• Macroeconomics is the study of a national economy and the allocative decisions a government takes to achieve its macroeconomic goals
• 5 core economics goals
  • Economic Growth : Stable and sustainable growth
  • Full employement : Stable employement rate
  • Stable Inflation : Stability of general prices
  • Income Redistribution : Equitable distribution of wealth
  • Trade : Exports & Imports ⇒ Reduce deficits
• Other non core economics goals
  • Environmental Sustainability
  • Rise in productivity
• GDP (Gross domestic product): is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
• There are 3 methods to measure GDP
  • Output Method : The actual value of all the goods and servies produced in an economy
  • Income Method : Measures the value of all the incomes earned in the economy
    • Rent + Wages + Interest + Profit
  • Expenditure Method : Adds the spending done by various stakeholders : Households (C), Firms (I), Governments (G) and spending by foreigners on domestic goods (X-M).
• National Income = National Output = National Expenditure
• GDP = C + G + I + (X-M)
• GDP/GNI per Capita: GDP/GNI divided upon population
• Things that arent included in GDP
  • Intermediate goods: Raw materials
  • Used Goods: Old cars and used clothes
  • Illegal and Black market
  • Transferable Goods
• GDP would not include income earned by domestic factors of production abroad but GNI includes that
  • Example, Indian MNC in USA would count for USA’s GDP and India’s GNI
• GNI = GDP + net property income from abroad
• Nominal GDP: Measured in current prices
• Real GDP: Nominal GDP adjusted for inflation
• GDP deflator = Nominal GDP/ Real GDP *100
• Developed Countries ⇒ Major outflower of FDI
• Developing Countries ⇒ Major recipient of FDI
• Reasons to gather such national income statistics
  • Report card for a country’s economy
  • Uses the data to change its policies
  • Often used as a basis for comparision with other countries
  • Businesses can predict future demand using GNI/GDP
• However comprehensive these indicators might be, these have some inaccuracies
  • Informal markets are not included, only formal markets are included therefore the final value may be understated
    • These included do it yourself work and very small businesses
  • GDP does not take into account negative externalities, if a ciggarette is sold GDP will increase but overall health of the economy will decline
  • It does not take into account the quality of life, only the income. Does not take into account income inequality
• 4 phases of business cycle: Boom, Trought, recession and recovery