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Macroeconomic Issues and Problems - Coggle Diagram
Macroeconomic Issues and Problems
Economic Growth :
GDP
total monetary value of everything produced in A
fundamental measure of growth
financial scorecard for whole nation
3 approaches to measuring GDP
Expenditure approach
what drives growth within an economy ?
Four pillars
Consumption spending
Investment spending
Government spending
Net exports
by understanding contributions , we can determine whether an economy is consumer-led , investment-led, export - oriented, or if we're operating with a trade surplices or deficit
scrutinises spending within an economy
looks at demand side
Income approach
examines aggregate .
income earned by citizens and businesses within an economy
income divided into 4 categories:
wages
rent
interest
profits
Production approach
reveals nation's productivee capabilities
assesses economic activity across
3 sectors
primary (natural resources)
Secondary (manufacturing)
tertiary (services)
understand which sectors economy performs well in to help guage country's economic prowess
tackles economic growth
by using The 3 approaches you get holistic view of economic growth
what it doesn't tell us
operates within boundaries of market economy Human Development Index (HDI) and Green Accounting to get holistic view of economic growth
doesn't include non-market transactions
underground economy unaccounted for
external forces unaccounted for
does not reveal anything about wealth distribution
must include
indicator of standard of living
limitations
:
cannot properly attribute reconstruction, reflects it us increased production
if used as main indicator of growth, it incentivises wasteful spend, Over investment, and debt accumulation
.
Ignores environmental costs
ignores
Income Inequality
use Gini coefficient
Great Gatsby Curve
in order to reduce .
income inequality,gov uses
redistributive policies
progressive taxation
transfer payments
Government spending programmes
economies operates in a cycle
expenditure leads to production, which generates income, which further fuels expenditure
Purchasing Power Parity (PPP)
purchasing power of two ccurrencies are equalised by considering these costs of living and inflation differences
calculated by
calculating the GDP growth rate
recession is when a country experiences two conseati'vequarters of negative growth country
important that growth is higher than population growth
otherwise standard of living declines
Rule of 72
rule of Thumb for how long it takes (years) annual GDP growth rate to double
no. of years to double = 72 1 percentage growth rate
GDP = C+ I + G + X - M (NX)
C= Consumption
I = Investment
Goverment Spending
NX= Net exports
Employment and Inclusion
high employment and low unemployment desired
3 distinct scenarios :
underemployment
individuals work part-time when they desire full employment
disguised employment
technically employed, but contribute minimally to economic output
informal sectors
jobs created out of necessity
keep unemployment low as possible
unemployment
individuals from 15- 65 who are willing and able to work, but are linable
number of unemployed / total labour fores as a percentage
there is a broader definition that includes
discouraged workers
has profound economic s social and personal consequences
reduced production and lower tax contributions
increased gover moment unemployment benefit spend
leads to social decay
frictional unemployment
when people transition between jobs
structural unemployment
mismatch between jobs and available shills
political unemployment
due to rigid regulations from government
cyclical / demand-deficient unemployment
starms from fluctuations in business cycle
Price stability
low and stable inflation
inflation
general increase in prices
opposite is
Deflation
Hyperinflation
is when prices
increase over 50% per month
stagflation
Is when theres high inflation and li ttle economic growth
Consumer Price Index (CPI)
Producer Price Index
early warning C Pl inflation
high inflation
reduces purchasing power
impacts poorer people more
harm country's international competitiveness
leather and menu costs
causes of inflation
money supply increases more than economic growth
Monetization of deficits
gov prints money to pay expenses
demand - pull inflation
increase in demand by households , business , gov and foreign buyers
demand outstrips supply
cost-push inflation
prodsection costs increase
pricess are raised to cover costs
Inflations expectations
rate at which inflation. is expected to change
can play a role depending on expectation and result
Foreign Public Sector Stability
emphasizes interconnectedness between countries
countries rely on each other through imports and essports
to afford imports , must accumulate foreign reserves via exports
seek equilibrium of
balance of payments
and exchange rates to achieve foreign sector st ability
Balance of Payments
good Indicator to guage countries interconnectedness
two components
current account
records imports and exports
difference between the tivo is the
trade balance
surplus and deficit
high lights whether a country is living within its means
financial account
encompasses portfolio investment, foreign direct investment, other investments and reserve assets
includes debts and equities
involves examining exchange rate stability
BoP Crisis
when a country can't Pay it's basics imports
hard to meet extenal debt obligations
floating vs pegged currencies
important to diversify exports and export partners to protect against external economic shock
Broad-based Measures
Human Development Index (HDI)
Genuine Progress Indicator
National Happiness
World Happiness Deport
Introduction
country's 4 macroeconomics objectives /
measuring performance of economy
Economic Growth
Employment and Inclusion
Low and Stable Price Inflation
Foreign Sector stability