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Aggregate Demand and Supply and Macroeconomic
Problems
Aggregate Demand and Supply and Macroeconomic
Problems
Macroeconomic ObjectivesMacroeconomic Objectives
Distinction between microeconomics and macroeconomics
The major macroeconomic issues economic growth
unemployment
inflation
balance of payments and exchange ratesbalance of payments deficits and surpluses
exchange rate movements
Distinction between microeconomics and macroeconomics
The major macroeconomic issues economic growth
unemployment
inflation
balance of payments and exchange ratesbalance of payments deficits and surpluses
exchange rate movements
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)
The Circular Flow of IncomeThe Circular Flow of Income
The inner flow The inner flow
Factorpayments
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Consumption ofdomestically
produced goodsand services (Cd)
The circular flow of incomeThe circular flow of income
Firms
Households
The Circular Flow of IncomeThe Circular Flow of Income
Withdrawals
net saving
net taxes
import expenditure
Injections
investment
government expenditure
export expenditure
Withdrawals
net saving
net taxes
import expenditure
Injections
investment
government expenditure
export expenditure
Factorpayments
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I)Investment (I)
Governmentexpenditure (G)
Governmentexpenditure (G)
Exportexpenditure (X)
Exportexpenditure (X)
BANKS, etc
Netsaving (S)
Netsaving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Importexpenditure (M)
Importexpenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
The Circular Flow of IncomeThe Circular Flow of Income
The relationship between injections and withdrawals the links between them
The relationship between injections and withdrawals the links between them
Factorpayments
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I)Investment (I)
Governmentexpenditure (G)
Governmentexpenditure (G)
Exportexpenditure (X)
Exportexpenditure (X)
BANKS, etc
Netsaving (S)
Netsaving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Importexpenditure (M)
Importexpenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
The Circular Flow of IncomeThe Circular Flow of Income
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
The Circular Flow of IncomeThe Circular Flow of Income
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
Equilibrium in the circular flow
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
Equilibrium in the circular flow
Factorpayments
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I)Investment (I)
Governmentexpenditure (G)
Governmentexpenditure (G)
Exportexpenditure (X)
Exportexpenditure (X)
BANKS, etc
Netsaving (S)
Netsaving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Importexpenditure (M)
Importexpenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
The Circular Flow of IncomeThe Circular Flow of Income
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
Equilibrium in the circular flow
The circular flow and the four macroeconomic objectives
The relationship between injections and withdrawals
the links between them
planned injections may not equal planned withdrawals
Equilibrium in the circular flow
The circular flow and the four macroeconomic objectives
Factorpayments
Factorpayments
Consumption ofdomestically
produced goodsand services (Cd)
Consumption ofdomestically
produced goodsand services (Cd)
Investment (I)Investment (I)
Governmentexpenditure (G)
Governmentexpenditure (G)
Exportexpenditure (X)
Exportexpenditure (X)
BANKS, etc
Netsaving (S)
Netsaving (S)
GOV.
