OVERVIEW OF MACROECONOMICS

 

 

In judging a nations performance, the measure of 4 indicators is used:

 

1 GDP

2 Employment

3 Inflation

4 Net Exports

 

1st indicator: GDP.

 

It is the measure of the total market value of total goods and services produced within a nation in a given year.

 

Difference between GDP and GNP:  GDP: total goods and services produced within a nation in a given year by either citizens or foreigners, inside and outside the country.

 

GNP: total goods and services produced within a nation in a given year by citizens only, inside and outside the country.

 

Potential GDP: is the maximum sustainable output produced from combining total labor, capital and land available in an economy in a given year.

 

GDP GAP: is the difference between potential GDP and Nominal GDP. It is positive when a country under uses its productive resources. It is zero when a country uses all the available productive resources. It is negative when a country imports labor and capital.

 

2nd Indicator: Employment

 

A country is always looking for high employment and low unemployment.

 

Labor force:  is all the persons either employed or unemployed excluding those who are not looking for a job under the age of 15.

 

Rate of Unemployment: persons unemployed/labor force.

 

 Rate of Employment: persons employed/ labor force.

 

 

3rd Indicator: Inflation

 

A country will be looking for stable prices, which means relatively low prices that are rising slowly.

 

-From 0% to 9% : Moderate Inflation.

-From 10% to 20%: Inflation.

-20% > Hyperinflation.

 

The relationship between GDP and prices is positive, which means that they both move in the same direction.

 

4th Indicator: Foreign Trade

 

Net exports: is the difference between the money value of imports and the money value of exports.

 

Exchange Rate:  is the price of ones country currency in terms of the currencies of other nations.

 

Exports are usually sources of foreign currency as well as tourism and money transfers from people living abroad.

 

A foreign trade deficit indicates that the amount of foreign currencies is not sufficient to pay for imports.      The difference is covered by tourism and money transfers from people living abroad.

 

Aggregate Supply: is the amount of total national output that businesses or the business sector are willing to produce and sell in a given period. The curve is always upward sloping.

 

Aggregate Demand: The total quantity of output that consumers, businesses, and households are willing to acquire in a given period.

 

OBJECTIVES OF MACROECONOMIC POLICY: – HIGH LEVEL OF OUTPUT. – HIGH LEVEL OF EMPLOYMENT AND LOW LEVEL OF UNEMPLOYMENT. – PRICE-LEVEL STABILITY.

 

INSTRUMENTS: -Monetary policy.

• - Fiscal policy.

 

 

 

Fiscal policy: denotes the use of taxes and government expenditures.

 

Monetary policy: the governments conduction of money by managing the nations money, credit and banking system. The money supply is often managed by the central bank. In the USA the Federal Reserve System conducts monetary policies.