C27BA

Introductory Macroeconomics
Lecture 1
General Information
A. Teaching Team

B. Course Documents

C. Lectures

D. Tutorials

E. VLE (VISION)

F. Assessment

G.Contacting Staff
A. Teaching Team
Coordinator and Lecturer:
THANAM MURUGAN
v.a.dickie@hw.ac.uk

Tutors: Contact
information on VISION
B. Course Documents
Course Outline - provides an
overview - on VISION

Guide to Tutorials – detailed

assessment information.

Lecture Slides: background notes

on VISION before each lecture.
C. Lectures
When, where, what will be covered?
• Teaching timetable (see Course Outline )

Style varies
• Traditional, SRS(clickers), Vision assessment
http://vision.hw.ac.uk

Textbook: Sloman J., Wride A. and

Garratt D., Economics, 9th edition,
Pearson, 2015
D. Tutorials - begin week xx

Register for one Tutorial per week

Register via VISION 15TH January

Further information on VISION in …

The Student Guide to Tutorials
E. VISION
• https://vision.hw.ac.uk login using your user
name and password

• IT Problems -passwords, access etc.

ithelp@hw.ac.uk
F. Assessment

Course work = 20% Mid Semester Test = Examination = 60%

• Tutorial participation and 20% • Multiple Choice
e- assignments • Multiple Choice • Short Answers
Questions • Applied Questions

100%
G. Contacting Staff

Following a lecture During office hours By appointment Email queries will Class fb group
or tutorial (posted outside tm43@hw.ac.uk be dealt with If available
office door and on promptly (but not
VISION) instantaneously!) https://www.
v.a.dickie@hw.ac.uk
Tuesday xx facebook.co
Friday xx m/groups/C
27BA2017/
 Turn now from
micro →macroeconomics
– From analysis of economics decisions of
individuals, households and firms

– To looking at the whole economy

Introduction – consider…
• What do we mean by macroeconomics?

• What are the issues with which macro policy is

concerned ?

• Why should we study macroeconomics?

Macro defined
• Microeconomics
– is the study of how individual households and
firms make decisions and how they interact with
one another in markets.

• Macroeconomics
– is the study of the economy as a whole.
– the goal is to explain the economic changes that
affect households, firms, and markets at once.
Micro to Macro Concepts
• Macro ABSTRACTS from individual markets,
individual consumers, individual producers, in
order to FOCUS on the overall relationships.
e.g. between…
 demand and output
 demand and interest rates
 output and unemployment
 output and prices
Aggregates Matter
Such aggregates matter for individuals, they
affect …
• employment opportunities
• consumption possibilities
• inflation rates
• income
• wealth
etc.
Aggregate Terms
Aggregate Supply = all outputs – supplies
of different types of goods and services
taken together as single composite
good/service

Aggregate Demand = a few aggregates

• Consumption, Investment, Government spending
• Exports.

Price Level = average of prices for

different goods and services
Concepts
• We focus on broad national aggregates such
as:
– Income
– Output
– Expenditure
• Macroeconomics deals with issues that you will
be familiar with
The Major Macroeconomic Issues
• B
• U
• G
• C
• I
• T
• Y
Macro Policy Concerns
• Growth: long term as measured by GDP
• Business cycles: short term fluctuations in activity
• Unemployment: number (or rate) of people who want to
work but can’t find jobs
• Inflation: % change in prices (over last 12 months)
• BoP is balance of monetary flows between domestic
country and rest of world
• ER is value of domestic currency relative to foreign
currency (currencies)
Big Policy Issues
1. Economic Growth

2. Inflation

3. Unemployment

4. Balance of Payments and Exchange Rates

Typical Macroeconomic questions…
• Why do economies experience booms and
recessions? Can governments and/or central
banks do anything to minimise these cycles?
• Why was inflation in the UK so high in the 1970s,
brought under control 1990s?
• The causes and consequences of the financial
crisis 2008? Policy response to it and why?
• Has the UK economy fully recovered?
We will learn about the issues and how to answer
these questions…
Data and Big Policy Issues

Sources of Data

• Growth

• Inflation

• Unemployment

• Trade and Exchange Rates

Growth rates in selected industrial countries - Sloman
12
UK USA
10
EU-15 Japan
Annual growth rate in real GDP (%)

-2

-4

-6
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Notes: Figures from 2014 based on forecasts; EU-15 = the member countries of the European Union prior to 1 May 2004
Source: Based on data in AMECO Database (European Commission, DGECFIN)
Real GDP 2001-2015
Inflation – the long view
Inflation - the short view
Inflation UK – shorter view
Source: ONS

Consumer price inflation (CPI)measures how the prices of goods and services
purchased by households rises or falls - an annual index of change
Unemployment

unemployment
Unemployment
What should we take from the long
view?
• Big fluctuations = ‘cycles’ in growth, possibly
becoming smaller by mid-2000s; Japan had high
growth earlier, low growth later
• Inflation very high in mid-1970s, with smaller peaks
in late 1970s/early 1980s and late 1980s; Japan
had negative inflation in some years of late 1990s,
2000s
• Unemployment has some fluctuations
corresponding to growth cycles, but note also trend
rise for Germany, trend fall from mid-1990s in UK,
Italy
What should we take from the shorter period data?
• Major contraction of 2009 (2008), some rebound 2010
then renewed decline for most countries in graph, with
weak recovery.
• Some countries GDP level still not back to pre-crisis
peak; Italy below 2000 level!
• Peak in inflation 2008, down most countries 2009 but
up again 2010-11; UK inflation – deflation
• Big rises in unemployment for all major countries
except Germany (where downward trend from 2005)
and Japan.
• Unemployment - note Spain!
Policy Targets and Instruments
Which target?
1. Economic Growth
2. Inflation
3. Unemployment
4. Trade Balance
5. Exchange Rate
Macro Policy Targets
Specific targets:
• Growth: typical target higher growth than in past
• Inflation: typical target low 1-3%
• Unemployment: typical target low, relative to past
• Business cycles: minimise short term fluctuations in income
• Balance of payments: typical target zero balance of trade
(exports minus imports)
• Exchange rate: stability
Macro Policy Instruments
• Fiscal policy: taxes, government expenditure; put together simply in
budget surpluses/deficits

• Monetary policy: interest rates, money supply (credit

growth),quantitative easing

• Exchange Rate Policy

Policy: government sets / uses instruments to hit targets; combination

of external factors and policy generates outcomes.
What has macro performance been like in
recent decades?

In the UK, recent governments have tried to attain:

– inflation of around 2-3%, with some success
– growth of ≥ 2.5% (i.e. raise underlying growth), with result
of okay growth but no real rise in growth
– unemployment lower if/when possible – some success
from mid-1990s to mid-2000s
but they have largely ignored the balance of payments and the
exchange rate – balance of payments mostly more or less
okay until few years ago, then large deficits; exchange rate
appreciated ‘too much’ 1996-97, stayed there, then (2008-9)
depreciated a lot (too much?)
Brexit – implications …new focus on ER and Trade
So why study Macroeconomics?

For many reasons, e.g.:

• growth of economy affects life chances of its citizens
• cyclical fluctuations involve unemployment at some
times for some citizens
• inflation may have strong effects on distribution of real
income
• cyclical fluctuations affect business opportunities as
well as employment prospects
• you can’t understand modern politics without some
macro
• Macroeconomics is interesting and important for all!
• Key reading: Sloman Chapter 14

Key concepts:
macroeconomics
growth (GDP)
inflation
unemployment
balance of payments
exchange rate
all mentioned here but to be defined more precisely in
later lectures