Nettaxes (T)
Nettaxes (T)
ABROAD
Importexpenditure (M)
Importexpenditure (M)
The circular flow of incomeThe circular flow of income
WITHDRAWALS
INJECTIONS
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The circular flow of national income and expenditureThe circular flow of national income and expenditure
The circular flow of national income and expenditureThe circular flow of national income and expenditure
(1) Production(1) Production
(2) Incomes(2) Incomes (3) Expenditure(3) Expenditure
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
Agriculture, forestry and fishing £8 241 mMining, energy and water supply £41 378 m
Manufacturing£153 132 m
Construction £47 327 m
Wholesale and retail trade; repairs £106 766 m
Hotels and restaurants £29 359m
Transport and communication £70 252 m
Banking, finance, insurance, etc. £6 667 m
Letting of property £209 839 m
Public administration and defence £42 096 m
Education, health and social work £114 069 m
Other services £45 101 m
UK GVA (product-based measure): 2001UK GVA (product-based measure): 2001
Agriculture, forestry and fishing £8 241 mMining, energy and water supply £41 378 m
Manufacturing£153 132 m
Construction £47 327 m
Wholesale and retail trade; repairs £106 766 m
Hotels and restaurants £29 359m
Transport and communication £70 252 m
Banking, finance, insurance, etc. £6 667 m
Letting of property £209 839 m
Public administration and defence £42 096 m
Education, health and social work £114 069 m
Other services £45 101 m
Total GVA £874 227 m
UK GVA (product-based measure): 2001UK GVA (product-based measure): 2001
0.94.7
17.5
5.4
12.2
3.4
8.0
0.8
24.0
4.8
13.0
5.2
100.0
Agriculture, forestry and fishing £8 241 mMining, energy and water supply £41 378 m
Manufacturing£153 132 m
Construction £47 327 m
Wholesale and retail trade; repairs £106 766 m
Hotels and restaurants £29 359m
Transport and communication £70 252 m
Banking, finance, insurance, etc. £6 667 m
Letting of property £209 839 m
Public administration and defence £42 096 m
Education, health and social work £114 069 m
Other services £45 101 m
Total GVA £874 227 m
Percen
tage o
f GV
A
UK GVA (product-based measure): 2001UK GVA (product-based measure): 2001
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach
Compensation of employees (wages and salaries)
£556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)£238 625 m
Mixed incomes£60 073 m
Tax less subsidies on production(other than those on products) plusstatistical discrepancy £19 158m
UK GVA by category of income: 2001UK GVA by category of income: 2001
Compensation of employees (wages and salaries)
£556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)£238 625 m
Mixed incomes£60 073 m
Tax less subsidies on production(other than those on products) plusstatistical discrepancy £19 158m
Total GVA £874 227m
UK GVA by category of income: 2001UK GVA by category of income: 2001
63.6
27.3
6.9
2.2
100.0
Compensation of employees (wages and salaries)
£556 371 m
Operating surplus(gross profit, rent and interest of firms
government and other institutions)£238 625 m
Mixed incomes£60 073 m
Tax less subsidies on production(other than those on products) plusstatistical discrepancy £19 158m
Total GVA £874 227m
UK GVA by category of income: 2001UK GVA by category of income: 2001
Percen
tage o
f GV
A
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach From GVA to GDP
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach From GVA to GDP
GVA (gross value added at basic prices) £874 227m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
GVA (gross value added at basic prices) £874 227m
plus Taxes on products £120 499m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
GVA (gross value added at basic prices) £874 227m
plus Taxes on products £120 499m
less Subsidies on products £6 712m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
GVA (gross value added at basic prices) £874 227m
plus Taxes on products £120 499m
less Subsidies on products £6 712m
GDP (at market prices) £988 014m
UK GDP (product-based measure): 2001UK GDP (product-based measure): 2001
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach The expenditure approach
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach The expenditure approach
£million
Consumption expenditure of households and NPISH (C) 655 265
Government final consumption (G) 190 663
Gross capital formation (I) 164 048
Exports of goods and services (X) 268 451
less Imports of goods and services (M) 290 912
Statistical discrepancy 499
Gross domestic product (GDP) (at market prices) 988 014
UK GDP by category of expenditure, GNY and NNY: 2001UK GDP by category of expenditure, GNY and NNY: 2001
Measuring national incomeMeasuring national income
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach from GVA to GDP
From GDP to net national income (NNY)
GDP: the measure of national income Methods of measuring GDP
the product approach the income approach the expenditure approach
The product approach measuring GVA
The income approach from GVA to GDP
From GDP to net national income (NNY)
£million
Consumption expenditure of households and NPISH (C) 655 265
Government final consumption (G) 190 663
Gross capital formation (I) 164 048
