IB Macroeconomics EQ: What is the macroeconomic environment and how can we measure it?

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Presentation transcript:

IB Macroeconomics EQ: What is the macroeconomic environment and how can we measure it?

DEFINITION: Macro economics is the branch of economics that studies economic aggregates (grand totals): e.g. the overall level of prices, output and employment in the economy Source: ECONandBIZ.com Macroeconomics is concerned with the economy as a whole, we measure the performance of the macro economy by looking at both quantitative and qualitative variables e.g. totals, trends, attitudes etc. The FOUR main macro economic targets that a government usually has are; GROWTHPRICE STABILITY EMPLOYMENTTRADE BALANCE GDP / GNPCPI / RPI / RPIX Claimant Count / ILO Measure Balance of Payments

What is the circular flow of income? Factor payments Factor payments Consumption of domestically produced goods and services (C d ) Consumption of domestically produced goods and services (C d ) Firms Households

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

How do economists measure national income? The OUTPUT method  Gross Domestic Product (GDP) The INCOME method  Gross National Income (GNY) The EXPENDITURE method  AD = C + I + G + (X-M) NATIONAL OUTPUT = NATIONAL INCOME = NATIONAL EXPENDITURE

How do we measure and compare growth? Gross Domestic Product (GDP) Gross National Product (GNP) Net National Product (NNP) Nominal and Real GDP GDP per capita (person)

Why Gather Data? A report card or barometer for the economy Policy development Forecasting Businesses use data to forecast demand Trends Evaluating standards of living Comparisons between countries Data Limitations Inaccuracies Unrecorded or under-recorded activity

Do higher levels of GDP mean that people are better of? External costs of growth Other quality of life concerns Composition of output

Activities 1)Complete ‘The CIRCULAR Flow of Income - Managing the Economy’ worksheet 2)Complete Question 1 page 157 IB text 3)Complete a detailed essay plan for Essay Question 1 page 157 IB text 4)Homework – complete ‘Unit 3 - Introduction Internet Research Task’

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