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Macroeconomic Indicators

Macroeconomic Indicators. The Economic Cycle and Economic Growth. Cycles. Peak, boom, overheating Downturn Recession, depression, trough, slump Recovery, expansion. Cycles. Business cycle/trade cycle/economic cycle Kondratiev K-wave Kuznets Building cycle Kitchin Inventory cycle

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Macroeconomic Indicators

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  1. Macroeconomic Indicators The Economic Cycle and Economic Growth

  2. Cycles • Peak, boom, overheating • Downturn • Recession, depression, trough, slump • Recovery, expansion

  3. Cycles Business cycle/trade cycle/economic cycle Kondratiev K-wave Kuznets Building cycle Kitchin Inventory cycle Keynes Multiplier – accelerator Schumpeter Technology/innovation Friedman Monetary

  4. Output Gaps • The difference between actual growth and the trend rate of growth • Where would these be on your chart? • Output lost in a recession is regained in a boom but….

  5. Hysteresis • The trend rate of growth can shift downwards if there is a deep recession due to permanent losses of human and physical capital • Loss of skills – structural change • Long term unemployed • Cut backs in investment • Outdated technology • ‘potential’ falls

  6. Hysteresis and Growth Trend

  7. Business cycle models Shocks – Demand or supply side • Exogenous shocks • Endogenous shocks

  8. Explain how a major world recession, an exogenous shock to the UK economy, could trigger a business cycle. (10/15 marks)

  9. Shocks and ADAS • Key terms • Long-term growth rate • Actual growth • Potential growth • Trend rate of economic growth

  10. Actual and Potential Growth • AB to CD shows potential growth • A to C or A to B shows actual growth • You can have an increase in potential growth without having actual growth

  11. Task Using a PPF diagram, show the following • An economy with full employment experiencing economic growth • An economy initially with full employment experiencing a recession, keeping its AS capacity constant • An economy in recession returning to full employment, with its AS capacity constant • An economy which initially has a small and constant output gap, experiencing economic growth

  12. ADAS

  13. A negative demand side shock LRAS General Price Level • Caused by? • Effect on? • PPF • Unemployment • GDP • Inflation Pe P2 SRAS AD1 AD2 Yfc Ye Y2 National Income

  14. A positive demand side shock • Finish it off • Cause? • Impact upon • GDP • PPF • Inflation • Unemployment

  15. A positive demand side shock General Price Level LRAS = potential GDP SRAS1 P2 P1 AD2 AD1 Y1 National Income Yfc Y2

  16. Supply side shocks • Show the effect on an ADAS diagram of the following • Increased rates of emigration • A fall in international commodity prices

  17. General Price Level LRAS P2 P1 SRAS2 SRAS1 AD SRAS3 National Income Y2 Yfc Y1 Y3 Supply side shocks

  18. Causes of economic growth • Economic stability and sound macroeconomic policies • Increased labour activity/participation • Increased labour productivity • Investment in physical capital • Improved human capital • Enterprise

  19. Is growth good?Debate • Advantages • Disadvantages

  20. Is growth good? • Advantages • Improvements in living standards: More jobs: • The accelerator effect of growth on capital investment: • Greater business confidence: • The “fiscal dividend”: • Potential environmental benefits • Benefits from growth driven by technological change • Disadvantages • Inflation • Environmental concerns • Inequality

  21. Kuznets curve - explain

  22. What would the question be?

  23. What would the question be?

  24. Applied Economics The Impact on the economy

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