Exports of goods and services (X) 268 451
less Imports of goods and services (M) 290 912
Statistical discrepancy 499
Gross domestic product (GDP) (at market prices) 988 014
plus Net income from abroad 5 756
Gross national income (GNY) 993 770
UK GDP by category of expenditure, GNY and NNY: 2001UK GDP by category of expenditure, GNY and NNY: 2001
£million
Consumption expenditure of households and NPISH (C) 655 265
Government final consumption (G) 190 663
Gross capital formation (I) 164 048
Exports of goods and services (X) 268 451
less Imports of goods and services (M) 290 912
Statistical discrepancy 499
Gross domestic product (GDP) (at market prices) 988 014
plus Net income from abroad 5 756
Gross national income (GNY) 993 770
less Capital consumption (depreciation) 111 275
Net national income (NNY) 882 495
UK GDP by category of expenditure, GNY and NNY: 2001UK GDP by category of expenditure, GNY and NNY: 2001
Measuring national incomeMeasuring national income
GDP as a measure of social welfare
benefits of using GDP
weaknesses
The Human Development Index (HDI)
GDP as a measure of social welfare
benefits of using GDP
weaknesses
The Human Development Index (HDI)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Human Development Index (HDI) for selected countries (2000)Human Development Index (HDI) for selected countries (2000)
Growth and the Business CycleGrowth and the Business Cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
O
Nat
iona
l out
put
Time
Potential output
The business cycleThe business cycle
Actualoutput
Growth in actual and potential output
Economic growth and the business cycle
fluctuations in actual growth
the phases of the business cycle
Growth in actual and potential output
Economic growth and the business cycle
fluctuations in actual growth
the phases of the business cycle
Growth and the Business CycleGrowth and the Business Cycle
O
Nat
iona
l out
put
Time
Potential output
Actualoutput
1
2
3
4
1
2
34
The business cycleThe business cycle
Growth in actual and potential output
Economic growth and the business cycle
fluctuations in actual growth
the phases of the business cycle
trend growth
Growth in actual and potential output
Economic growth and the business cycle
fluctuations in actual growth
the phases of the business cycle
trend growth
Growth and the Business CycleGrowth and the Business Cycle
O
Nat
iona
l out
put
Time
Potential output
Actualoutput
Trendoutput
The business cycleThe business cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice
Growth and the Business CycleGrowth and the Business Cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
Growth and the Business CycleGrowth and the Business Cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
the length of the phases
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
the length of the phases
Growth and the Business CycleGrowth and the Business Cycle
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
the length of the phases
the magnitude of the phases
Growth in actual and potential growth
Economic growth and the business cycle fluctuations in actual growth
the phases of the business cycle
long-term output trend
the business cycle in practice the irregularity of the cycle
the length of the phases
the magnitude of the phases
Growth and the Business CycleGrowth and the Business Cycle
Causes of fluctuations in actual growth
aggregate demand
aggregate demand relative to potential output
Actual growth in practice
experience since 1970
Causes of fluctuations in actual growth
aggregate demand
aggregate demand relative to potential output
Actual growth in practice
experience since 1970
Growth and the Business CycleGrowth and the Business Cycle
Ann
ual g
row
th r
ate
(%)
UK
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Ann
ual g
row
th r
ate
(%)
UK
France
Germany
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
Ann
ual g
row
th r
ate
(%)
UK
France USA
Germany
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
Ann
ual g
row
th r
ate
(%)
UK
France USA
Germany
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
Ann
ual g
row
th r
ate
(%)
UK
France USA
GermanyJapan
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
Ann
ual g
row
th r
ate
(%)
UK
France USA
GermanyJapan
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1970 1975 1980 1985 1990 1995 2000
Growth rates in selected industrial countriesGrowth rates in selected industrial countries
Causes of potential growth increases in the quantity of factors
capital labour land and raw materials the problem of diminishing returns
increases in factor productivity
Policies to achieve growth demand-side and supply-side policies market-orientated and interventionist
policies
Causes of potential growth increases in the quantity of factors
capital labour land and raw materials the problem of diminishing returns
increases in factor productivity
Policies to achieve growth demand-side and supply-side policies market-orientated and interventionist
policies
Growth and the Business CycleGrowth and the Business Cycle
UnemploymentUnemployment
The meaning of 'unemployment'
The costs of unemployment
Official measures of unemployment
claimant unemployment
do claimant statistics give a true picture of unemployment?
