LS1.pptVIP

Real vs. Nominal GDP 2007 2008 P Q P Q Butter ￡1 1200 ￡1.50 1000 TVs ￡80 10 ￡100 12 What is nominal GDP for 2007? Real vs. Nominal GDP 2007 2008 P Q P Q Butter ￡1 1200 ￡1.50 1000 TVs ￡80 10 ￡100 12 Nominal GDP ￡2000 ￡2700 What is GDP for 2008 in 2007 prices? Real vs. Nominal GDP 2007 2008 P Q P Q Butter ￡1 1200 ￡1.50 1000 TVs ￡80 10 ￡100 12 Nominal GDP ￡2000 ￡2700 Real GDP 2007 prices ￡2000 ￡1960 GDP deflator 100 x Nominal GDP Real GDP 138 i.e. Inflation was 38% Other measures of output GNP GDP + factor payments from abroad - factor payments to abroad NNP GNP – depreciation GVA GDP – taxes on products + subsidies on products The Role of Macroeconomics Macroeconomics – in the headlines Some macroeconomic questions Why are there recessions? Can the government do anything to combat recessions? Should it? Some macroeconomic questions What determines the rate of unemployment? Why does it vary over time? Why has the unemployment rate in continental Europe been generally higher than in the U.S. or Japan? Some macroeconomic questions Why does the cost of living keep rising? Does it matter? What determines the inflation rate? Is deflation a problem? Some macroeconomic questions Why are so many countries poor? What policies might help them grow out of poverty? Some macroeconomic questions What is the government budget deficit? How does it affect the economy? Why does the U.S. have such a huge trade deficit? What determines the exchange rate? The Role of Macroeconomics The Aggregate Economy: Macroeconomic models … are simplified versions of a more complex reality Simplifying assumptions strip away irrelevant details … are used to show the relationships between economic variables explain the economy’s behaviour devise policies to improve economic performance … can be verbal / graphical / mathematical e.g: The supply demand for new cars Q Quantity of cars P Price of cars D S … can be verbal / graphical / mathematical General functional notation: Qd D