Introduction to Macroeconomics and macro economic objectives lecture notes
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Course
Introduction to Economics
Institution
The University Of Bradford (UoB)
lecture notes for first year economics students, focusing on core macroeconomic objectives; economic growth (GDP), inflation, unemployment, trade performance, balance of payments.
Macroeconomics considers the performance of the economy as a whole. The main macroeconomic
objectives are:
- The rate of economic growth (GDP)
- The rate of inflation
- Unemployment
- Trade performance with other countries
The government and the Bank of England aim to control the macroeconomic objectives, however
they can conflict and trade-offs have to be made.
Economic Growth
Gross Domestic Product (GDP) and Gross National Product (GNP) measure the total output and total
income of an economy. The economic growth is the rate at which GDP/GNP rise per annum
(percentage value). GDP and GNP try to measure the market value of all goods and services
produced in an economy. GDP refers to the market value of goods or services produced in a country
excluding foreign production in a given period of time. Whereas, GNP considers the market value of
goods or services produced in a country but also includes the elements of income by domestic
citizens, even if they live in a different country.
GDP can be calculated in three ways. The first method is to add up all the value of all the goods and
services produced in the country. So basically you add up all the production of firms. This is called
the product method. The second method is to add up all the incomes for each household. These
incomes are in the form of wages and salaries, profits, rent and interest. This is known as the income
method. The third method focuses on the expenditure necessary to purchase the nation’s
production, which is basically government expenditure. In this simple model of circular flow of
income, with no injections or withdrawals, where is produced is sold. The value of what is sold must
be the value of what is produced. This is the expenditure method. All three methods of calculating
GDP must yield the same result.
GDP/GNP are very incomplete measures of economic output and income because:
- It is hard to account for the introduction of new products
- Some product and services may not be recorded as they may be illegal operations or a
person just wants to avoid paying tax so will not declare it
Total GDP figures are useful in showing how big the total output or income of one country is
compare to another. However it is not very accurate as it is just the figure in general. GDP per capita
is much more accurate as it gives a figure for each person in the population. GDP per capita is
calculated by dividing the overall GDP with the population figure.
Other per capita measures are sometimes useful, for example measuring GDP per head of the
employed population allows us to compare how much the average workers produces.
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