ECON1002
Introductory Macroeconomics
Week 1: Introduction to Macroeconomics &
Measuring macroeconomic performance: output
Readings: BOF Ch. 1 and 2.1-2.4
Dr Jordi Vidal-Robert
School of Economics, University of Sydney
Semester 2, 2020
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Roadmap for today
1. Introduction: content and structure
2. Introduction to macroeconomics
3. Gross domestic product
4. Real GDP
5. Discussion: Real GDP is not the same as economic wellbeing
6. Next week
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Who is your course coordinator/lecturer?
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Who is your course coordinator?
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Everything you need for this course is in Canvas!
Location: https://canvas.sydney.edu.au/courses/26892
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Questions and Email Etiquette
– Questions?
1. Schedule or assessments: UoS outline
2. Second, ask in Ed (online discussion board) or
tutor. All materials are in Canvas
3. Third, come to Q&A or e-mail.
– If you e-mail:
• Send your email from your university account
• E-mail with ECON1002 in the subject
• Please keep the email short and concise
• Please refer to me as Jordi
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Communication (ideally)
Weekly announcement:
summarizing what we have done,
any relevant information of the unit
Ed Discussion board: questions
about the unit and its content.
E-mails: other circumstances
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Lectures
Live streaming: use of Padlet and Canvas
chat
Why? They get recorded anyway. Some
students need a fix scheduled time
Organization: lectures will be organized
in blocks, flagged in Echo360 so you can
have a rest while listening to it.
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Tutorials
Face-to-face and online
Videos at the end of the week
providing solutions. Access to
solutions in pdf as well
If you have questions, Ed discussion
board, office hours with tutors or
myself
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Attendance
It does not affect your final grade
Either in online tutorials, face-toface tutorials or watching the
video tutorial
Attendance will be used to inform
you of your progress in the unit
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How to do well in Econ1002?
1. Take the math diagnostic test: If you did not do well DON'T
PANIC. You can join the math workshop or online materials
and/or revise a high school calculus/algebra book.
2. Attend online lectures and tutorials &/or watch the recordings,
read the book/s, do the problem sets. DO NOT CHECK
ANSWER KEYS STRAIGHT AWAY WHEN YOU GET STUCK.
3. If you get stuck, take a breath, revise the book or lectures, ask
in Ed discussion board, talk to your colleagues, your tutor
and/or your lecturer. Start from the beginning, then attempt
again, then check the answer.
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Readings & Materials
• Lecture notes/slides are the
roadmap of the course.
• They will be recorded &
slides/scribbles/problem
sets/assignments are posted on
Canvas
• The main textbook is Bernanke
Olekalns and Frank (BOF) 5th
edition.
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Week 1: Introduction to macroeconomics
(BOF Chapter 1)
What is Macroeconomics?
Go to menti.com code 25 23 01 8
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What does macroeconomics study?
• Concerned with broad themes: GDP, inflation, unemployment
• What happens to the economy in the short run: one to four
years (i.e. the business cycle)
• What happens to the economy in the long run?
• What is the interaction between economies?
• https://theconversation.com/us/topics/macroeconomics-1628
• https://www.smh.com.au/business
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ECON1002 at a glance
Measuring macro performance: Output, Prices, Savings and wealth,
Unemployment
Short-run macro: the business cycle
Policy issues: Fiscal policy, Monetary policy & the RBA, Aggregate
demand and supply
Economic growth
Open Economies: Exchange rates & the balance of payments
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Week 1: Measuring macroeconomic performance
(BOF Chapter 2.1-2.4)
Gross Domestic Product (GDP)
https://www.ted.com/talks/hans_rosling_the_magic_washing_machine#t-535642
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Australia’s historical GDP experience
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Australia’s historical GDP experience
In 2016 a typical Australian resident consumed around four times the quantity
of goods and services available to a typical resident at the onset of the Great
Depression
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Introduction
The Lay of the Land
10
World regions historical GDP experience
log gdp per c apita
7
8
9
Western Offshoots
Western Europe
Latin
America
Asia
6
Africa
1000
1200
1400
1600
1800
2000
y ear
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Figure: The evolution of average GDP per capita in Western O§shoots, Western
Australia’s historical GDP experience
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Gross domestic product: measuring the nation’s output
• Definition: Gross domestic product (GDP) is the market value of
the final goods and services produced in a country during a
given period.
