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1、,Principles of Economics,Session 10,Topics To Be Covered,Macroeconomics vs. Microeconomics History of Macroeconomics Major Concerns of Macroeconomics Objectives of Macroeconomics Instruments of Macroeconomics Markets and Players of Macroeconomics,Topics To Be Covered,Definition of Gross Domestic Pro
2、duct Measurement of GDP GDP, GNP, NNP, NI, PI, and DPI Price Indexes AS, AD, and Macroeconomic Equilibrium,Macroeconomics vs. Microeconomics,Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets. Macroeconomics is the stud
3、y of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once.,History of Macroeconomics,The Great Depression was a period of severe economic contraction and high unemployment that began in 1929 and continued throughout the 1930s.,Hi
4、story of Macroeconomics,Classical economists applied microeconomic models, or “market clearing” models, to economy-wide problems. The failure of simple classical models to explain the prolonged existence of high unemployment during the Great Depression provided the impetus for the development of mac
5、roeconomics.,History of Macroeconomics,In 1936, John Maynard Keynes published The General Theory of Employment, Interest, and Money. Keynes believed governments could intervene in the economy and affect the level of output and employment. Fine-tuning was the phrase used to refer to the governments r
6、ole in regulating inflation and unemployment.,History of Macroeconomics,The use of Keynesian policy to fine-tune the economy in the 1960s, led to disillusionment in the 1970s and early 1980s. Stagflation occurs when the overall price level rises rapidly (inflation) during periods of recession or hig
7、h and persistent unemployment (stagnation).,Major Concerns of Macroeconomics,Macroeconomics answers questions like: Why do production expand in some years and contract in others? Why do prices rise rapidly in some time periods while they are more stable in others? Why are some people unable to have
8、the opportunity to work although they do want to work?,Major Concerns of Macroeconomics,Output (GDP change) Price level (Inflation) Employment (Unemployment),Objectives of Macroeconomics,Output growth Stable prices High employment,Instruments of Macroeconomics,Macroeconomic tools mainly consist of f
9、iscal policy and monetary policy. Fiscal policy refers to government policies concerning taxes and expenditures. Monetary policy consists of tools used by the central bank to control the money supply.,Markets and Players of Macroeconomy,Markets and Players of Macroeconomy,Markets and Players of Macr
10、oeconomy,Households and the government purchase goods and services from firms in the goods-and services market, and firms supply to the goods and services market. In the labor market, firms and government purchase labor from households.,Markets and Players of Macroeconomy,The financial market consis
11、ts of money market, capital market, and foreign exchange market in the open economy. In the money market, the government (central bank) supplies money and households and firms demand money for transaction and speculation.,Markets and Players of Macroeconomy,In the capital market, households purchase
12、 stocks and bonds from firms. In the foreign exchange market, those who want to invest in foreign countries exchange domestic currency for foreign currencies, while those foreigners who want to invest in this country supply foreign currencies and demand domestic currencies.,Gross Domestic Product,GD
13、P is the market value of all final goods and services produced within a country in a given period of time.,Gross Domestic Product,GDP is the best single measure of the economic well-being of a society. GDP per person tells us the income and expenditure of the average person in the economy. Higher GD
14、P per person indicates a higher standard of living.,Gross Domestic Product,Country,Real,GDP,per,Person (1997),Life,Expectancy,Adult,Literacy,United States,$29,010,77 years,99%,Japan,24,070,80,99,Germany,21,260,77,99,Mexico,8,370,72,90,Brazil,6,480,67,84,Russia,4,370,67,99,Indonesia,3,490,65,85,China
15、,3,130,70,83,India,1,670,63,53,Pakistan,1,560,64,41,Bangladesh,1,050,58,39,Nigeria,920,50,59,Gross Domestic Product,It is estimated that: Chinas GDP will surpass that of France in 2005 China is expected to become the worlds third economic power in 2020 China is likely to outstrip Japan in 2050 to be
16、come the worlds second largest economic power.,Gross Domestic Product,The 16th CPC Party Congress established the objective to double the 2000 GDP by 2010, and further by 2020 quadruple its 2000 GDP. To attain the goal, what should be the annual GDP growth of China?,Gross Domestic Product,A rough solution to such issue can be resorted to the rule o
