1-2 National Income
1-2 National Income
1-2 National Income
Introduction
Introduction to Macroeconomics
Why do some countries have high rates of inflation while others
maintain stable prices?
Why do all countries experience recessions and depressions
recurrent periods of falling incomes and rising unemployment?
How can government policy reduce the frequency and severity of
these episodes?
Macroeconomics, the study of the economy as a whole, attempts
to answer these and many related questions.
Mankiw (2009) 7e p3
The 3 main
macroeconomic variables:
time series (historical)
data
Source
:
Manki
w,
1990
PGP Macroeconomics 2016
Source
:
Manki
w,
1990
PGP Macroeconomics 2016
Arindam Das-Gupta
Macroeconomics 1
Measuring Macro
Aggregates
Arindam Das-Gupta
Macroeconomics 1
Measuring Macro
Aggregates
Arindam Das-Gupta
Macroeconomics 1
Measuring Macro
Aggregates
10
Source
:
Manki
w,
1990
PGP Macroeconomics 2016
11
Unemployment in India
Developed country unemployment: Frictional, Cyclical and
Structural
Unemployment: % of labour force not having jobs
Labour force: Persons looking for work
Discouraged worker effect: Persons dropping out of labour force.
Arindam Das-Gupta
Macroeconomics 1
Measuring Macro
Aggregates
13
Economic Models:
Introduction
14
Economic Models
Source
:
Manki
w,
1990
15
Qd = D(P,Y) = 60-10P+2Y,
Qs = S(P) = 2P,
Source
Y = income is exogenous = 50.
:
d
s
Manki Equilibrium Q = Q : P = 20, Q = 40
w,
1990
16
The
The
The
The
goods market
money market
exchange rate market (or the open economy)
labour (or factor) market
Goods market, money market and exchange rate market (all for an
open economy): The Mundell Fleming model
Goods market, money market and labour market: Aggregate Supply
and Aggregate Demand (AS-AD) model
Glance at The Mother of all Models Appendix to Ch 13 p405.
Other models for the long run and very long run will not be
looked at in this course.
PGP Macroeconomics 2016
17
Defining and
measuring GDP
18
19
Source
:
Manki
20
21
24
Above:
Measures of inflation
What is a Price Index: A weighted average value of prices
of different goods and services.
GDP deflator versus Consumer Price Index (CPI)
GDP deflator: Index of all goods and services produced
Weights: quantities of goods purchased in the current year (Paasche
Index)
28
29
Exercise
30
Example 2
1.Robotland is a country which has no government and no interaction with the
rest of the world. It produces only two goods: (i) Screws which are used as
intermediate goods by car firms and also final consumer goods by Robot
households; and (ii) Cars which are a capital good for firms and also a consumer
good for households. Cars are perfectly durable and do not depreciate. The
table
below gives
industry-wise
figures
for
Robotland
2088
Production
in Robotland
in 2088
AD(All
figures
are in for
1000s
of AD.
Robotland
$)
Industry
Increase Wages,
in
Rent,
Inventori Interest
es
Paid
Screws
200
100
100
-100
150
150 on20
80goods are not
NoteCars
that, as a general 300
rule, cash outlays
by firms
investment
counted as a current cost of production of firms (only depreciation is taken as a
current cost in actual national accounting).
Gross
Value of
Output
Sales To
Househol
ds
Sales
to
Firms
31
Example 2 contd
d.Suppose that prices of Screws and Cars were $20 and
$2000 per unit respectively in 2088 AD. Assume that
production, sales, etc remained the same in physical units
in Robotland in 2089 AD but prices of Screws and Cars
rose by 10% and 5% respectively compared to 2088.
Calculate the GDP deflator and the CPI using 2088 as the
base year (for the CPI use quantities bought by
households in 2088 as your fixed bundle of goods).
32
Problem 3
What is the impact of these events on GDP and
its components?
a. Miss Tina buys a personal computer.
b.