemployment rates in selected industrial countries UK France

Unemployment rates in selected industrial countries UK France

Unemployment rates in selected industrial countries UK Germany France

Unemployment rates in selected industrial countries UK Germany France

Unemployment rates in selected industrial countries UK Germany France USA

Unemployment rates in selected industrial countries UK Germany France USA

Unemployment rates in selected industrial countries UK Germany Japan France USA

Unemployment rates in selected industrial countries UK Germany Japan France USA

Unemployment rates in selected industrial countries UK Germany Japan France USA OECD

Unemployment rates in selected industrial countries UK Germany Japan France USA OECD

Standardised unemployment rates in different sectors of the labour market (2002)

Standardised unemployment rates in different sectors of the labour market (2002)

Standardised unemployment rates in different sectors of the labour market (2002)

Standardised unemployment rates in different sectors of the labour market (2002)

Unemployment Unemployment and the labour market the aggregate demand and supply of labour equilibrium in the model

Disequilibrium unemployment ASL Average (real) wage rate We Qe ADL O No. of workers

Unemployment Unemployment and the labour market the aggregate demand and supply of labour equilibrium in the model disequilibrium unemployment

Disequilibrium unemployment ASL Average (real) wage rate B A W2 Q2 Q1 We ADL O No. of workers

Unemployment Unemployment and the labour market the aggregate demand and supply of labour equilibrium in the model disequilibrium unemployment equilibrium unemployment

Equilibrium unemployment ASL Average (real) wage rate e We ADL O Qe No. of workers

Equilibrium unemployment ASL N Average (real) wage rate e d We Q2 ADL O Qe No. of workers

Equilibrium and disequilibrium unemployment ASL Average (real) wage rate e We ADL O Qe No. of workers

Equilibrium and disequilibrium unemployment ASL Disequilibrium unemployment Average (real) wage rate b a W2 e We ADL O No. of workers

Equilibrium and disequilibrium unemployment ASL N Disequilibrium unemployment Average (real) wage rate b a c W2 Equilibrium unemployment e We ADL O No. of workers

Unemployment Disequilibrium unemployment real-wage (classical) unemployment demand-deficient (cyclical) unemployment unemployment arising from a growth in the labour supply

Unemployment Equilibrium unemployment frictional (search) unemployment structural unemployment changing pattern of demand technological unemployment regional unemployment seasonal unemployment

Aggregate Demand and Supply The aggregate demand curve

Aggregate demand and aggregate supply AD Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect

Aggregate demand and aggregate supply AD Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect

Aggregate demand and aggregate supply AD Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect savings effect

Aggregate demand and aggregate supply AD Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect savings effect The aggregate supply curve

Aggregate demand and aggregate supply AD AS Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect savings effect The aggregate supply curve Why aggregate supply curves generally slope upwards

Aggregate demand and aggregate supply AD AS Price level O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect savings effect The aggregate supply curve Why aggregate supply curves generally slope upwards Equilibrium

Aggregate demand and aggregate supply AS Price level Pe AD O National output

Aggregate demand and aggregate supply AS Price level Pe b a P2 AD O National output

Aggregate Demand and Supply The aggregate demand curve Why aggregate demand curves slope downwards import effect interest-rate effect savings effect The aggregate supply curve Why AS curves generally slope upwards Equilibrium Effect of a shift in the AD curve

Inflation Defining inflation The costs of inflation redistribution uncertainty balance of payments resources used to cope with inflation Experience of inflation since 1965

Inflation rates in selected industrial countries UK

Inflation rates in selected industrial countries UK

Inflation rates in selected industrial countries UK EU 15

Inflation rates in selected industrial countries UK EU 15

Inflation rates in selected industrial countries UK USA EU 15

Inflation rates in selected industrial countries UK USA EU 15

Inflation rates in selected industrial countries UK USA EU 15 Japan

Inflation rates in selected industrial countries UK USA EU 15 Japan

Inflation rates in selected industrial countries UK USA OECD EU 15 Japan

Inflation rates in selected industrial countries UK USA OECD EU 15 Japan

Inflation Types of inflation demand pull

Demand-pull inflation AS Price level P1 AD1 O Q1 National output

Demand-pull inflation AS Price level P1 AD2 AD1 O Q1 National output

Demand-pull inflation AS Price level P2 Q2 P1 AD2 AD1 O Q1 National output

Inflation Types of inflation demand pull cost push

Inflation Types of inflation demand pull cost push wage push

Inflation Types of inflation demand pull cost push wage push profit push

Inflation Types of inflation demand pull cost push wage push profit push import-price push

Cost-push inflation AS1 Price level P1 AD O Q1 National output

Cost-push inflation AS2 AS1 Price level P1 AD O Q1 National output

Cost-push inflation AS2 AS1 AD Price level P2 P1 O Q2 Q1 National output

Inflation Types of inflation demand pull cost push wage push profit push import-price push the interaction of demand-pull and cost- push inflation

The interaction of demand-pull and cost-push inflation AS1 Price level P1 AD1 O National output

The interaction of demand-pull and cost-push inflation AS2 AS1 Price level P2 P1 AD2 AD1 O National output

The interaction of demand-pull and cost-push inflation AS3 AS2 AS1 P3 Price level P2 AD3 P1 AD2 AD1 O National output

Inflation Types of inflation demand pull cost push wage push profit push import-price push structural (demand shift)

Inflation Types of inflation demand pull cost push wage push profit push import-price push structural (demand shift) expectations and inflation

Inflation Types of inflation Policies to tackle inflation demand pull cost push wage push profit push import-price push structural (demand shift) expectations and inflation Policies to tackle inflation

Inflation Types of inflation Policies to tackle inflation demand pull cost push wage push profit push import-price push structural (demand shift) expectations and inflation Policies to tackle inflation demand-side policies

Inflation Types of inflation Policies to tackle inflation demand pull cost push wage push profit push import-price push structural (demand shift) expectations and inflation Policies to tackle inflation demand-side policies supply-side policies