chapter 3 _macro-economics

Categories Real wage unemployment Frictional (short-term) Seasonal (short-term) Structural (long-term) Technological (long-term) Cyclical or demand-deficient (long-term)
Economic growth
measured by increases in the real gross national product (GNP) per head of the population. Actual economic growth is the annual % increase in national output, which typically fluctuates with the trade cycle.
Causes Demand pull factors Cost push factors Import cost factors Expectations create it Increase in the money supply
Unemployment
The rate of unemployment
1.1 Income and expenditure flows
1.2 withdrawals and injections into the circular flow of income
Withdrawals : savings, taxation, import expenditure Injections : investment, government spending, export income
Output A Recession
D Boom
Depression B
C Recovery
Time
Recession Demand Investment Inventory level Production Employment Business failure General price level Confidence (diminished)
Consequence of unemployment Loss of output --- total NI Loss of human capital (skill) Inequalities in income distribution Social costs (personal suffering, distress, crime) Increased burden of welfare payments
Chapter 3 THE MACROECONOMIC ENVIRONMENT
Learning objectives A4
Topic list
The structure and objectives of the economy Factors which affect the economy The determination of national income The business cycle Inflation and its consequences Unemployment The objective of economic growth Government policies for managing the economy Fiscal policy Monetary policy The balance of payments
Number of unemployment = ————————————ws into unemployment Members of the working labor force becoming unemployment People out of the labor force joining the unemployed
What is macro-economics
It is the study the aggregated effects of the decisions of individual economic units (such as households or businesses). It looks at a complete national economy, or the international economic system as a whole. 宏观经济学主要研究整个国民经济的经济行为，涉 及的内容是整个社会的价格水平、总产量、就业 水平和其它经济总量的决定。
Index
Goods and services are grouped into a single price index in order to measure how the real value of money is changing. Based on a chosen basket of items, the resulting consumer price index can be used for various purpose. CPI (consumer price index, excluding most housing costs) RPI (retail prices index, including housing costs) RPIX (excluding mortgage payments and some other elements) RPIY (further excluding sales tax)
Boom Output Demand Capacity, labor (fully utilized) Bottle necks Prices Profitable, few firms face loses Expectations (optimistic) Investment (high)
The business cycle
It is the continual sequence of rapid growth in national income, followed by a slow-down in growth and then a fall in national income. After this recession comes growth again, which peaks, followed again by recession… Government will seek to stabilize the system and avoid wide fluctuations.
Aggregate demand and supply equilibrium
Full-employment national income ( Ideal equilibrium) AS=AD, full employment, without any inflationary gap Inflationary gap -- Resources (fully employed ) -- Demand (Increase) -- price level changes, no variations in real output Deflationary gap --Unemployment of resources --any change in demand will affect output --fairly constant price -- actual national income is below full employment national income. Stagflation unacceptably high unemployment + unacceptable high inflation, National income fell
Cyclical unemployment “为什么我们不生火？” “因为没有煤” “为什么我们没有煤？” “因为父亲失业了。” “为什么父亲失业了？” “因为煤太多了。” ——《1931年的故事》
Government employment policies Spend money directly on jobs Encouraging private sector growth Encouraging training Offering grant assistance in key regional areas Encouraging labor mobility Restricting trade union negotiating strength Abolishing minimum wage regulations
Depression Revenue Demand Stock Investment Knock on effect Recovery can be slow to begin Confidence
Recovery Confidence (returns) Output, employment, income Demand Profit Average price (constant, rise slowly) New technology
2. Factors which affect the economy
2.1 the multiplier in the national economy 2.2 aggregate supply and demand 2.2.1 aggregate demand 2.2.2 aggregate supply 2.2.3 a shift in aggregate demand
3 the determination of national income
3.1 aggregate demand and supply equilibrium 3.2 full-employment national income 3.3 inflationary gap 3.4 deflationary gap 3.5 stagflation 3.6 summary
National income Aggregate demand (AD) = total planned or desired consumption demand in the economy for consumer goods and services and also for capital goods. Total level of demand = + consumption + government expenditure + investment + net gains from international trade (exports-imports)
Inflation
It is the name given to an increase in price level generally. It is also manifest in the decline in the purchasing power of money.
Problems of inflation Redistribution of income and wealth Balance of payments effects Uncertainty of the value of money Price uncertainty Resource cost of changing prices Harmful to growth and investment