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Introduction to Macroeconomics

Learn the basics of macroeconomics, including GDP measurement, economic fluctuations, business cycles, national income, and global issues.

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Introduction to Macroeconomics

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  1. Introduction to Macroeconomics 1

  2. Aggregate Output (GDP) • The dollar value of all final goods and services producedin a country in a year Dollar value: sum of selling price times quantity of all outputs Final good: a product which is ready to be used by consumers Produced: output which is not sold in a year is yet produced 2

  3. EXAM LIKE QUESTIONS T F National income accounting measures the economic well-being of a nation. TRUE T F GDP is a social account of a business firm. FALSE 3

  4. EXAM LIKE QUESTIONS T F Intermediate goods are not counted in GDP. Each firm’s value added is: a. The value of its own output b. The value of its own output minus profits c. The value of its own output minus • purchases of inputs from other firms d. Total sales revenue at market prices The correct answer is “c” TRUE 4

  5. Measuring Welfare • Level of GDP • Gross level • Per capita level • Growth rate of GDP Percentage change in GDP over time 5

  6. Fluctuations in GDP • GDP rises and falls over short spans of time • At any point in time, it may be above or below its long run trend • These fluctuations define thebusiness cycle 6

  7. The Economic Roller coaster:What is it? 7

  8. Aggregate Output • Parts of the • Business Cycle Peak Recession (slump) Expansion (boom) time Trough 8

  9. Recession • Growth rate of GDP falls • Firms decrease production • Unemployment rises Unemploy- ment GDP 9

  10. Expansion • GDP growth rate rises • Firms increase production • Unemployment falls Unemploy- ment GDP 10

  11. Unemployment • Unemployment rate: the percentage of people in the labor force who can’t find a job Labor Force: people who are actively seeking or are currently holding a job 11

  12. Global Issues • Net Exports = Exports - Imports • Exports: goods produced in Lebanon and sold overseas • Imports: goods produced overseas and sold in Lebanon • Exchange rate: price of one currency in terms of another 12

  13. Introduction to Macroeconomics The Circular Flow 13

  14. Households Pay taxes (T) Consume (C) Work (N) Save (S) 14

  15. Firms Produce (GDP) Pay taxes (T) Invest (I) Buy inputs (N) 15

  16. Financial Institutions • Intermediates between savers • and investors 16

  17. Government Buys goods (G) Issues money (M) Taxes (T) Borrows (B) 17

  18. Rest of the World Imports (IM) Exports (X) 18

  19. 19

  20. Households Firms 20

  21. Purchases of Goods and Services 21

  22. Purchases of Goods and Services Wages, Interest, Dividends, and rent 22

  23. Government 23

  24. Purchases of Goods and Services Taxes 24

  25. Purchases of Goods and Services Taxes Taxes Wages, Interest, Transfer Payments 25

  26. Rest of the World 26

  27. Imports Exports 27

  28. The Circular Flow Lesson 28

  29. The Circular Flow Lesson Expenditures = Receipts! 29

  30. 30

  31. Three Market Arenas • Goods and services market • Labor market • Money (financial) market 31

  32. Firms supply goods and services Goods and Services Market Household, Firms and Government purchasegoods and services 32

  33. Households supply labor Labor Market Firms and Government demandlabor 33

  34. Households supply funds Financial Markets Households, Firms and Government demandfunds 34

  35. GDP • vs. • GNP 35

  36. Measuring National Output and National Income Calculating GDP 36

  37. EXCLUSIONS FROM THE GDP • NON-PRODUCTIVE TRANSACTIONS • SECOND HAND SALES 37

  38. NON-PRODUCTIVE TRANSACTIONS • SECURITY TRANSACTIONS • TRANSFER PAYMENTS 38

  39. EXAM-LIKE QUESTION Which of the following is not part of national income? a. Unemployment benefits b. Rental income c. Salaries d. Net interest The correct answer is “a”, since it is a non-productive public transfer payment. 39

  40. EXAM-LIKE QUESTION T F Business transfer payments are excluded from GNP. “FALSE” 40

  41. Expenditure Approach 41

  42. GDP = C + I + G + (EX - IM) 42

  43. Consumption • Durable goods: goods that last a relatively long time • Nondurable goods: goods which are perishable • Services: goods which do not involve the production of physical things 43

  44. Investment • Nonresidential: expenditures by firms on machines, factories, tools, etc. • Residential: expenditures by households on new houses and apartment buildings • Business inventories: goods that firms produce now with the intent to sell later 44

  45. All of the following expenditures are included in investment expenditures except: • Business purchase of a fleet of cars • Household purchase of a new house • Business purchase of the stock of another company • A retail store’s purchase of shoes to add to inventory The correct answer is “c” EXAM LIKE QUESTIONS 45

  46. Which of the following are counted as personal consumption expenditures in the national product accounts? a. Housing rents b. Housing purchase c. Both a and b d. Neither a nor b The correct answer is “a” EXAM LIKE QUESTIONS 46

  47. NET INVESTMENT GROSS INVESTMENT - DEPRECIATION • EXPANDING ECONOMY • DECLINING ECONOMY • STATIC ECONOMY 47

  48. What does a negative net investment mean in terms of depreciation? • Depreciation exceeds gross investment. EXAM TYPE QUESTION 48

  49. NET INVESTMENT • Knowing that gross investment is known as birth of capital, what is birth of capital less death of capital? EXAM LIKE QUESTIONS 49

  50. EXAM-TYPE QUESTION Which of the following statements concerning investment and investment goods is false? • An accumulation of inventories counts as current investment. • Total amount of capital goods in a country is called the capital stock. • Net investment is equal to gross investment minus depreciation. • The capital consumption allowance refers to funds for investment to increase the economy’s total stock of capital. The correct answer is “d” 50

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