Recap Supply labour, land, capital, entrepreneurs The Output of goods and services The Circular flow of Income FirmsConsumers The National income (rent,

Recap

Supply labour, land, capital,

entrepreneurs

The Output of goods and services

The Circular flow of Income

Firms Consumers

The National income

(rent, wages, interest and profits)

Consumption expenditure

The Key Macroeconomic Concepts-

an introduction

Handout

• The UK Economy

• 16th April 2012

• What are the key statistics mentioned in the news article?

The key macroeconomic concepts

Economic Growth

• An increase in output, real GDP, over a given period of time.

• The rate of economic growth is used as a major indicator of economic performance.

• A positive, stable and sustainable rate of growth is a key macroeconomic objective for government.

The key macroeconomic concepts

Inflation

• An increase in the general price level over a given period of time.

• The rate of inflation is used as a major indicator of economic performance.

• A low and stable rate of inflation is a key macroeconomic objective for government.

The key macroeconomic concepts

Unemployment

• People who are part of the working population, who are willing and able to work, but are without jobs.

• The rate of unemployment is used as a major indicator of economic performance.

• A low level of unemployment is a key macroeconomic objective for government.

The key macroeconomic concepts

Balance of Payments (BoP)

• Is a record of all economic transactions between a country an the rest of the global economy.

• The BoP current account balance is used as a major indicator of economic performance.

• Long term stability in the current account is a key macroeconomic objective for government.

The key macroeconomic concepts

Equity in the distribution of income

• A fair distribution of income (note this is a normative concept).

• Equity is not the same as equality (equality would mean that everyone gets an equal share of income)

• The way a government taxes and spends can redistribute the income in a country

Summary - The key macroeconomic objectives

• A steady and sustainable increase of output (real GDP).

• A low level of unemployment / high level of employment.

• A low and stable rate of inflation.• A favourable balance of payments

position.• Equity in the distribution of income

Economic growth and

the economic cycle/

business cycle/ trade

cycle

The Business Cycle/ The Economic Cycle

No notes Just lined paper for this section…

To manage the macroeconomy we need to measure actual and potential output

Trend output= potential GDP

boom

Output (real GDP)

Time

Actual output

Expansion

Contraction

Peak

Output Gaps

Trough

Trough

Peak

If actual output< potential output = negative output gap= deflationary gap

If actual output> potential output = positive output gap= inflationary gap

If real GDP falls for 2 consecutive quarters it is called a recession (economic growth will be negative eg. -1%)

When an economy comes out of a recession i.e. real GDP begins to rise again this is called a recovery (economic growth will be positive eg. 0.2%)

• http://www.guardian.co.uk/business/interactive/2008/oct/22/creditcrunch-recession

Handout

The Economic CycleET March 2006

Questions1.Sketch a simple economic cycle diagram2.Summarise the ‘stages’ of the economic

cycle (refer to your diagram). Do not refer to the UK, just the theory.

3.Summarise different explanations of the economic cycle. Do not write 1 long paragraph- a few short paragraphs.