• Market value
• Price times quantity.
• What about public goods and services?
• As per this definition, what goods and services are not part of GDP and
why?
• Example: Bread production
• To make a loaf of bread, a farmer grows wheat and sells it to the miller
for $0.50, the miller grinds the wheat into flour and sells to the baker for
$1.20 and the baker makes the flour into bread and sells it for $2.00.
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Why is GDP growing? We are using more inputs
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Why is GDP growing?
Output per hour worked or average labour productivity
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Why is GDP growing?
Female labour force participation
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Week 1: Introduction to macroeconomics
(BOF Chapter 2)
Approaches to calculate GDP
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How to measure GDP? Three approaches
Value added method
Expenditure method
Income method
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Example I
Bread production: To make a loaf of bread, a farmer grows
wheat and sells it to the miller for $0.50, the miller grinds the
wheat into flour and sells to the baker for $1.20 and the
baker makes the flour into bread and sells it for $2.00.
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Value added method for GDP
Example I
Value added: what the firm adds to the value of the produced
inputs it buys from other firms i.e. value of the firms output less
value of purchases of intermediate goods (i.e. produced inputs).
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Example II
Steel-Car: An economy with just two firms: Steel
company and Car company
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The expenditure method for measuring GDP
• All current production by firms must be either:
• bought by households, other firms, government and foreigners;
• left unsold as inventories bought by the firm which makes it.
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The expenditure method for measuring GDP
• Components of the expenditure method:
• C: Consumption expenditure. Spending by households on goods and
services, not including spending on new houses (around 55% of total GDP
on average)
• I: Investment. Spending by firms on new buildings, machinery and
inventories, plus spending by households on new houses (23%)
• G: Government expenditure. Spending by federal, state and local
governments on goods and services (22%)
• NX: Net exports. Expenditure on exports (X) minus expenditure on
imports (M) (net 0%)
𝐺𝐷𝑃 = 𝑌 = 𝐶 + 𝐼 + 𝐺 + 𝑁𝑋
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Expenditure Components of GDP
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Expenditure Components of GDP
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The income method for measuring GDP
• When a good or service is sold, the revenues from the sale are
distributed to the workers and the owners of the capital involved
in the production.
• GDP also equals labour income (wages) plus capital income
(profits/rent/interest) from the production.
• Example: Steel-car
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Why the expenditure and income approaches give the
same answer?
• Circular flow of income
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Since output is being evaluated at market prices, we
need to be careful about Nominal vs real GDP
• Nominal GDP is current production at “current prices”.
• Problem: It can mislead when comparing GDP over time.
• Why?
• Real GDP is is current production at “base year” prices.
Example: Prices and quantities in 2013 and 2018
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Real vs Nominal GDP: Australia
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Week 1: Introduction to macroeconomics
(BOF Chapter 2)
Discussion on GDP
https://www.gapminder.org/tools/?from=world#$state$time$value=2019;;&c
hart-type=bubbles
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Real GDP is not the same as economic wellbeing
•
•
•
•
•
•
Leisure time is excluded.
Non-market economic activities are excluded.
Environmental quality and resource depletion are excluded.
Quality of life is excluded.
Poverty and economic inequality is excluded.
Real GDP is nevertheless closely related to economic wellbeing.
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GDP and life expectancy
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GDP and life satisfaction
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Today’s videos & Extras
• https://theconversation.com/us/topics/macroeconomics-1628
• https://www.gapminder.org/tools/?from=world#$state$time$value=
2019;;&chart-type=bubbles
• https://voxeu.org/article/gdp-and-life-satisfaction-new-evidence
• https://tracktherecovery.org
• https://www.ted.com/talks/hans_rosling_the_magic_washing_machin
e#t-535642
• https://www.ted.com/talks/hans_rosling_global_population_growth_
box_by_box#t-533238
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