Macroeconomic

Macroeconomic is the study of the economy as a system/examines the economy as a whole. GDP is the total value of all the final goods and services produced in a country. Has four part. Market value: counting quantities doesn’t help measure total production but market values the price which items are trade in market value of output £’s Qty x price. Final goods and services: To calculate G we value the FGS produced, FGS item that bought by its final user during the item period, eg Ford fouc FG but tyre on the focus an intermediate good, alternatively some goods can be both an intermediate and FG, a tyre could be FG if sold via tyre centre. Produced within country: only GS that produced within a country count as part of that country G, eg Honda produce car in Swindon UK, is part of UK GDP not Japan’s GDP In a given time period: GDP measures specific time period, normally year/quarter of year. GDP not only value of production but total income and total expenditure, because the value of aggregate output equals aggregate expenditure and aggregate income so we look expenditure approach & income approach.

Expenditure approach – 1st Consumption Expenditure by household on G&SP in UK and rest of world imports, 2nd Investment E on capital equipment and building by firms. 3rd Government expenditure on G&S by all level of government.4th Net export value of UK export – UK import eg when UK Company sells car to buyer in India the value of car is part of UK export.

 £billion C 948, I 208, G 338, x-m -46, 2010 GDP = 1448.

Income approach 1st Compensation for employee -total payment by firm for labour service. 2nd Goss operating surplus -total profit made by companies, 3rd mixed income- is the payment for the use land and other rented inputs, 4th GD income at factor cost- sum of income used produced final G&S.

£billion C 788, G 308, M 170, GDIF 1266, Taxes 182, 2010 GDP=1448.

Measuring GDP – Nominal GDP- is value of G&S produced during given year valued at price that prevailed in the same year. Real GDP- per person is divided by population. If we want to compare GDP between Real and Nominal.

Feature of Less developed economies – 1ST High population growth rates: children are seen as a way of providing for future, parent want more child and grandchild to look after them. 2nd a lack of natural resources to export abroad: this is not case japan does not have many natural resources. 3rd lack of finical capital investment: focus in such economies is day to day consumption rather than future investment, lack of well-developed financial and banking system. 4th training and investment in human capital:  poorly education labour resulting in less productivity. 5th poor health: poor income poor living and working condition which will affect health workforce and ability to work and their productivity. 6th lack of effective infrastructure: good road, communication system and reliable energy sources, this will affect producing efficiently and moving goods around. 7th political instability: invest from outside the investor will be concern about risk. 8th export dependence: several LDC rely on single product for their export income which them vulnerable to change in market condition. Less developed country problems: specialise in producing primary products: agricultural goods and minerals, land often most abundant resource, technology has reduced the demand for some of their produced commodities man made fabric rather than cotton. Price instability: change in supply and demand can lead to significant swing in price of farmer products, low income elasticity. Buyer power: big multinational dominate the market for LDC products and can force the price downwards eg health and safety, wages level and working condition. Improve less develop situation 1st encouraging foreign direct investment into LDC countries: this will bring investment and jobs to economy. 2nd debt reduction: many LDC have high level of debts to foreign governments and banks. 3rd import substitution: protectionism: reduce import and encourage buyer to switch to domestic firms eg build a factory and protect from foreign competition. 4th export led growth: increase export to help certain industries, china helps industries to sell more abroad. 5th Borrowings: can be useful the investment is used to generate high return.  Relationship between population growth and economic development.