Chapter 1 Introduction to Macroeconomics

Chapter 1 Introduction to Macroeconomics - Chapter 1...

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Chapter 1 Introduction to Macroeconomics © Leddin & Walsh 2013 Dr Anthony Leddin, KBS, UL [email protected] S1 011
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Road Map 1. The Irish macroeconomy 2. Political economy 3. Macroeconomic constraints 4. Globalization 5. Macroeconomic models 6. The development of modern macroeconomics © Leddin & Walsh 2013
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Economics is the study of how individuals and society manage their scarce resources. We have unlimited wants and limited resources -> we must make choices. Two main branches: 1. Microeconomics 2. Macroeconomics © Leddin & Walsh 2013
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Microeconomics is the study of how individuals, households and firms make decisions and how they interact in markets. For example: The returns to education. What happens to my profits if I increase price? What is the level of output that maximizes a firm’s profits? © Leddin & Walsh 2013
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Macroeconomics is the study of the economy as a whole. What are the consequences of recessions and booms? What are the causes and the costs of high unemployment and inflation? What causes interest rates and exchange rates to fluctuate? Why are so many countries poor? What policies might help them grow out of poverty? © Leddin & Walsh 2013
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Microeconomics and macroeconomics are closely related: The macroeconomic effects we observe result from the everyday microeconomic decisions made by many people (economic agents). But microeconomics and macroeconomics are distinct: They look at different questions, and use different models to address those questions. © Leddin & Walsh 2013
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Consider the key statistics for the Irish economy in 2012… 1. The Irish Macroeconomy © Leddin & Walsh 2013
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Table 1.1 The Irish Economy in 2012 Population 4,585,400 GDP at Current Market Prices (€m) 163,150 GNP at Current Market Prices (€m) 126,300 GDP per capita (€) 35,580 GNP per capita (€) 27,544 Total at work (thousands) 1,787.90 Agriculture, Forestry and Fishing 87.1 Industry 327.7 Services 1,373.10 Unemployed (thousands) 308.5 Unemployment Rate (%) 11.8 Inflation rate (CPI annual % change) 1.8 Current budget balance(€m) -10,870 General government balance (€m) -13,305 General government balance % of GDP -8.2 General government balance % of GNP -10.5 General government debt (% GDP) 118 Net Balance on Current Account (€m) 3,049.00 % of GDP 1.9 End-year exchange rate: $/€ 1.32 End-year exchange rate: £/ 0.82 Sources: Economic and Social Research Institute, Quarterly Economic Commentary, Autumn 2012. Department of Finance Budget 2013.
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Gross Domestic Product (GDP) is… Total output of goods and services produced in the country in a year and is closely linked to National Income . (Topic 1) ... Divide by population, you get income per person (per capita). The percentage change in real GDP (keeping prices constant) is known as the Real growth rate . (Topic 2) © Leddin & Walsh 2013
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Unemployment rate (Topic 4) Percentage of the labour force that is unemployed.
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