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Unit 2 Macroeconomics

Unit 2 Macroeconomics. The ‘Big’ Picture. What is it?. Macroeconomics considers the economy as a whole – this is the total amount of different goods and services produced by all businesses and the government sector Key performance indicators Objectives Policy instruments.

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Unit 2 Macroeconomics

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  1. Unit 2 Macroeconomics The ‘Big’ Picture

  2. What is it? • Macroeconomics considers the economy as a whole – this is the total amount of different goods and services produced by all businesses and the government sector • Key performance indicators • Objectives • Policy instruments

  3. What are objectives and instruments? • Objectives are the aims or goals of government policy • Instruments are the means by which these aims might be achieved

  4. UK Macroeconomic Policy Objectives • Stable low inflation • Sustainable growth • Improvements in productivity • High employment • Rising living standards • Financial stability

  5. Policy Instruments • Monetary policy –changes to interest rates, the money supply, access to credit and also changes to the value of the exchange rate • Fiscal policy – changes to government taxation, spending and borrowing • Supply-side policies designed to make markets work more efficiently

  6. What sectors make up an economy? • Households • Firms • Government • International

  7. The Circular Flow of Income The interdependence of goods markets and factor markets

  8. The interdependence of goods and factor markets FIRMS (suppliers of goods and services, demanders of factor services) HOUSEHOLDS (demanders of goods and services, suppliers of factor services)

  9. £ £ Factor services Goods S S PF2 P2 PF1 P1 D2 D2 D1 D1 QF1 Q2 QF2 Q1 Factor services Goods £ £ The interdependence of goods and factor markets (2) Producer supply (3) Factor demand P P Multiplier effect O O Q Q (4) Factor supply (1) Consumer demand

  10. The circular flow of income Consumption, injections, withdrawals and equilibrium

  11. Need a whole A4 page for this diagram • Need it to be landscape • Start off on the far left side….. • Need lots of space for the diagram to ‘grow’….

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

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

  14. Key terms… Injections = I + G + X Withdrawals = S + T + M

  15. What if Injections* are greater than withdrawals? *Injections = I + G + X Circular Flow of Income – what if…. Multiplier effect

  16. What if withdrawals* are greater than Injections? *Withdrawals = S + T + M

  17. Government Macro Economic policies… • Look at managing injections and withdrawals to allow a positive economic growth of 2% per year. • The Govt can achieve this either by • reducing withdrawals • or by increasing injections

  18. National Income Measuring economic growth

  19. National Growth • National Income = all incomes from FoP are added (from Firms to Households) • National Product = all g & s produced (by firms) • National Expenditure (AD) = all expenditure on output is added.

  20. What’s the difference GDP v GNP

  21. GDP measures the value of output produced within the domestic boundaries of the UK over a given time period. GDP includes the output of the many foreign owned firms that are located in the UK following the high levels of foreign direct investment in the UK economy over many years. GNP measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas. Many foreign firms have set up production plants in the UK whilst UK firms have expanded their operations overseas and become multinational (or trans-national) organisations. GDP v GNP

  22. Key Terms needed….. Real & Nominal

  23. Nominal Nomianal or current GDP looks at the monetary value

  24. Real Real takes into account of inflation

  25. Complete the task on the sheet…

  26. 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. Homework… for Wednesday

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