Date :

24 February 2012

MACRO ECONOMICS CLASS NOTE

A.

Introduction
Y = Gross Domestic Product / Keluaran Dalam Negara Kasar (KDNK)
P = Consumer Price Index (CPI) at the national level

B.

Terms in economic definition

i.

Short Run, Long Run and Very Long Run

ii.

Inflation, Deflation and Disinflation

Inflation is a rise in the general level of prices of goods and
services in an economy over a period of time. When the general
price level rises, each unit of currency buys fewer goods and
services. Consequently, inflation also reflects an erosion in the
purchasing power of money a loss of real value in the internal
medium of exchange and unit of account in the economy.
Deflation is a decrease in the general price level of goods and
services. Deflation occurs when the inflation rate falls below 0% (a
negative inflation rate). This should not be confused with
Disinflation, a slow-down in the inflation rate (i.e. when inflation
declines to lower levels). Inflation reduces the real value of money
over time; conversely, deflation increases the real value of money
the currency of a national or regional economy. This allows one to
buy more goods with the same amount of money over time.

C.

Overview on GDP/GNP
Gross Domestic Product (GDP) refers to the market value of all officially
recognized final goods and services produced within a country in a given
period. GDP per capita is often considered an indicator of a country's
standard of living. GDP per capita is not a measure of personal income.
Gross National Product (GNP) is the market value of all products and
services produced in one year by labour and property supplied by the
residents of a country. Unlike Gross Domestic Product (GDP), which defines
production based on the geographical location of production, GNP
allocates production based on ownership. GNP does not distinguish
between qualitative improvements in the state of the technical arts (e.g.,
increasing computer processing speeds), and quantitative increases in
goods (e.g., number of computers produced), and considers both to be
forms of "economic growth".

D.

Glossary
Fiat money is money that derives its value from government regulation
or law. The term derives from the Latin fiat, meaning "let it be done" or "it
shall be [money]", as such money is established by government decree.
Where fiat money is used as currency, the term fiat currency is used.
Recession is a business cycle contraction, a general slowdown in
economic activity. Macroeconomic indicators such as GDP, employment,
investment spending, capacity utilization, household income, business
profits, and inflation fall, while bankruptcies and the unemployment rate
rise.
Recessions generally occur when there is a widespread drop in spending,
often following an adverse supply shock or the bursting of an economic
bubble. Governments usually respond to recessions by adopting
expansionary macroeconomic policies, such as increasing money supply,
increasing government spending and decreasing taxation.
Stagflation is a situation in which the inflation rate is high and the
economic growth rate slows down and unemployment remains steadily
high. It raises a dilemma for economic policy since actions designed to
lower inflation or reduce unemployment may actually worsen economic
growth.