1. Introduction to macroeconomics
Lecture 1

2. Macroeconomic performance
Key indicators:
- the inflation rate: the percentage rate of increase of the general price level
- the unemployment rate: the percentage of the labor force out of job and looking for work:
- the growth rate: the percentage rate of increase of real GNP

3. Inflation The general price level is often going up
The rate of inflation is often rising as well
What does it mean? Money is loosing its value, public loses confidence in economic stability – threat of their economic security
Macroeconomics explains: causes of inflation, its costs and possible methods to make the rate of inflation smaller

4. Unemployment Unemployment a major political issue
People dislike unemployment
A high unemployment means wasting scarce resources on a large scale
Macroeconomics explains why the economy suffers from high unemployment and what can be done about it

5. Growth
Economy is growing when its total production of goods and services is going up
A growing economy each year means more jobs and a higher standard of living
The growth rate is changing in a short run
Business cycle: the movements of the economy through sequences of recessions and recoveries
More or less regular pattern of expansion and contraction o ion real output around economy’s average or trend
Actual and potential output ( full-employment level)
Macroeconomics studies the causes of growth in the short run and the long run

6. Other macroeconomic issues
Interest rates- the cost of borrowing money and the return to lending money; affects the decisions about future, about saving and investment
Budget deficit- the difference between government spending and receipts
Trade deficit – the excess of imports over exports

7. The circular flow of income and spending
Interactions between firms and households in the economy as whole
Flow of services of factors of production from households to firms
Matched by income paid by firms to households
Matched in the opposite direction is a flow of goods and services from firms to households
Paid for by households’ spending from their incomes

8. More details on unemployment
Unemployment and the production possibility frontier shows a combination of output at which economy is fully employing labor
Macroeconomics explains why the unemployed are not put quickly back to work
How does the economy avoid a continuing fall in production and employment

9. More details on inflation
Two cases of inflation:
1) the economy producing on the production possibility frontier and demand for goods goes up. Firms rise prices
2) inflation may take place even though the economy is not at full employment
Macroeconomics explains why the situation (2) is possible

10. How to calculate rate of inflation?
The rate of inflation: the growth of prices in a certain period of time
Inflation rate :
Inflation in 2011 = (CPI 2011 – CPI 2010/CPI 2010 x 100%
Negative inflation or deflation- falling prices

11. More details on growth
Growth: shift of the production possibility frontier
- unemployed resources put back to work
- the quantity of factors of production may increase or existing factors of production are more productive
Macroeconomics should answer how to promote the growth

12. Growth rates
Real growth rate 2011 = real GNP 2011 – real GNP 2010/real GNP 2010 x 100%
It is positive most years but there are several years when output declines, the rate is negative
Actual output ≠ potential output
Per capita output as a measure of average standard of living

13. Inflation, unemployment and the rate of growth
years UK US
West Germany
Japan
Inflation
5.1
3.2
3.3
6.1
15.4
9.4
4.9
9.0
6.9
5.5
3.1
1.3
Unemployment
2.9
5.0
0.8
6.3
1.2
11.0
8.5
7.0
2.5
Real rate of growth
4.2
4.8
10.5
0.5
2.4
2.0
4.0
1.8
2.6
1.1
4.3

14. Growth of world output 2005-2013
2009
2010
2011
2012
2013
World
3.3
-2.4
4.0
2.8
2.6
3.2 US
1.8
-3.5
3.0
1.7
1.5
2.0
Japan
1.3
-6.3
-0.5 EU
2.2
-4.3
1.6
0.7
New EU members
5.4
-3.7
2.3
2.9
3.1
Euro area
1.9
0.4
Economies in transition
7.1
-6.6
4.1
3.9
Developing economies
6.9
2.4
7.5
6.0
5.6
5.9

15. Real GDP (percentage changes)
Average
2015
2016
2017
2018
China
9,8
6.9
6,7
6,6
6,4
Germany
1,5
1,8
2,0
France
2,2
1,2
1,1
1,3
1,6
Greece …
-0,3
-o.1
2,5
Japan
1,0
1,4
Poland
4,6
3,8
2,7
3,6
3,1 US
3,4
2,6
2,1
2,4
Euro area
1.5
1,7
Total OECD
2,8