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• macroeconomics looks at the economy at an aggregate level
• the UK government has 4 main objectives
• the main objectives of the UK government are: to achieve economic growth (GDP), to work towards full employment, to limit inflation, to ensure a 'satisfactory' balance of payments.
• balance of payments is how much is spent on imports compared to the value of exports
• the government inflation target is 2%
• Purchasing power parity (PPP) is the idea that items should cost the same in different countries, based on exchange rates at the time
• parity: the state or condition of being equal, especially as regards status or pay
• PPP measures how many units of one country's currency are needed to buy the same basket of goods and services as can be bought with a given amount of another
• In countries where the relative cost of living is high (e.g. Norway and Switzerland) there will be a downward adjustment to a nation's PPP - adjusted GNI per capita
• The Big Mac index is similar to PPP but the basket of goods is replaced with the McDonald's hamburger
• The Big Mac index was created to measure the disparities in purchasing power between countries.
• The USA has the largest economy at current exchange rates
• Gross National Income (GNI) is an alternative to GDP as a measure of wealth. It calculates income instead of output
• GNI = GDP + Net primary income + Net secondary income
• Net primary income includes wages, salaries and other income earned by a country's residents working abroad, as well as earnings from foreign investment, such as dividends and interest
• Net secondary income refers to transfers of money between countries such as remittances from foreign workers to their families in their home countries or international aid
• the average UK salary is £33k
• countries with higher GNI than GDP include: small island countries with tax havens, countries with high remittance, countries that receive foreign aid, countries with expats
• net inflows of remittance adds to GNI
• countries with the highest real GNI per capita include: Liechtenstein, Singapore, Qatar, Luxembourg, Ireland, Switzerland, USA, Norway
• policy conflicts involve the main 4 macroeconomic policy objectives in which a solution for one objective negatively affects another objective
• full employment and economic growth is a policy conflict with control of inflation
• full employment and economic growth is a policy conflict with having a satisfactory balance of payments (or exchange rate)
• economic growth is a policy conflict with income equality
• current living standards is a policy conflict with future living standards
• in recent years there has been a movement of wealth from the lower and middle class to the top 1% creating more income inequality
• short run is a few years into the future
• long run is many years into the future
• gross domestic product (GDP) measures the total value of national output of goods and services produced in a given time period
• GDP estimates the size and growth in the economy
• GDP counts the value of output produced within the geographical boundaries of a country
• Aggregate demand (GDP) = C + I + G + X - M
• C= consumption
• G= Government spending
• I = investment spending
• X = exports
• M = imports
• GDP ( factor incomes) includes income from wages and salaries, profits from private and public sector businesses
• GDP (expenditure) includes consumption (C), government spending (G) investment spending (I) changes in value of stocks, exports (X) and MINUS imports (M)
• GDP (value of output) the the value added from each of the main sectors. These are: primary, manufacturing, construction, tertiary, quaternary