Lecture11:Let us now turn to MacroeconomicsDr Boidurjo Rick MukhopadhyaySenior Lecturer, SOBE, WIUTPhD. Gold Medalist. Entrepreneur.
Condensing the essence of the following…•Measuring the wealth of nations•Unemployment and demand for labour•Cost of living, basics of finance•Development economics•Fiscal and monetary policy•Open market macroeconomics•However, we have 50 mins – so we discuss some tenets from above
Valuing an economy•Macroeconomicsis the study of the economy on a broad scale, focusing on issues such as economic growth, unemployment, and inflation.•Gross domestic product (GDP) is the sum of the market values of all final goods and services produced in a country within a given period of time. •GDP is the most common metric for measuring the value of a national economy.
Unpacking the definition of GDP•Gross domestic product (GDP) is the sum of the market value of all final goods and services produced within a country in a given period of time. •Market value: Used so there are common units to add up goods and services.•Final goods and services: Only count expenditures on goods and services sold to the consumer.•Produced within a country: Goods and services are counted towards GDP in terms of location of production.•Given period of time: Usually refers to an annual estimate.
Valuing an economy•When constructing a measure of how much a nation can produce in a given year, one key hurdle that must be overcome:•Not double counting intermediate goods and services that go into final goods and services.•Simon Kuznets and Richard Stone came up with the national income accounting that resolves both of these issues (e.g., wages paid, total revenue of corporations, sales andincometax data, etc.)
Production = expenditure = incomeCircular Flow DiagramHouseholdsMarkets for thefactors of productionMarkets for goodsand servicesFirmsGoods andservicesboughtSpendingLand, labor,and capitalIncomeGoods andservices tobe soldRevenuePurchasedland, laborand capitalWages, rent,and profitFlow of dollarsFlow of goodsand servicesThe size of an economy is referred to as either outputorproduction.•Total output can be measured astotal income.•However, every transaction has a buyer andseller. Therefore, total output can also be measured as total expenditures.•Value of Production = Expenditure = Income
Measuring GDP: The expenditure approach•The expenditure approach breaks expenditures down into four categories:•Consumptionis spending on goods and services by private individuals and households. •Investmentis spending on productive inputs, such as factories, machinery, and inventory changes.•Inventoryis the stock of goods that a company produces now but does not sell immediately.