National Income notes.docx - Introduction to Macroeconomics...

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Introduction to Macroeconomics What is macroeconomics? Macroeconomics considers the economy as a whole and relationships between one country and others for example we focus on changes in economic growth; inflation; unemployment and our trade performance with other countries (i.e. the balance of payments). The scope of macroeconomics also includes looking at the relative success or failure of government policies . The main sectors of the economy Households : receive income for their services and then buy the output of firms (consumption) Firms : hire land labour and capital to produce goods and services for which they pay wages rent etc (income). Firms receive payment. Firms invest (I) in new producer goods Government : collect taxes (T) to fund spending on public services (G) International : The UK buy overseas products, imports, (M)) and overseas economic agents buy UK products, exports (X) Targets and objectives of macroeconomic policy Government management of the economy is a key political issue and each government sets targets and objectives when it assumes power – and often, economic objectives and priorities lie right at the heart of a government’s overall political strategy. What are the main indicators we use when making cross-country comparisons of economic performance? Traditionally we have tended to focus on four key indicators of achievement. They are Growth: The rate of growth of real national output (i.e. real GDP) Inflation: The rate of price inflation (i.e. the annual percentage change in the price level) Unemployment: The rate of unemployment in the labour market Trade: The balance of payments in trade in goods and services and net flows of investment income – representing the effects of trade and investment between countries
National Income Accounts and Other Social Accounts Analysis Measuring national income To measure how much output, spending and income has been generated in a given time period we use national income accounts. These accounts measure three things: 1. Output: i.e. the total value of the output of goods and services produced in the UK. 2. Spending: i.e. the total amount of expenditure taking place in the economy.

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