standardised unemployment (ILO / OECD)
The meaning of 'unemployment'
The costs of unemployment
Official measures of unemployment
claimant unemployment
do claimant statistics give a true picture of unemployment?
standardised unemployment (ILO / OECD)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
UK
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France USA
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France USA
Germany
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France USA
Germany Japan
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
UK
France USA
Germany Japan
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
UK
France USA
Germany Japan
OECD
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
UK
France USA
Germany Japan
OECD
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000
Une
mpl
oym
ent (
% o
f wor
kfor
ce)
Unemployment rates in selected industrial countriesUnemployment rates in selected industrial countries
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
Standardised unemployment rates in different sectors of the labour market (2002)
UnemploymentUnemployment
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
Qe
Disequilibrium unemploymentDisequilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
UnemploymentUnemployment
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
W2
Disequilibrium unemploymentDisequilibrium unemployment
Q2 Q1
B A
UnemploymentUnemployment
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
equilibrium unemployment
Unemployment and the labour market
the aggregate demand and supply of labour
equilibrium in the model
disequilibrium unemployment
equilibrium unemployment
Equilibrium unemploymentEquilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ADL
We
ASL
e
Qe
Q2QeO
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
N
e d
Equilibrium unemploymentEquilibrium unemployment
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ADL
We
e
Qe
ASL
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
W2
b a
e
Disequilibriumunemployment
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
O
Ave
rag
e (r
ea
l) w
ag
e ra
te
No. of workers
ASL
ADL
We
W2
b a
e
N
c
Equilibriumunemployment
Disequilibriumunemployment
Equilibrium and disequilibrium unemploymentEquilibrium and disequilibrium unemployment
UnemploymentUnemployment
Disequilibrium unemployment
real-wage (classical) unemployment
demand-deficient (cyclical) unemployment
unemployment arising from a growth in the labour supply
Disequilibrium unemployment
real-wage (classical) unemployment
demand-deficient (cyclical) unemployment
unemployment arising from a growth in the labour supply
UnemploymentUnemployment
Equilibrium unemployment
frictional (search) unemployment
structural unemployment
changing pattern of demand
technological unemployment
regional unemployment
seasonal unemployment
Equilibrium unemployment
frictional (search) unemployment
structural unemployment
changing pattern of demand
technological unemployment
regional unemployment
seasonal unemployment
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve The aggregate demand curve
O
Pri
ce le
vel
National output
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve
Why aggregate demand curves slope downwards
The aggregate demand curve
Why aggregate demand curves slope downwards
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
O
Pri
ce le
vel
National output
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
O
Pri
ce le
vel
National output
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
savings effect
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
savings effect
O
Pri
ce le
vel
National output
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
savings effect
The aggregate supply curve
The aggregate demand curve
Why aggregate demand curves slope downwards
import effect
interest-rate effect
savings effect
The aggregate supply curve
O
Pri
ce le
vel
National output
AS
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve Why aggregate demand curves slope
downwards
import effect
interest-rate effect
savings effect
The aggregate supply curve Why aggregate supply curves generally
slope upwards
The aggregate demand curve Why aggregate demand curves slope
downwards
import effect
interest-rate effect
savings effect
The aggregate supply curve Why aggregate supply curves generally
slope upwards
O
Pri
ce le
vel
National output
AS
AD
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve Why aggregate demand curves slope
downwards import effect
interest-rate effect
savings effect
