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ECO CH7: Introduction of Macroeconomics & National Income - Coggle…
ECO CH7: Introduction of Macroeconomics & National Income
Macroeconomics
It is primarily concerned with the behavior of economic system as a whole. It examines the forces that affect many firms, consumers and workers at the same time.
It deals with economy wide phenomena such as changes in unemployment, inflation rate, general price level & national income etc.
Macroeconomics Policy
Monetary policy
Fiscal Policy
Subsidies and price controls
The Goals of macroeconomic policy
ECONOMIC GROWTH
FULL EMPLOYMENT
ECONOMIC EFFICIENCY
PRICE LEVEL STABILITY
EQUITABLE DISTRIBUTION OF INCOME
The Circular Flow
Firms (Production)
Wages, rents, interest, profits
Household
Factor Services
Firms (Production)
Good & Services
Household
Def: Gross Domestic Product (GDP)
GDP is the most important measure of economic output
GDP is defined as the total value of all final goods and services produced by the domestic economy in one year
Nominal GDP
Nominal GDP is the valuation of a nation’s total output at current market prices.
Real GDP
Real GDP is the valuation of a nation’s total output in base year prices.
GDP Deflator
An accurate view of the economy requires adjusting nominal to real GDP by using GDP deflator
The GDP deflator is a measure of the price level calculated or the ratio of nominal GDP to real GDP times 100.
Gross National Product (GNP)
Gross National Product (GNP) is the total income earned by a nation’s permanent resident ( national)
It differs from GDP by including the income that our citizens earn abroad and excluding the income that foreigner earn here.
The purposes of calculating National Income
Measures the standard of living in a country
Compares thee wealth of different countries
Measures the improvement in national wealth and the standard of living
Assist central government in its economic planning