macroeconomics

an increase in the amount of goods and services produced per head of the population over a period of time.

2.5% is the gov'ts aim to have sustainable growth for the long run

this is because in emerging markets and developing economies economic development will improve living standards, life expectancy, literacy rates

Income is assets EARNED (e.g. cars, houses, money etc) while wealth is assets already OWNED.

C spending on goods/services

G public sector demand

I spending on capital goods

X overseas markets

M goods bought overseas

y= GDP

S Deferred spendings - not spent

spending (income) that flows out of the circular flow. T = taxation S = savings M = imports

income going into circular flow G = gov't spending X = exports I = investments

injections = withdrawals X+G+I = S+T+M

I+G+X > S+T+M inflation

I+G+X < S+T+M recession

• increase gov't spending

• reduce tax

• lower interest rates

A simplified model of the economy that shows the flow of money through the economy.

national income is the total value of goods and services a country purchase. it is the output in one year and can be measured by GDP, GNI and GNP

the production of goods and services valued at current prices

• model that represents the exchange between firms and households

• benefits both of them mutually

• represents the flow of money and goods in the economy

Productive physical capital

When savings are greater than investments

• leakages > injections

Nominal GDP x 100/price index

Ajusted for inflation expressed at current prices (chosen by base year)

• GDP goes up when prices go up - inflation (nominal)

• GDP goes up when more/better goods & services are produced (real) - measures 2nd type of growth - controls inflation - if price hasnt changed

Real GDP/ real GDP per capita

• declines during a recession - increase in unemployment

• when the buying ability of different currencies is = across countries , the foreign exchange market is in equilibrium

• the purchasing power of the $

• GDP per capita is average - takes no account of inequaity i.e. the way money is distributed

• the informal sector - price of goods & services deliberstely not declared

• subsistence and barter

• exchange rate differences (PPP)

• quality of goods - certain goods improve over time

• social indicators impact living standards

• definition of happiness is subjective

• measurement

• policy implementation

• does income actualy correlate w/ happiness

Consumer Price Index (CPI)

• a measurement of the price level in the economy based on the prices of a collection of products (basket)

a general increase in prices and fall in the purchasing value of money.

Annual rate of change of the avg. price of goods & services

If inflation reduces from 3% to 2%, prices are still going UP, just at a slower rate than before.

Prices are FALLING

• decline in general price level in the economy - leads to a spiral

• living costs and food survey :

• 7,000 families are asked to keep a record of what they spend over 2 week. Used to produce typical basket of 700 goods & services.

• each year basket changes to reflect consumers change

• the basket of goods & services is weighted. - what is more important ( proportion of total expenditure)mfoe each good/service.

• second survey records how much these goods & services have changed

• Demand pull inflation

• cost push inflation

• administered prices

Aggregate demand from customers - scarcity

Cost rising for businesses - raw materials and components costs & overseas suppliers - rising imports due to falling exchange rates

Changes in regulated prices - bills - changes in taxes

contains the goods and services represented in the index, each weighted by its relative importance

Price value = A(pxw) + B(pxw) + C(pxw) + D(pxw) = Pv

Index for year x = price value of year x /price value of base year X100

(New - old)/ old X 100

• changes in quality - measuring price change doesnt measure quality

• changes in expenditure - spending patterns change quickly

• potential sampling error - not all households could answer survey accurately

• population base - RPI excludes high and low income households

• housing costs - CPI includes actual rents but not owner occupiers housing costs

Nominal gdp/real gdp X 100

Exsist when value of exports is > value of imports

constant-price GDP factors out the impact of inflation and allows for easy comparisons by converting the value of the dollar in other time periods to present-day dollars.

When GDP declines for two consecutive quarters or more, by definition the economy is in a recession

High levels of inequality are linked to economic instability, financial crisis, debt and inflation