Macroeconomic Introduction

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Macroeconomic Introduction

• GP MBA Economics for Managers

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Basic Definitions

• Economics
• How society allocates scarce resources to satisfy
  unlimited wants
• Market
• An institution which brings together buyers and
  sellers of a particular good or service
• Equilibrium
• A state of balance among opposing economic forces
• Transaction
• Total Income Total Expenditures

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Measurements
Flow over a period income statement Investment,
Saving, Deficit

• Stock
• point in time
• balance sheet
• Capital, Wealth, Debt

Dec 31 2006
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Measuring Economic Activity

• Gross Domestic Product
• value of all currently produced final goods
  services over a period (within the borders of the
  US)
• Nominal GDP
• measured at current prices
• Real GDP
• measured at constant (2000) prices
• Prices
• GDP Deflator, Consumer Producer Price Indexes

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Spending on real goods services

• Consumption Household sector spending on durable
  goods, nondurable goods services
• Investment Firm spending on structures,
  equipment, inventories, and residential by
  households
• Government Federal and State Local spending on
  Cons. and Inv.-type goods services
• Exports Other countries spending on domestically
  produced goods services
• Imports Domestic residents spending on goods
  services produced in the rest of the world

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US Economic Trends since 1996

• GP MBA Economics for Managers

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Growth of Real Gross Domestic Product
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2
1998
1996
1997
2000
1999
2001
2002
2004
2003
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Average Growth Rates by Component
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Consumption
Investment
Government
Exports
Imports
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US Economic Trends since 1996

• GP MBA Economics for Managers

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Basic Economic System
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Closed Private Economy
C Consumption
Income
Y Income
Expenses
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Closed Mixed Economy
C Consumption
Income
I Investment
Financial capital
S Saving
Y Income
Expenses
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Open Mixed Economy
C Consumption
Income
I Investment
G Government
T Taxes
Financial capital
S Saving
Y Income
Expenses
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Building the Macroeconomic Model
Spending (C I G X M) GDP Taxes Interest
rates Confidence Wealth Credit Competition Fiscal
Policy Exchange Rates Foreign GDP
Federal Reserve Policy Interest rates GDP
growth Inflation
Open Economy Exchange Rates Foreign GDP Domestic
Foreign Interest rates
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Building the Macroeconomic Model
Overall Demand (Aggregate Demand - AD Curve)
Productive Capability (Aggregate Supply - AS
Curve)
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Basic Equations

• Y income from domestic production
• Z domestic spending (C I G)
• Y C I G X M
• Y Z X M
• Y Z X M
• Domestic economy Foreign sector
• (Oi Oe) (Y Z) (X M) (Ki Ko)

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Macroeconomic Introduction

• GP MBA Economics for Managers