ECONOMICS

COURSE SCHEDULE

CHAPTER 1: SUBJECT & AIM of ECONOMICS

CHAPTER 2: MARKET MECHANISM: DEMAND –

SUPPLY and PRICE MAKING

CHAPTER 3: ECONOMIC GROWTH – NATIONAL

ECONOMIC PERFORMANCE

Chapter 3: Economic Growth – National Performance

National Economic Performance

Collins Concise Dictionary definition of Macroeconomics:

Macroeconomics is the branch of economics concerned with aggregates,

such as national income, consumption, and investment.

National Economic Performance

Macroeconomics: deals with the performance, structure, behavior, and decision-making of a whole economy in a country and tries to explain the changes in and relations between unemployment, national income, rate of growth, gross domestic product, inflation and price levels.

National Economic Performance

To measure the national economic performance, economics most commonly uses the Gross Domestic Product.

A country’s GDP is the value of all the final goods that are produced by its population in a given year. It is a measure of an economy’s total output.

National Economic Performance

Increase in I, G, C, NX leads to an increase in GDP

Decrease in I, G, C, NX leads to a decrease in GDP

These upward and downward movements in GDP show the business cycle of a nation’s economy.

National Economic Performance

GDP = C + G + I + (EX – IM)

«C» shows consumer spending in a nation’s economy

«G» is the sum of government spending

«I» is the sum of all the country's businesses spending on capital

«EX – IM = Net Export» is the nation's total net exports, calculated as total exports minus total imports.

National Economic Performance

Gacsályi-Meyer-Misz-Simonits: Közgazdaságtan II. Makroökonómia (Nemzeti Tankönyvkiadó 2005.)Gacsályi-Meyer-Misz-Simonits: Economics II. Macroeconomics (National Textbook Publisher 2005.) - Hungary

Flow of Income

Flow of income is the circulation of income between producers (firms) and consumers (households).

Simple Income Flow

Factors of production: capital, land, labour

firmsHouseholds

Consumer Expenditure

Wages, rent, dividends

Factors of production Factors of production

Goods and services

Goods and

services

Income Flow in a More Complex and Realistic Economy

S + T + M = I + G + X

Savings + Tax + Import Leakages

Investment + Government Spending + Export

Injections

Economic Growth

Economic growth is the increase of an economy’s total production in a period of time and measured by GDP.

Economic Growth

If you were to line up countries according to GDP per capita today, you would find two clusters: one poor, the other rich.

There are middle – income nations spread between these two extremes.

Did you know that?

During the past four decades, real per capita GDP has grown at an average annual rate of 2.4% in rich countries whereas it has grown at only 1.8% in poor countries.

U S A Afr

ica

High GDP Low GDP

China Brazil Venezuela

Economic Growth

There is not a single force behind economic growth.

The accumulation of manufactured capital, human capital, and the production, diffusion, and use of new scientific and technological ideas go together, each contributing positively to the contributions of the others.

Economic Welfare

Economic Welfare shows the level of living standards of citizens in an economy.

There are many different determinants of welfare in a country such as education, democracy, culture, employment, wage levels, social insurance, healthcare etc.

Economic Growth and Welfare

Does economic growth mean welfare?

GDP is an important indicator to measure growth. Although GDP is often said to measure wealth, it does not so. GDP is a flow whereas wealth is a stock.

We can not say that an upward economic growth always leads to increasing welfare.

Economic Growth vs Welfare

The living standards in France and United States in terms of GDP.

In 2000 GDP of France is just 70 percent of U.S value. 

Consumption per person in France only 66 percent of U.S

So what about welfare in France and U.S? 

Economic Growth vs Welfare

There are other indicators that impact welfare levels such as life expectancy, leisure, working hours.

So for example, in 2000 France were seen to have better welfare than the US due to lower levels of inequality and higher levels of leisure. Just because a country has a high GDP does not mean that their citizens have good welfare.

Economic Growth vs Welfare

"Higher life expectancy, lower inequality, and higher leisure each add more than 10 percentage points to French welfare in terms of equivalent consumption. The gap in GDP per person is almost completely eliminated by incorporating life expectancy, leisure, and inequality."

Charles I. Jones Peter J. Klenow

Stanford University and NBER Stanford GSB and NBER