1. Introduction to Macroeconomics
AS Economics
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Introduction to Macroeconomics
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
AS Economics

2. What is macroeconomics?
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AS Economics

3. 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)
Tutor2u & Mrs G
AS Economics

4. 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
Tutor2u & Mrs G
AS Economics

5. You will learn all about this !
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 !
Tutor2u & Mrs G
AS Economics

6. 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
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AS Economics

7. Microeconomics
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AS Economics

8. 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
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AS Economics

9. The ever changing economy
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AS Economics

10. 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
Tutor2u & Mrs G
AS Economics

11. Index of Production October shows 8.4% annual fall
Can you spot the recessions?
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AS Economics

12. Manufacturing
What are the main manufacturing industries in the economy?
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AS Economics

13. Tutor2u & Mrs G
AS Economics

14. Objectives of economic policy
What are the government’s main economic objectives?
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AS Economics

15. 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
Tutor2u & Mrs G
AS Economics

16. Macro stability… What are the government’s main economic objectives?
Low inflation
Steady and sustained growth
High levels of employment
Improvements in living standards
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AS Economics

17. So now you are going to look at some current economic data
AS Economics
PowerPoint Briefings
So now you are going to look at some current economic data

18. Meeting the Inflation Target
What trends can you see?
Are there any falls in Inflation?
When?
Tutor2u & Mrs G
AS Economics

19. 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
Tutor2u & Mrs G
AS Economics

20. Maintaining low unemployment?
What’s the relationship between GDP and unemployment
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AS Economics

21. Maintaining low unemployment?
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AS Economics

22. How’s consumer confidence?
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AS Economics

23. 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?
Tutor2u & Mrs G
AS Economics

24. 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 !
Tutor2u & Mrs G
AS Economics

25. 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.
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AS Economics

26. Current Economic Data UK USA Japan Germany Italy Eurozone GDP
Inflation
Unemployment
Balance of Payments UK
USA
Japan
Germany
Italy
Eurozone
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AS Economics

27. How to research the data
Go to
Select Economic data
Select the economy required
Go to the data file
Read info provided…
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AS Economics

28. 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.
Tutor2u & Mrs G
AS Economics

29. 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..
Tutor2u & Mrs G
AS Economics

30. 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
Tutor2u & Mrs G
AS Economics