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;

GROWTH PRICE STABILITY

EMPLOYMENT TRADE BALANCEGDP / GNP CPI / RPI / RPIX

Claimant Count / ILO Measure

Balance of Payments

What is the circular flow of income?

Factorpayments

Factorpayments

Consumption ofdomestically

produced goodsand services (Cd)

Consumption ofdomestically

produced goodsand services (Cd)

Firms

Households

Factorpayments

Consumption ofdomestically

produced goodsand services (Cd)

Investment (Investment (II))Investment (Investment (II))

GovernmentGovernmentexpenditure (expenditure (GG))

GovernmentGovernmentexpenditure (expenditure (GG))

ExportExportexpenditure (expenditure (XX))

ExportExportexpenditure (expenditure (XX))

BANKS, etcBANKS, etc

Netsaving (S)

Netsaving (S)

GOV.GOV.

NetNettaxes (taxes (TT))

NetNettaxes (taxes (TT))

ABROAD

ImportImportexpenditure (expenditure (MM))

ImportImportexpenditure (expenditure (MM))

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’

Ideas Board