Macro Economics

Goals are full employment, stability, and economic growth.

Macroeconomics is the study of the behavior of the entire economy.
it analyzes long-run growth as well as the cyclical movements in total output
unemployment and inflation
the money supply and the budget deficit
and international trade and finance.

Microeconomics, which studies the behavior of

individual markets
prices
and outputs.
Macro Economics System

GDP
The Market Value of all finished goods and services with in a country in a year.
GDP Measures
Nominal GDP
o Current Market Price
o Value of Production will increase because of inflation

Real GDP
o Base Year prices
o Compare GDP between Years

Economic Growth

An increase in real GDP. This increase in real GDP means there is an increase in the value of
national output / national expenditure.

Economic growth is caused by two main factors

Increase in aggregate demand (AD=C+I+G+X-M)

Increase in aggregate supply (increase in capital, investment, higher labour
productivity)

Policies to increase economic growth

1. Supply Side Policies government attempts to increase productivity and increase

efficiency in the economy. The aim is to shift LRAS to the right.
2. Monetary policy Reducing interest rates to stimulate economic activity and
increase AD.
3. Fiscal policy Higher government spending and / or cutting taxes to boost aggregate
demand.

Benefits of economic growth

Higher incomes
Increased tax revenue for government which can be spent on public services,
e.g. education and health care
Helps create employment

Potential costs of economic growth

Inflation. If growth is too fast, we could experience inflation.

Current account deficit. If growth is unbalanced, we could see a growing current
account deficit.
 Environmental costs. Economic growth leads to higher resource consumption
and pollution.

Inflation
There is an increase in the cost of living.
Causes of Inflation
1. Increasing in Demand
occurs when aggregate demand is growing at an unsustainable rate.

2. Decreasing Supply
occurs when firms respond to rising costs by increasing prices in order to protect their
profit margins.

Measures of Inflation
Unemployment
A situation where someone of working age is not able to get a job but would like to be in full
time employment.
Types of unemployment

Demand Deficient Unemployment. Lack of aggregate demand in economy (e.g.

unemployment rises in a recession)
Structural Unemployment workers lack necessary skills or suffer from geographical
immobility
Frictional unemployment workers in between jobs---School Leavers
Voluntary Unemployment. workers prefer not to work
Real Wage Unemployment wages above equilibrium, e.g. due to high national
minimum wage.