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Macroeconomic Indicators

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Presentation on theme: "Macroeconomic Indicators"— Presentation transcript:

1 Macroeconomic Indicators
The Economic Cycle and Economic Growth

2 Cycles Peak, boom, overheating Downturn
Recession, depression, trough, slump Recovery, expansion

3 Cycles Business cycle/trade cycle/economic cycle Kondratiev K-wave
Kuznets Building cycle Kitchin Inventory cycle Keynes Multiplier – accelerator Schumpeter Technology/innovation Friedman Monetary

4 Output Gaps The difference between actual growth and the trend rate of growth Where would these be on your chart? Output lost in a recession is regained in a boom but….

5 Hysteresis The trend rate of growth can shift downwards if there is a deep recession due to permanent losses of human and physical capital Loss of skills – structural change Long term unemployed Cut backs in investment Outdated technology ‘potential’ falls

6 Hysteresis and Growth Trend

7 Business cycle models Shocks – Demand or supply side Exogenous shocks
Endogenous shocks

8 1 DS end 2. Ss ex 3. Ds ex 4. Ds end 5. Ds ex 6. Ss ex

9 Ds ex Ss end Ss ex

10 Explain how a major world recession, an exogenous shock to the UK economy, could trigger a business cycle. (10/15 marks)

11 Shocks and ADAS Key terms Long-term growth rate Actual growth
Potential growth Trend rate of economic growth

12 Actual and Potential Growth
AB to CD shows potential growth A to C or A to B shows actual growth You can have an increase in potential growth without having actual growth

13 Task Using a PPF diagram, show the following
An economy with full employment experiencing economic growth An economy initially with full employment experiencing a recession, keeping its AS capacity constant An economy in recession returning to full employment, with its AS capacity constant An economy which initially has a small and constant output gap, experiencing economic growth


15 A negative demand side shock
General Price Level National Income AD1 SRAS Pe Ye LRAS Yfc AD2 Y2 P2 Caused by? Effect on? PPF Unemployment GDP Inflation

16 A positive demand side shock
Finish it off Cause? Impact upon GDP PPF Inflation Unemployment

17 A positive demand side shock
General Price Level LRAS = potential GDP SRAS1 P2 P1 AD2 AD1 Y1 Yfc Y2 National Income

18 Show the effect on an ADAS diagram of the following
Supply side shocks Show the effect on an ADAS diagram of the following Increased rates of emigration A fall in international commodity prices

19 Supply side shocks General Price Level National Income AD SRAS1 P1 Y1

20 Causes of economic growth
Economic stability and sound macroeconomic policies Increased labour activity/participation Increased labour productivity Investment in physical capital Improved human capital Enterprise

21 Is growth good? Debate Advantages Disadvantages

22 Is growth good? Disadvantages Advantages
Improvements in living standards: More jobs: The accelerator effect of growth on capital investment: Greater business confidence: The “fiscal dividend”: Potential environmental benefits Benefits from growth driven by technological change Disadvantages Inflation Environmental concerns Inequality

23 Kuznets curve - explain

24 What would the question be?

25 What would the question be?

26 Applied Economics The Impact on the economy

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