1. The Macroeconomy Economic Agents The Circular Flow of Income Demand and Supply Model Revisited

2. REPORT CARD The Singapore economy continued to grow at a healthy pace. Advance estimates show that real gross domestic product (GDP) rose by 5.9 per cent in the fourth quarter of 2006 compared to the same period in 2005. Why does the GDP grow? What makes it possible? Who makes it possible?

3. ECONOMIC AGENTS The groups of people who make important decisions in an economy. Why important? These decisions affect the strength / health of the economy. So who are they? The Four Players

4. ECONOMIC AGENTS 2006 World Cup in Germany German consumers might buy new audio/TV systems and other electronic equipment so maximise their enjoyment of the month long competition. A similar effect was noted in 2004 in the UK when electronic goods retailers spent heavily on marketing new digital televisions ahead of Euro 2004. Upwards of a million supporters are thought to be coming to Germany and the boost to spending in hotels and retailing will be noticeable. It is estimated that the number of overnight stays in German hotels and hostels will rise by over 5 million and the average fan will have a spending budget of around Euro 150 per day. (tutor2u.net) Consumers Foreigners (consumers)

5. ECONOMIC AGENTS Companies including Seagate Technology Inc., the world's biggest maker of computer disk drives, are expanding in Singapore to meet orders. Seagate plans to spend more than $300 million to expand in Singapore and hire as many as 2,000 workers during the next year, the Straits Times newspaper reported March 22. Firms

6. ECONOMIC AGENTS The expansion of multinational businesses locating in the UK has helped to raise productivity and efficiency in the economy. This provides a platform for building and sustaining a comparative advantage in the areas where the UK still has some world class manufacturing plants and businesses. These subsidies have the effect of reducing the costs of suppliers and allow them to offload their surplus production into overseas markets. This can have a very damaging effect on prices, demand and profits for the domestic producers of developing countries trying to compete in their home markets. Foreigners (investors) Foreigners (producers)

7. ECONOMIC AGENTS The government is targeting more than 7 percent annual growth over the next decade to end poverty in India. That's fine, but the real issue is making it easier to do business and giving more people opportunities to prosper. India's population has shown it's ready to innovate as long as the government provides reliable power supply, efficient railways, clean water and good irrigation. “If India can't build up its infrastructure over the next 10 years, their dream of becoming a great power is over. Manufacturing is growing at an incredible pace but it can't go on unless they upgrade the ports, railways, roads, airports, everything. And the number one problem is power," a manufacturer reports. Government

8. THE 4 PLAYERS The groups of people who make important decisions in an economy. Economic Agents HOUSEHOLDS GOVERNMENT FIRMS FOREIGNERS

9. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER A simple 2-sector economy HouseholdsFirms Consumption expenditure Goods and services Factor services Factor incomes

10. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER A simple 2-sector economy HouseholdsFirms REAL FLOW Goods and services Factor services

11. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER A simple 2-sector economy HouseholdsFirms Consumption expenditure Factor incomes $ MONEY FLOW

12. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER Households Firms Income Consumption $

13. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER Households Firms Income Consumption Banks Savings Investment $

14. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER Households Firms Income Consumption Government Taxes Government Expenditure Taxes Government Expenditure

15. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER Households Firms Income Consumption Foreign/ External Sector Imports Exports

16. ECONOMIC AGENTS: HOW THEY INTERACT WITH EACH OTHER Circular flow of income in a 4-sector economy Households Firms Income Consumption Banks Government Foreign/ External Sector Savings Taxes Imports Government Expenditure Investment Exports

17. Economic Agents 1._____________ 2._____________ 3._____________ 4._____________ Expenditure a._____________ b._____________ c._____________ d. __________________ THE ECONOMIC AGENTS Aggregate expenditure (AE) / Aggregate demand (AD) Sum / Total

18. Aggregate Demand – Aggregate Supply Model Study the dd for and supply of all the final goods and services produced in the current year Graph of AD-AS? Demand-supply model Study the dd for and ss of a particular good or service e.g. the market for oil Macroeconomics v.s. Microeconomics D S QeQe PePe

19. AD-AS Model of Price and Output Determination National Income / National Output Price Level AD PePe YeYe = ? = C + I + G + (X-M) AS

20. Aggregate Supply National Income / National Output Price Level AS ________ Range _______ Range __________ Range

21. Keynesian Range Intermediate Range Classical Range horizontal vertical upward- sloping downward- sloping Abundant idle resources available No idle resources available Supply bottlenecks Characteristics of the AS curve Match the words

22. The Macroeconomy Economic Agents Who are the 4? The Circular Flow of Income Can you draw? AD-AS Model What are the 4 components of AD? What is the shape & characteristics of the AS curve? Draw the AD-AS together in one diagram

23. The End

24. Aggregate Supply: Keynesian Range National Income / National Output Price Level Keynesian Range AS: horizontal Idle resources available Output can be increased without any increase in price AS Y0Y0 Y1Y1 Y2Y2 P

25. Aggregate Supply: Keynesian Range National Income / National Output Price Level AS Y0Y0 Y1Y1 P AD 0 AD 1

26. Aggregate Supply: Classical Range National Income / National Output Price Level Classical range AS: vertical Full employment Output cannot be increased Pressure on price to increase AS Y P0P0 P1P1

27. Aggregate Supply: Classical Range National Income / National Output Price Level AS Y P0P0 P1P1 AD 0 AD 1

28. Aggregate Supply: Intermediate Range National Income / National Output Price Level Intermediate Range AS: slopes upwards Approaching full employment, supply bottlenecks start to appear Increase in output accompanied by increase in prices AS Y0Y0 Y1Y1 P0P0 P1P1

29. Aggregate Supply: Intermediate Range National Income / National Output Price Level AS Y0Y0 Y1Y1 P0P0 P1P1 AD 0 AD 1