1. Chapter 15 Introduction to macroeconomics
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Macroeconomics is ...
the study of the economy as a system
it deals with broad aggregates
but uses the same style of thinking about economic issues as in microeconomics.
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3. Some key issues in macroeconomics
Inflation
the rate of change of the general price level
Unemployment
a measure of the number of people looking for work, but who are without jobs
Output
real gross national product (GNP) measures total income of an economy
it is closely related to the economy's total output
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4. More key issues in macroeconomics
Economic growth
increases in real GNP, an indication of the expansion of the economy’s total output
Macroeconomic policy
a variety of policy measures used by the government to affect the overall performance of the economy
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Inflation in the UK,
Source: Economic Trends Annual Supplement, Labour Market Trends
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6. Unemployment in UK and USA
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7. Government in the circular flowY
C + I + G I C S
Households
Firms
Government
C + I + G - Te Te G
B - Td
Y + B - Td
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8. Adding the foreign sector
To incorporate the foreign sector into the circular flow,
we must recognise that residents of a country will buy imports from abroad,
and that domestic firms will sell (export) goods and services abroad.
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GDP and GNP
Gross domestic product (GDP)
measures the output produced by factors of production located in the domestic economy
Gross national product (GNP)
measures the total income earned by domestic citizens
GNP = GDP + net income from abroad
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10. Three measures of national output
Expenditure
the sum of expenditures in the economy
Y = C + I + G + X - Z
Income
the sum of incomes paid for factor services
wages, profits, etc.
Output
the sum of output (value added) produced in the economy
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11. National income accounting: a summary
NYA: Net income from abroad
GNP
(& GNI) at
market
prices
NYA
NYA
Depre-
ciation G
GDP at
market
prices
NNP
at basic
prices
Indirect
taxes I
National
income
rental
income NX
Profits
Self-
employment C
Wages
and
salaries
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12. UK national accounts 2008 (£bn, current prices)
Income measure
At market prices:
Income source
Employment
770
C by households
891
Profits and rents
429
C by government and non-profit organizations  
350
Other 83
I by private firms and government
245
GDP at basic prices
1282 NX
–40
Indirect taxes
 164
GDP at market prices
1446
Net property income from abroad
  25
GNP (GNI) at market prices
1471
Source:
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13. What GNP does & doesn’t measure
Some care is needed:
to distinguish between real and nominal measurements
to take account of population changes
to remember that GNP is not a comprehensive measure of everything that contributes to economic welfare
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GNP Deflator
The GNP deflator is the ratio of nominal GNP to real GNP, expressed as an index.
Nominal GNP (Current £bn)
GNP deflator (1995=100)
Real GNP (£bn 1995 prices)
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15. GNP per capita: Growth, 1980–2008 (% per annum)
Real GNP Per capita
real GNP
Denmark UK
Jordan
Source: World Bank
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Tax evasion
The hidden economy is often linked to tax evasion.
Taxes are evaded by smugglers and drug dealers but also by gardeners, plumbers and everyone else doing things ‘for cash’.
Since GNP data are based on tax statistics, the ‘hidden’ economy is unreported. This means that official GNP statistics may substantially understate the true value of GNP.
Estimating the size of the hidden economy is obviously difficult.
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17. Recent estimates by Schneider, Buehn and Montenegro
United States %
UK %
China %
Germany %
Spain %
India %
Poland %
Georgia %
As a percentage "official" gross domestic product
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