Introduction to Macroeconomics

1. Introduction to Macroeconomics Learning outcome U • Identify the main objectives of government economic policy • Describe the main indicators of economic performance • Explain the pattern of the UK economy over recent years • Describe the main economic policy instruments • Know the main schools of economic thought • Explain the Keynesian model of the circular flow of income and expenditure • Explain the workings of the circular flow model • Explain what is meant by the national income equilibrium • Explain the paradox of thrift • Explain the importance of the multiplier • Explain the limitations in the use of national income statistics Reading: Units 24 & 25

2. Macroeconomics Concerned with the study of the economy as a whole

3. National economic performance • Macroeconomics tells us about the performance of an economy • Government economic policy focuses on: • Economic growth • Unemployment • Inflation • The trade balance

4. Economic growth • One key measure of economic performance is the rate of change of output (measured as a % change) • When output is increasing it is known as economic growth • When output is decreasing it is known as a recession, if this continues for a long period it is known as a depression

5. Unemployment • Another measure of economic performance is the number of people out of work (unemployed) • Unemployment is usually measured as a percentage of the labour force • Unemployment wastes resources as those that are out of work are not contributing to output of the economy • Unemployment leads to poverty for those without a job

6. Inflation • Another measure of economic performance is the rate of change of prices in an economy, this is known as inflation • Inflation is generally accepted as being harmful for an economy • A small amount of inflation (2% or 3%) however is considered acceptable

7. The trade balance • Another measure of economic performance is the balance between imports and exports • If the value of exports is greater than the value of imports the economy has a surplus • If the value of imports is greater than the value of exports the economy has a deficit

8. Measures of economic performance

9. 1950’s to early 1970’s 1974 to 1979 Describe the pattern of the UK economy (use pages 521 to 523)

10. 1980 to 1981 The 1980’s Describe the pattern of the UK economy (use pages 521 to 523)

11. 1990 to 1992 1992 onwards Describe the pattern of the UK economy (use pages 521 to 523)