Macro notes - m m m m m m m m m PDF

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Price change = Movement along the demand curve All other factors eg competition, behaviour, adv is a shif Change in price of product supplied is movement along. Others are shif ( supply curve) D\s/ Nominal gdp is that which accounts for inflation. Value added approach Sales – Intermediate material inputs Income approach Income genereated by owners of the facter of production GDP = wages + int payments + indirect taxes + Depr + profits Final good approach Doesn’t include intermediaries Problems measuring GDP Some secters expand rapidly, meaning real gdp is underestimated. Measuring non market goods. Changes in nature of production. Measuring service output. Unemployment rate. Frictional unemployment. When an individual is in the process of finding a new job. This suggests full employment is impossible because workers will always change jobs. Seasonal eg some businesses only operate at certain times of year. Structural occur because of long term changes in market conditions. Cyclical unemployment occur from decrease in aggregate demand. Eg GFC Okun’s law 1 % decrease in GDP = 2% increase in unemployment. Cost of inflation Wages are worth less, lenders are repaid in devalued dollars, inflation never matches price changes. CPI is the cost of living for a household. Full employment is achieved when Ld = Ls Small open economy Cannot affect world interest rates. Interest rates are obly affected by changes in the global market.

Potential GDP is affected by the size of economy’s capital stock and technology (which shif the production function), or labour supply (which results in a movement along a given production function). general equilibrium occurs when all the economy’s markets are in equilibrium. Real wages have adjusted to ensure that labour demand equals labour supply Output is equal to potential GDP The real interest rate is at the level that ensures that the full employment level of saving is equal to investment Says Law: classical economic outcome of self-managed market economy

Living standards are defined as consumption per person, C/N, where C is aggregate consumption and N is aggregate population. Living standards depend on the consumption share of GDP (C/Y), average labour productivity (Y/L) and the employment to population ratio, (L/N) via the identity: C/N = (C/Y) × (Y/L) × (L/N)...