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7. Aggregate Demand and Supply and Macroeconomic Problems PowerPoint Presentation
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7. Aggregate Demand and Supply and Macroeconomic Problems

7. Aggregate Demand and Supply and Macroeconomic Problems

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7. Aggregate Demand and Supply and Macroeconomic Problems

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  1. 7. Aggregate Demand and Supply and Macroeconomic Problems

  2. Macroeconomic Objectives • Distinction between microeconomics and macroeconomics • The major macroeconomic issues • economic growth • unemployment • inflation • balance of payments and exchange rates • balance of payments deficits and surpluses • exchange rate movements

  3. Economic growth (average % per annum), Unemployment (average %), Inflation (average % per annum)

  4. The Circular Flow of Income • The inner flow

  5. Consumption of domestically produced goods and services (Cd) Factor payments The circular flow of income Firms Households

  6. The Circular Flow of Income • Withdrawals • net saving • net taxes • import expenditure • Injections • investment • government expenditure • export expenditure

  7. Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc ABROAD GOV. Import expenditure (M) Net taxes (T) Net saving (S) The circular flow of income INJECTIONS Consumption of domestically produced goods and services (Cd) Factor payments WITHDRAWALS

  8. The Circular Flow of Income • The relationship between injections and withdrawals • the links between them

  9. Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc ABROAD GOV. Import expenditure (M) Net taxes (T) Net saving (S) The circular flow of income INJECTIONS Consumption of domestically produced goods and services (Cd) Factor payments WITHDRAWALS

  10. The Circular Flow of Income • The relationship between injections and withdrawals • the links between them • planned injections may not equal planned withdrawals

  11. The Circular Flow of Income • The relationship between injections and withdrawals • the links between them • planned injections may not equal planned withdrawals • Equilibrium in the circular flow

  12. Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc ABROAD GOV. Import expenditure (M) Net taxes (T) Net saving (S) The circular flow of income INJECTIONS Consumption of domestically produced goods and services (Cd) Factor payments WITHDRAWALS

  13. The Circular Flow of Income • The relationship between injections and withdrawals • the links between them • planned injections may not equal planned withdrawals • Equilibrium in the circular flow • The circular flow and the four macroeconomic objectives

  14. Export expenditure (X) Investment (I) Government expenditure (G) BANKS, etc ABROAD GOV. Import expenditure (M) Net taxes (T) Net saving (S) The circular flow of income INJECTIONS Consumption of domestically produced goods and services (Cd) Factor payments WITHDRAWALS

  15. Measuring national income • GDP: the measure of national income • Methods of measuring GDP • the product approach • the income approach • the expenditure approach • The product approach • measuring GVA

  16. UK GVA product-based measure: 1998 1.3 3.9 19.7 5.3 12.0 3.2 8.4 2.4 21.3 5.4 11.9 5.2 100.0 Agriculture, forestry and fishing £9 656 m Mining, energy and water supply £29 485 m Manufacturing £147 306 m Construction £39 262 m Wholesale and retail trade; repairs £89 392 m Hotels and restaurants £23 678m Transport and communication £63 340 m Banking, finance, insurance, etc. £17 737 m Letting of property £159 240 m Public administration and defence £40 495 m Education, health and social work £89 041 m Other services £38 912 m Gross value added (GVA) at basic prices £747 544 m Percentage of GVA

  17. Measuring national income • GDP: the measure of national income • Methods of measuring GDP • the product approach • the income approach • the expenditure approach • The product approach • measuring GVA • The income approach

  18. UK GVA by category of income: 1998 62.0 29.9 5.8 2.3 100.0 Compensation of employees (wages and salaries) £463 398 m Operating surplus (gross profit, rent and interest of firms government and other institutions) £223 212 m Mixed incomes £43 379 m Tax less subsidies on production (other than those on products) plus statistical discrepancy £17 555 m Gross value added (GVA) at basic prices £747 544m Percentage of GVA

  19. Measuring national income • GDP: the measure of national income • Methods of measuring GDP • the product approach • the income approach • the expenditure approach • The product approach • measuring GVA • The income approach • from GVA to GDP

  20. UK GDP: 1998 Gross value added (GVA) at basic prices £747 544m

  21. UK GDP: 1998 Gross value added (GVA) at basic prices £747 544m plus Taxes on products £103 634m

  22. UK GDP: 1998 Gross value added (GVA) at basic prices £747 544m plus Taxes on products £103 634m less Subsidies on products £7 453m

  23. UK GDP: 1998 Gross value added (GVA) at basic prices £747 544m plus Taxes on products £103 634m less Subsidies on products £7 453m GDP (at market prices) £843 725m

  24. Measuring national income • GDP: the measure of national income • Methods of measuring GDP • the product approach • the income approach • the expenditure approach • The product approach • measuring GVA • The income approach • The expenditure approach

  25. UK GDP at market prices by category of expenditure: 1998

  26. UK GDP at market prices by category of expenditure: 1998

  27. UK GDP at market prices by category of expenditure: 1998

  28. UK GDP at market prices by category of expenditure: 1998

  29. UK GDP at market prices by category of expenditure: 1998

  30. UK GDP at market prices by category of expenditure: 1998

  31. Measuring national income • GDP: the measure of national income • The product approach • The income approach • The expenditure approach • From GDP to net national income (NNY)

  32. UK GDP, GNY and NNY at market prices: 1998

  33. UK GDP, GNY and NNY at market prices: 1998

  34. Economic Growth andthe Business Cycle • Growth in actual and potential output • Economic growth and the business cycle • fluctuations in actual growth

  35. The business cycle Potential output Actual output National output O Time

  36. Economic Growth andthe Business Cycle • Growth in actual and potential output • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle

  37. The business cycle 3 4 2 1 Potential output National output Actual output 3 4 2 1 O Time

  38. Economic Growth andthe Business Cycle • Growth in actual and potential output • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle • trend growth

  39. The business cycle Trend output Potential output National output Actual output O Time

  40. Economic Growth andthe Business Cycle • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle • trend growth • the business cycle in practice

  41. Economic Growth andthe Business Cycle • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle • trend growth • the business cycle in practice • the irregularity of the cycle

  42. Economic Growth andthe Business Cycle • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle • trend growth • the business cycle in practice • the irregularity of the cycle • the length of the phases

  43. Economic Growth andthe Business Cycle • Economic growth and the business cycle • fluctuations in actual growth • the phases of the business cycle • trend growth • the business cycle in practice • the irregularity of the cycle • the length of the phases • the magnitude of the phases

  44. Economic Growth andthe Business Cycle • Causes of actual growth • aggregate demand • aggregate demand relative to potential output • Actual growth in practice • experience since 1970

  45. Growth rates in selected industrial countries UK Annual growth rate (%)

  46. Growth rates in selected industrial countries UK Annual growth rate (%)

  47. Growth rates in selected industrial countries UK France Annual growth rate (%)

  48. Growth rates in selected industrial countries UK France Annual growth rate (%)

  49. Growth rates in selected industrial countries Germany UK France Annual growth rate (%)

  50. Growth rates in selected industrial countries Germany UK France Annual growth rate (%)