The aggregate supply curve Why aggregate supply curves generally
slope upwards
Equilibrium
The aggregate demand curve Why aggregate demand curves slope
downwards import effect
interest-rate effect
savings effect
The aggregate supply curve Why aggregate supply curves generally
slope upwards
Equilibrium
O
Pri
ce le
vel
National output
AS
AD
Pe
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
O
Pri
ce le
vel
National output
AS
AD
Pe
P2
ab
Aggregate demand and aggregate supplyAggregate demand and aggregate supply
Aggregate Demand and SupplyAggregate Demand and Supply
The aggregate demand curve Why aggregate demand curves slope
downwards import effect interest-rate effectsavings effect
The aggregate supply curve Why AS curves generally slope upwards
Equilibrium Effect of a shift in the AD curve
The aggregate demand curve Why aggregate demand curves slope
downwards import effect interest-rate effectsavings effect
The aggregate supply curve Why AS curves generally slope upwards
Equilibrium Effect of a shift in the AD curve
InflationInflation
Defining inflation
The costs of inflation
redistribution
uncertainty
balance of payments
resources used to cope with inflation
Experience of inflation since 1965
Defining inflation
The costs of inflation
redistribution
uncertainty
balance of payments
resources used to cope with inflation
Experience of inflation since 1965
UK
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countriesInflation rates in selected industrial countries
UK
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15
USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15
USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15 Japan
USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)
UK
EU 15 Japan
USA
Inflation rates in selected industrial countriesInflation rates in selected industrial countries
UK
EU 15 Japan
USAOECD
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countriesInflation rates in selected industrial countries
UK
EU 15 Japan
USAOECD
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
1965 1970 1975 1980 1985 1990 1995 2000
Infla
tion
(% in
crea
se in
reta
il pr
ices
)Inflation rates in selected industrial countriesInflation rates in selected industrial countries
InflationInflation
Types of inflation demand pull
Types of inflation demand pull
Demand-pull inflationDemand-pull inflation
O
Pri
ce le
vel
National output
AS
AD1
P1
Q1
O
Pri
ce le
vel
National output
AS
AD1
P1
Q1
AD2
Demand-pull inflationDemand-pull inflation
O
Pri
ce le
vel
National output
AS
AD1
P1
Q1
AD2
P2
Q2
Demand-pull inflationDemand-pull inflation
InflationInflation
Types of inflation demand pull cost push
Types of inflation demand pull cost push
InflationInflation
Types of inflation demand pull cost push
wage push
Types of inflation demand pull cost push
wage push
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push
Types of inflation demand pull cost push
wage pushprofit push
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
Types of inflation demand pull cost push
wage pushprofit push import-price push
Cost-push inflationCost-push inflation
O
Pri
ce le
vel
National output
AS1
AD
P1
Q1
O
Pri
ce le
vel
National output
AS1
AD
P1
Q1
AS2
Cost-push inflationCost-push inflation
O
Pri
ce le
vel
National output
AS1
AD
P1
Q1
AS2
P2
Q2
Cost-push inflationCost-push inflation
InflationInflation
Types of inflation demand pull
cost push
wage push
profit push
import-price push
the interaction of demand-pull and cost-push inflation
Types of inflation demand pull
cost push
wage push
profit push
import-price push
the interaction of demand-pull and cost-push inflation
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
O
Pri
ce le
vel
National output
AS1
AD1
P1
O
Pri
ce le
vel
National output
AS1
AD1
P1
AS2
AD2
P2
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
O
Pri
ce le
vel
National output
AS1
AD1
P1
AD2
P2
AS3
AD3
P3
AS2
The interaction of demand-pull and cost-push inflationThe interaction of demand-pull and cost-push inflation
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift)
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift)
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation demand-side policies
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation demand-side policies
InflationInflation
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation demand-side policies supply-side policies
Types of inflation demand pull cost push
wage pushprofit push import-price push
structural (demand shift) expectations and inflation
Policies to tackle inflation demand-side policies supply-side policies
