AS Economics
PowerPoint Briefings
Introduction to Macroeconomics
AS Economics
What is macroeconomics?
Tutor2u & Mrs G
AS Economics
What is macroeconomics?
• Macroeconomics considers the performance
of the economy as a whole.
• We try to understand changes in
– The rate of economic growth
– The rate of inflation
– Unemployment
– Our trade performance with other countries
• Macroeconomics also includes an evaluation
of the relative success or failure of
government economic policies
Tutor2u & Mrs G
AS Economics
So what is ‘the economy’?
Vital
knowledge
• The economy is made up of four sectors
sometimes called economic agents:
• Households who receive payments (income) for
their services (eg labour and land) and use this
money to buy the output of firms (ie consumption or
household spending).
• Firms who use land labour and capital to produce
goods and services for which they pay wages rent
etc (income) and receive payment (expenditure)
• Government (also known as the public or state
sector) and
• International eg consumers buying overseas
products (M) and Foreigners buying UK products (X)
Tutor2u & Mrs G
AS Economics
You will learn all
about this !
Key Concepts
• Gross Domestic Product (GDP)
– The monetary value of all goods and services
produced within the UK in a given time period
• Real GDP
– The volume of goods and services produced within the
UK (i.e. GDP adjusted for changes in the price level)
• Economic Growth
– The percentage rate of increase of real GDP
• Inflation
– The annual percentage rate of change of the general
price level
Tutor2u & Mrs G
AS Economics
Difference between micro & macro
• Microeconomics
• Recession in the tourist industry due to
the global downturn
• A government subsidy to steel
producers
• A recession in the textiles industry
• Increased spending on the National
Health Service
Tutor2u & Mrs G
AS Economics
Microeconomics
Tutor2u & Mrs G
AS Economics
Difference between micro & macro
• Macroeconomics
• Strong economic growth arising from
high levels of consumer spending
• A fall in exports because of a
recession in leading European
markets
• Higher interest rates to curb
inflationary pressure
Tutor2u & Mrs G
AS Economics
The ever changing economy
Tutor2u & Mrs G
AS Economics
Manufacturing industry in the UK
• Manufacturing industry in the UK has been
in long term decline
– It now contributes less than 18% of national
output
– It employs just over 3.3 million people (over 7
million in 1979)
– We have a very large trade deficit with other
countries in manufactured products
• The service sector is now the dominant
sector of the UK economy
Tutor2u & Mrs G
AS Economics
Can you spot
the recessions?
Index of Production
October shows 8.4% annual fall
Tutor2u & Mrs G
AS Economics
Manufacturing
What are the main manufacturing industries in the
economy?
Tutor2u & Mrs G
AS Economics
Tutor2u & Mrs G
AS Economics
Objectives of economic policy
• What are the government’s main economic
objectives?
Tutor2u & Mrs G
AS Economics
The main objectives of government
economic policy
Vital
knowledge
•
The key elements of the Government's strategy
are:
1. Delivering macroeconomic stability (a very broad
macroeconomic aim)
2. Meeting the productivity challenge (an important
supply-side target)
3. Increasing employment opportunity for all (a
labour market objective)
4. Ensuring fairness for families and communities
(commitment to equity)
5. Protecting the environment (green economics has
a macroeconomic dimension)
Tutor2u & Mrs G
AS Economics
Macro stability…
• What are the government’s main economic
objectives?
• Low inflation
• Steady and sustained growth
• High levels of employment
• Improvements in living standards
Tutor2u & Mrs G
AS Economics
AS Economics
PowerPoint Briefings
So now you are going to look at some
current economic data
Meeting the Inflation Target
What trends can
you see?
Are there
any falls in
Inflation?
When?
Tutor2u & Mrs G
AS Economics
Can you identify the 4
stages of the economic
cycle???
Achieving sustained growth
BOOM
RECESSION
RECOVERY
SLUMP
Tutor2u & Mrs G
AS Economics
Maintaining low unemployment?
What’s the
relationship
between GDP and
unemployment
Tutor2u & Mrs G
AS Economics
Maintaining low unemployment?
Tutor2u & Mrs G
AS Economics
How’s consumer confidence?
Tutor2u & Mrs G
AS Economics
Standard of Living.
This diagram uses
INDEX numbers
….
But Other
what are
than
‘standards
‘money’of
how
living’?
else can you
judge quality of
life?
Tutor2u & Mrs G
AS Economics
Unit 2 key theory – we will look at
You will learn all
about this !
• Macro stability can be measured by the volatility of
key indicators:
Tutor2u & Mrs G
• 1. Consumer price inflation (annual % change in
prices)
2. Real GDP growth over one or more business
cycles
3. Changes in measured unemployment /
employment
4. Fluctuations in the current account of the balance
of payments
5. Changes in government finances (i.e. the size of
the fiscal deficit or surplus)
6. Volatility of short term policy interest rates and
long term interest rates such as the yield on
government bonds
7. Stability of the exchange rate in currency markets
AS Economics
Your task
• To find out the current economic figures for
– GDP
– Inflation
– Employment/unemployment
– BoP
– Values of sterling against euro & $
– Look up these figures for Germany, Italy,
Japan, Eurozone, USA and UK.
Tutor2u & Mrs G
AS Economics
Current Economic Data
GDP
Inflation
Unemployment
Balance of
Payments
UK
USA
Japan
Germany
Italy
Eurozone
Tutor2u & Mrs G
AS Economics
How to research the data
• Go to www.economist.com
• Select Economic data
• Select the economy required
• Go to the data file
• Read info provided…
Tutor2u & Mrs G
AS Economics
Your written task…
1. Compare the recent economic performance of
of the UK with one other country.
2. WHAT other data/information would you need
to know to decide whether the UK economy
has better performance than the others?
Identify at least 5 factors.
Tutor2u & Mrs G
AS Economics
Homework
• News article – research
an article from a
reputable source:
• Article must be on one
of the following topics…
• BBC
• UK employment /
unemployment
• Financial Times
• Guardian
• Independent
• UK inflation
• UK interest rates
• UK economic growth
• The Times
• The Economist
Tutor2u & Mrs G
• Analyse the key issues
raised in the article..
AS Economics
What makes a stable economy?
Tutor2u & Mrs G
•
Macro stability can be measured by the volatility of key indicators:
•
1. Consumer price inflation (annual % change in prices)
2. Real GDP growth over one or more business cycles
3. Changes in measured unemployment / employment
4. Fluctuations in the current account of the balance of payments
5. Changes in government finances (i.e. the size of the fiscal deficit or
surplus)
6. Volatility of short term policy interest rates and long term interest rates such
as the yield on government bonds
7. Stability of the exchange rate in currency markets
•
A stable economy provides a framework for an improved supply-side
performance i.e.
•
• Stable low inflation encourages higher investment which is a determinant of
improved productivity and non-price competitiveness
• Control of inflation helps to main price competitiveness for exporters and
domestic businesses facing competition from imports
• Stability breeds higher levels of consumer and business confidence –
sentiment drives spending in the circular flow
• The maintenance of steady growth and price stability helps to keep short
term and long term interest rates low, important in reducing the debt-servicing
costs of people with mortgages and businesses with loans to repay
• A stable real economy helps to anchor stable expectations and this can act
as an incentive for an economy to attract inflows of foreign direct investment
AS Economics