Macroeconomics

Topic 1:
Economics
Introduction to Macroeconomics and
Measuring National Income
 Learning Objectives
• Discuss the Goals of Macroeconomists
• Define Gross Domestic Product (GDP)
• Define Gross National Product (GNP)
• Discuss two approaches of measuring GDP
• Distinguish between Nominal GDP and Real
GDP
• Explain the limitations of using real GDP to
measure standard of living
• Measuring Economic Growth Rate
• Discuss the Business Cycle
 The Goal of Macroeconomists
• The goal of macroeconomists is to explain
what influences the pace of:
- Economic growth
- Economic fluctuation
- Unemployment
- Inflation

LO1
 Gross Domestic Product (GDP)
• Measure of the total market value of all final goods
and services produced within the borders of a
country during a specific period of time, typically a
year.
• Note:
- Final goods and services are purchased by the
end-users.
- GDP exclude the value of intermediate goods:
refers to product that are purchased for further
processing or manufacturing.
- GDP exclude second hand sales (i.e. Used car)
LO1
 Gross Domestic Product (GDP)
• Measure of the total market value of all final goods
and services produced within the borders of a
country during a specific period of time, typically a
year.
• Note:
- Final goods and services are purchased by the
end-users.
- GDP exclude the value of intermediate goods:
refers to product that are purchased for further
processing or manufacturing.
- GDP exclude second hand sales (i.e. Used car)
LO1
 Gross National Product (GNP)
• GNP measures the total market value
of all final goods and services produced
by domestic residents in a given
period of time, regardless where they
are produced, within the borders of the
country or abroad.
• GNP
= GDP + Factor income from abroad – Factor
income to abroad

LO1
 Two Approaches to GDP
• Income approach
• Sum of total income that firms pay households
for factors of production they hire.
• GDP = Total Income = Wages + rental
income + interest income + profit
• Expenditure approach
• Sum of all the spending on final goods and
services
• GDP = Aggregate Expenditure
=Consumption + Investment + Government
expenditure + (Export – Import)
LO2
 Nominal vs. Real GDP
• Nominal GDP
• Measures the market value of all final goods and
services using the current year price.
• Change in nominal GDP can be due to change in price
and output
• Real GDP
• Measures the market value of final goods and services
using the base year price
• Change in real GDP reflects change in output only

• Real GDP = (Nominal GDP/Price Index)*100

LO3
 Limitations of using real GDP to measure
standard of living
• Household production are not included
• Does not consider leisure time
• Does not consider health and life expectancy
• The underground economy are not included
• Does not consider environment issues
• Does not consider the distribution of the
output/income
• Does not consider political freedom and
social justice

LO4
 Economic Growth
• GDP growth rate
= (GDP current year - GDP previous year) X 100%
GDP previous year

LO1
 Factors contributing to Economic Growth

• Factors contributing to economic

growth:
• Technological advance – innovative
techniques and new managerial methods
• Quantity of capital
• Education and training – increase
knowledge and skills of workers

LO3
 The Business Cycle
• Business cycle refers to alternating
increases and decreases in economic
activity over time
• Four Phases of the business cycle
• Peak
• Recession
• Trough
• Expansion
LO1
 The Business Cycle

Peak

Growth
Real GDP per Year

Peak
Trend

Trough

Recession Recovery

0
Time

LO1