THEORY OF MEASUREMENT IN THE MACRO ECONOMYA’ LEVEL

CORE

WHO IS LABOUR?

• Labour force

- total no. of workers who are available for work.

- No specific gender BUT age between 15-16 years and over.

- Unemployment

- Size of labour force- demographic, economic, social and cultural factors.

- How about labour force in Malaysia?

• Labour force participation rate = % of the total working age population who are actually classified as being part of the labour force.

• Low participation rate = economy has a high participation rate in higher education and X early retirement.

• Factors influence labour force

- Birth rate > Death rate

- Life expectancy

- Migration

- Urbanisation

LABOUR PRODUCTIVITY

• Productivity- goods and service quantity that a worker is able to produce in a particular period of time.

• Labour productivity

- Education

- Training

- Experience

- Workforce skills

• Unemployment- A situation where someone of working age is not able to get a job but would like to be in full time employment.

PRICE LEVEL AND PRICE INDICES

• Price level- living cost in an economy at any one point in time. (INFLATION)

• Calculate Price Level- Consumer Price Index / Retail Prices Index (UK)

• Calculation of RPI

- Find out what families buy and how much they spend on a particular item-weights

- Record how much the price of selected items have changed- base date

- The percentage change in price of each item X weight

COST OF LIVING

• Cost of Living Index = X 100

CALCULATE LIVING COST INDEX…

Westwood Levile

Bread 100 125

Potatoes 100 67

Coffee 100 70

Sugar 100 175

MONEY AND REAL DATA

• Nominal value – A value expressed in monetary terms for a specific year or years, without adjusting for inflation. Ex : Stock and bond

• Real value – Price change over time once the inflation effects have been removed.

• RV more important than nominal values for economic measures such as GDP and personal incomes because they help ascertain the extent to which increases over time are driven by inflation and what is driven by actual growth

AGGREGATE DEMAND

• Total spending on an economy’s goods and services in a given period of time

• AD = C+I+G+X-M Lower price level• Raise DD for net X – the country’s goods &

services will have become more price competitive.

• Increase PP of household with savings in the bank form, building society deposits and other financial assets

• Reduce interest rate and stimulate consumption and investment

• Factors that cause AD shift – expectation about the future, direct tax, money supply, exchange rate, quality of domestically produced products.

AGGREGATE SUPPLY

• Total output that firms in an economy are willing and able to supply at different price level in a given period of time.

• SRAS- output which will be supplied at different P levels in a period of time when the prices of the production factors remain unchanged. Enable firms to meet any extra unit costs in the form

of. Ex : overtime payment and enjoy higher profit margins.The curve will shift – productivity, wage rates

LRAS- Output which firms would produce after the price level and factor prices have fully adjusted after any shift in aggregate demand. • Q increase, P fixed.

INTERACTION OF AGGREGATE DEMAND AND SUPPLY

AS

ASAD0

AD0

Q1

AD1

Real GDP

Price Level

P0

Q0

P1

AD1

Reduce in government spending• Price DECREASE• Real GDP DECREASE

Identify• A reduction in the interest rate• An increase in wealth• Advances in information technology• Increase government spending on

health care.0

FACTOR – SHIFT AD & AS

AGGREGATE DEMAND

• C,I,G,X,M

• WEALTH

• INTEREST RATE

• GOOD EXPECTATION

• GOVERNMENT POLICY

AGGREGATE SUPPLY

• SIZE & QUALITY OF LABOUR FORCE

• SIZE & QUALITY OF CAPITAL STOCK

• TECHNOLOGICAL PROGRESS

• PRODUCTIVITY

• WAGES

• PRODUCER TAXES AND SUBSIDY

• INFLATION EXPECTATION

QUIZ

• Definition

1.) employment

2.) Unemployment

3.) labour productivity